PSCI Polyolefins Market Update · Confidential. © 2017 IHS MarkitTM.All Rights Reserved. 0 5 10 15...
Transcript of PSCI Polyolefins Market Update · Confidential. © 2017 IHS MarkitTM.All Rights Reserved. 0 5 10 15...
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
PSCI Polyolefins Market
Update
September, 2017
Nick Vafiadis, Vice President: Plastics
+1 281 752 3206
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
AGENDA
• Energy and Feedstocks
• Ethylene- and Harvey impact review
• PE ….. Global to N. Am focus
• PP
•
2
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
0
5
10
15
20
0
30
60
90
120
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027
Natural Gas Crude Oil Brent
Global crude oil vs. USGC natural gas
Source: IHS Markit © 2017 IHS Markit
$/B
arr
el,
Cru
de
$/ M
MB
tu, N
atu
ral G
as
)
Combination of high crude prices and stable gas is attractive for North
America chemical investments, based on natural gas and natural gas liquids
3
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US NGL will be produced from both shale gas and tight oil plays, but associated
gas is generally wetter:
0.0
1.0
2.0
3.0
4.0
2010 2012 2014 2016 2018 2020
Chart Title
Permian
SCOOP
Woodford
Utica
Niobrara
Marcellus
Eagle Ford
Barnett
Bakken
NGL production from key shale gas and tight oil plays
Source: IHS Markit © 2017 IHS Markit
Millio
n b
/d
4
Production increase = 7X
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Energy & Feedstocks – Ethane off Natural Gas Floor
0
5
10
15
20
25
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Brent Crude NEA Naphtha USGC Propane USGC Ethane China Coal Henry Hub Gas
Co
ns
tan
t 2
01
4 D
olla
rs P
er
MM
Btu
Crude Oil - VS - Natural Gas & NGLs
Source: IHS Markit © 2017 IHS Markit
Crude Oil - VS - Natural Gas & NGLs Crude Oil - VS - Natural Gas & NGLs Crude Oil - Vs - Natural Gas (Naphtha Vs NGLs & Coal)
5
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Harvey Update: Ethylene Impact • 3+ weeks of business interruption impacting
more than 50% of US ethylene production
…centered in Texas.
• Limited physical damage due to wind but, a
couple of high water ongoing issues.
• Some new project start up delays. IHS
remains consistent with pre-hurricane view
……derivatives start before ethylene.
• Upward price pressure on ethylene
derivatives globally.
• N. American inventory: at minimum levels by
November.
6
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Ethylene Prices, USGC
Spot prices remained below NT, but gap closes
7
15
20
25
30
35
40
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17
Ce
nts
Pe
r P
ou
nd
Net Transaction Contract Price Weighted Average Spot
Source: IHS Markit
US Net Transaction vs Weighted Average Spot
© 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
O 14 A J O 15 A J O 16 A J O 17 A J O 18Net Transaction Contract Price Weighted Avg. Spot
US Net Transaction vs Weighted Average Spot
Source: IHS Markit
Pri
ce
, C
en
ts P
er
© 2017 IHS Markit
No big price shifts due to the storm…………………………at this moment.
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Evolving Ethylene Cash Cost Trends
0
400
800
1,200
U.S. Ethane WesternCanada
China CTO US GTO U.S. LightNaphtha
Northeast AsiaNaphtha
2014 2016 2021
Ethylene Cash Cost *
Do
lla
rs P
er
Me
tric
To
n
Source: IHS © 2017 IHS Notes: * Cash cost = Feed + VC + FC – co-products
~$840/ton Adv.
~$200/ton Adv.
~$315/ton Adv.
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Capacity does not mean supply
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2011 2013 2015 2017 2019 2021 2023 2025 2027
North America South America West Europe CIS & Baltic StatesMiddle East Africa Indian Subcontinent Northeast AsiaSoutheast Asia Hypo Capacity Annual Demand Increase
Global Ethylene Capacity Additions vs. Demand
© 2017 IHS Markit
Millio
n M
etr
ic T
on
s
Source: IHS Markit
10
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
North America Ethylene Capacity Additions No surprises on what is coming, question is when and ramp up timing. Derivatives before
ethylene is the real question now.
Company Location Total Growth Derivative Startup Cracker
Dow Freeport, TX 1,500 LDPE, LLDPE, Other Q3-2017
ChevronPhillips Sweeny, TX LLDPE, HDPE Q3-2017
ExxonMobil Mount Belvieu LLDPE, HDPE Q3-2017
ExxonMobil Baytown, TX 1,500 Q1-2018
ChevronPhillips Cedar Bayou, TX 1,500 Q1-2018
Indorama Lake Charles, LA 420 Back Integrate Q1-2018
Formosa Point Comfort, TX 1,250 LLDPE, HDPE Q4-2018
Shin-Etsu Plaquemine, LA 500 Back Integrate Q1-2019
Sasol Lake Charles, LA 1,550 EOX, LDPE, LLDPE Q1-2019
Total Port Arthur, TX 1,000 2020
TOTAL/NOVA Bayport, TX PE 2020
LACC Lake Charles, LA 1,000 EOX, LDPE, LLDPE 2020
Dow Freeport, TX 500 2020
Shell Monaca, PA 1,500 LLDPE, HDPE 2022
11
12,220 MMT Current cap = 30mmt = +42%
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
North America Ethylene Projects “In The Press” Announced And Under Study. Ethane supply insufficient to build all of these assets.
North America Ethylene Projects
Company Location Total Growth
Ascent / Braskem West Virginia 1,000
Badlands NGL 1 North Dakota 1,500
Badlands NGL 2 “Shangri-La” 1,000
ChevronPhillips 2 Cedar Bayou, TX 1,500
CPC Taiwan TBA 1,000
Formosa St James Parish, LA 1,000
Formosa LA 1,000
Hanwha TBA 1,000
Indorama LA or TX 1,500
PTTCG/Marubeni Shadyside, OH 1,000
NOVA Geismar, LA 1,500
Exxon/Sabic Corpus Christi, TX 1,800
Total Additions 14,800
Source: IHS Markit © 2017 IHS Markit
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Operating rate
83
87
91
2011 2013 2015 2017 2019 2021 2023 2025 2027
Global Op Rate Global Op Rate (Steam Cracker)
Global Ethylene operating rates
Pe
rce
nt
Source: IHS Markit © 2017 IHS Markit
Spare
Capacity
Peak sustainable industry
operating rates
13
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Polyethylene
14
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• Global PE demand: 5 year forecast slightly
higher (AAGR: 4.3%) due primarily to impact of
China recycle ban
• Project Outlook : continued delays in NAM and
ROW support PE price and margins
> NAM: Nova (Joffre) capacity absorbed;
domestic/export strategy – emerging player in
film market. 3.6 MMT US starts by year end.
> Europe resurgence: Margin outlook improved +
new capacity…. 1.3 MMT in 2021
> New NAM investment announcements:
Borealis/Nova/Total—650KTA, Dow—600KTA in
USGC
> Additional PE capacity expansions in China in
2023-2025 based on low crude forecast
> Hurricane Harvey disrupts production and delays
new capacity starts
Polyethylene
What’s Changed Since Last Year
15
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2017 Total Global Demand = 95.8 MMT
2022 Total Global Demand = 118.0 MMT
Global Polyethylene Domestic Demand
North America
19%
South America
6%
Europe 19%
Indian Sub. 7%
Africa/ Middle East
10%
China 32%
NEA Ex China
7%
2017
© 2017 IHS Markit Source: IHS Markit
16
2017-2022 AAGR
Global 4.3%
NAM 2.7%
SAM 3.2%
WEP 1.1%
NEA 5.6 %
China 8.0 %
SEA 5.0%
AFR/MDE 4.2%
ISC 8.5%
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
China Drives Global PE Demand Growth
44%
45%
46%
47%
48%
49%
50%
0
5
10
15
20
25
30
2015 2016 2017 2018 2019 2020 2021
World Growth China Growth China % Annual Global Growth© 2017 IHS Markit
Millio
n M
etr
ic T
on
s
Source: IHS Markit
Ch
ina
% o
f W
orl
d Global Growth = 28.7 MMT
China Growth = 13.2 MMT
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Capacity Change by Region
-2
0
2
4
6
8
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027
N. Amer. W. Europe Middle East S. Asia China Other N. Asia Other
2017 capacity view
Millio
n M
etr
ic T
on
s
Source: World Analysis Polyethylene Notes: Other Includes (S. Amer., C. Europe, Russia, Africa & Ind. Sub.)
© 2017 IHS Markit
Total Cap add (2017-22)
30.2 MMT
NAM cap add = 9.6MMT
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Two periods of capacity overhang anticipated
-6
-3
0
3
6
9
12
2006 2009 2012 2015 2018 2021 2024 2027
Global Capacity Growth Global Demand Growth
Global PE Surplus Capacity
Millio
n M
etr
ic T
on
s
Source: World Analysis Polyethylene © 2017 IHS Markit
6.2 MMT 7.6 MMT
19
6.3 MMT
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Global delays
25 projects
15.5 MMT
20
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LDPE most oversupplied
10
12
14
16
18
20
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
LDPE LLDPE HDPE
Oversupply by resin type
Pe
rce
nt
Ove
rbu
ild
Source: World Analysis Polyethylene © 2017 IHS Markit
21
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PE/Ethylene start times disconnected
0.0
0.4
0.8
1.2
1.6
2.0
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
Total Polyethlene EDC + EOEG
Total Ethylene Additions Total Ethylene Additions Delay 3 Months
Global Polyethylene + other derivatives vs. Ethylene
Millio
n M
etr
ic T
on
s
Source: IHS Markit © 2017 IHS Markit
4.0MMT
7.1MMT
22
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What’s different this time?
80
85
90
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Global Polyethylene Global Polyethylene Effective Global Ethylene
PE vs. Ethylene Operating Rates
Op
era
tin
g R
ate
, P
erc
en
t
Source: World Analysis Polyethylene © 2017 IHS Markit
Last
downturn
affected
both
23
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Regional price forecast
441
882
1323
1764
2205
20
40
60
80
100
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030
North America Net Transaction West Europe Discounted CFR China Spot
LLDPE
Ce
nts
Pe
r P
ou
nd
Source: Global Plastics & Polymers
Do
lla
rs P
er
Me
tric
To
n
© 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Shallow trough ahead
-441
0
441
882
1323
-20
0
20
40
60
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
NAM Margin WEP Margin SEA Margin
LLDPE integrated margins
Ce
nts
Pe
r P
ou
nd
Source: Global Plastics & Polymers
Do
lla
rs P
er
Me
tric
To
n
© 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
North America PE exports triple
China accounting for 50%+ of total
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2015 2016 2017 2018 2019 2020 2021 2022 2027South America West Europe Central Europe, CIS & BalticAfrica Middle East Indian SubcontinentNortheast Asia Southeast Asia
North America PE Exports
© 2017 IHS Markit
Millio
n M
etr
ic T
on
s
Source: IHS Markit
26
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Who will supply Polyethylene demand
2016
2021
3.1 9.0
-1.5 -2.3
-2.8 -3.4
12.6 14.2
-1.0 -1.6
-2.3 -3.3
0.6
-.03
-8.4 -13.0
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Polyethylene North America
July 2017
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Hurricane Harvey Impact
• Approximately 60% of US PE capacity affected immediately following the storm… improvements
ensued
• Logistics disrupted: including ocean freight, rail, and trucks
• Resin shortages: push PE prices higher in August and through year end
• Wide spec prices: in spot market surge by 20 cpp
• Shortage of key raw materials: (alpha olefins) further constrain production
• New production capacity: start ups delayed avg of 30 days… facing potential ethylene
constraints
• Hurricane related production : support higher prices through the balance of 2017
• Hurricane premium: begins to roll off in Q1 2018..
• Delayed start of new capacity: and reduced ramp-up pace supports higher PE prices in
international markets.
29
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Hurricane Impact: Production Capacity
30
0%10%20%30%40%50%60%70%80%90%
100%
23-Aug 30-Aug 6-Sep 13-Sep 20-Sep 27-Sep 4-Oct 11-Oct 18-Oct 25-Oct
Ethylene SUPPLY Consumption
Ethylene Capacity Capability Ethylene Capacity Capability: 4-6 Week Event
© 2017 IHS Markit
Sh
are
US
Ca
pa
cit
y
Source: IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
48.050.052.054.056.058.060.062.064.066.068.070.0
Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 Apr-2018 Jul-2018 Oct-2018
Pre-Harvey Prices Post-Harvey Prices
North America HDPE BM Net Trans Price
Source: IHS Markit © 2017 IHS Markit
Ce
nts
Pe
r P
ou
nd
31
16cpp impact by
December: +10 vs -
6 cpp
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
North America Polyethylene: Market Update
• YTD production: flat vs 2016 through August despite new LLDPE capacity….. due to
HDPE outages in Q1 and adjusted production due to weak demand – hurricane impact not
yet seen.
• Total sales: (ACC) Total demand growth: -1% ytd…. with domestic -1.2% and export sales
– .6%
• Tight supplies before Harvey: HDPE injection molding, LLDPE rotomolding, and HDPE
pipe resin … hurricane exacerbated imbalance.
• Pipe & Film: business strong.
• 7 cpp price increase: on the table for Sept / October …. Very likely.
• Margins: HDPE injection molding integrated ytd average = 34.6 cpp
HDPE injection molding integrated margin Q4 forecast = 40.9 cpp
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
US Polyethylene: Strong Growth Projected
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
-5
0
5
10
15
20
25
30
35
2012 2014 2016 2018 2020 2022 2024 2026
US Domestic Demand US Exports Total Capacity US Demand Change© 2017 IHS Markit
De
ma
nd
, M
illio
n M
etr
ic T
on
s
Source: IHS Markit
Pe
rce
nt
Ch
an
ge
, Y
OY
AAGR 17-22
Capacity change = 7.6% = 7.9 MMT
Domestic Demand = 2.6% = 1.8 MMT
Total Demand = 5.7%
Exports = 11.4% = 5.4MMT
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
North America - New Polyethylene Projects
2016 Total PE Capacity 20,500 KTA
Company Location Country LDPE LLDPE HDPE Resin Type TBA Startup
2016
Braskem Idesa Nanchital, Veracruz Mexico 300 (2) 750 (4) Q2 2016
Dow Seadrft, Tx United States 75 (3) Q4 2016
Nova Joffre Canada 432 (3) Q4 2016
2017
CPChem Old Ocean, TX United States 500 (4) 500 (4) Q3 2017
Dow Plaquemine, LA United States 350 (2) Q3 2017
Dow Freeport, TX United States 400 (6) Q3 2017
Dow Taft, LA United States 75 (3) Q3 2017
ExxonMobil Mont Belvieu, TX United States 1300 (3) Q3 2017
ExxonMobil Mont Belvieu, TX United States 60 (5) Q3 2017
Ineos Sasol Deer Park, TX United States 470 (4) Q4 2017
2018-2020
Formosa Point Comfort, TX United States 400 (2) Q4 2018
Formosa Point Comfort, TX United States 400 (3) Q4 2018
Sasol Lake Charles, LA United States 470 (3) Q4 2018
Sasol Lake Charles, LA United States 420 (2) Q3 2019
Exxon Mobil Beaumont, TX United States 650 (7) Q4 2019
Equistar La Porte, TX United States 500 (3) Q1 2020
Post 2021
Total/Borealis/Nova Bayport, Tx United States 625 (4, 3) Q2 2021
Shell Monaca, Pa United States 500 (3) 1000 (3, 4) Q2 2022
PTTGC Dilles Bottom, OH United States 700 (4)
Exxon Mobil Sabic JV Corpus Christi, Texas United States 1300 (7) Q2 2022
Nova Chemical TBD TBD 450 (6)
Dow US Gulf Coast United States 600 (6)
Formosa Louisiana United States 1000 (7)
Ascent (Braskem) Marcellus WV United States 500 (3) 1000 (4)
Badlands NGL North Dakota United States 600 (3) 600 (3)
Badlands NGL TBD United States 600 (3) 600 (3)
Appalachian Resin Salem Township, OH United States 275 (7)
Totals, 000's MT 1470 7002 6730 3200 18,402
*Processes: (1) Autoclave, (2) Tubular, (3) Gas Phase, (4) Slurry Loop (5) Slurry Stirred Tank (6) Solution (7) To Be Announced
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
2017 Expansions
3.5 MMT by year end • Chevron Phillips – Old Ocean, TX
– Two reactors producing 1MMT Traditional HDPE
products plus LLDPE Metallocene Film
• Exxon Mobil – Mont Belvieu, TX
– 1.3 MMT – Unipol Metallocene Gas Phase for export
• Dow – Freeport, Tx and Plaquemine, LA
– 350 KTA Tubular LDPE in LA
– 400 KTA Dow Solution LLDPE focused on
Metallocene film
Ineos/Sasol
• Deer Park, Texas
• 470 KTA Innovene S Bimodal - HMW film and
pressure pipe
• Blow molding, Injection Molding, and HMW film
markets expected to see significant pressure in HDPE
– All 2017 Q3 – Q4
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
PE/Ethylene New Capacity Disconnect
36
0
200
400
600
800
1000
1200
Ja
n-1
6
Ma
r-16
Ma
y-1
6
Ju
l-16
Se
p-1
6
Nov-1
6
Ja
n-1
7
Ma
r-17
Ma
y-1
7
Ju
l-17
Se
p-1
7
Nov-1
7
Ja
n-1
8
Ma
r-18
Ma
y-1
8
Ju
l-18
Se
p-1
8
Nov-1
8
Nova Ineos SasolChevron Phillips DowExxon SasolFormosa Ethylene Additional Production
PE vs. Ethylene Production Additions
© 2017 IHS Markit
MM
LB
S
Source: IHS Markit
2.2 billion lbs
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
North America PE exports triple
China accounting for 50% of total
0.01.02.03.04.05.06.07.08.09.0
2015 2016 2017 2018 2019 2020 2021South America West Europe Central Europe, CIS & BalticAfrica Middle East Indian SubcontinentNortheast Asia Southeast Asia
North America PE Exports
© 2017 IHS Markit
Millio
n M
etr
ic T
on
s
Source: IHS Markit
37
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
PE margin contribution declines
-10
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Ethylene Margin From Ethane Cracking (cpp PE) PE Contract Margin - LLDPE Non Integrated
US LLDPE Chain Margins
Source: IHS Markit
Ce
nts
Pe
r P
ou
nd
© 2017 IHS Markit
38
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Premiums for Metallocene and LDPE Erode
50
55
60
65
70
75
80
85
Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18
Ce
nts
Pe
r P
ou
nd
LDPE GP LLDPE C4 LLDPE C6 LLDPE Metallocene
Jan 2018: new
Metallocene
production
Oct 2018:
Formosa LDPE
startup
North America Net Transaction Prices
Source: IHS Markit © 2017 IHS Markit
39
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Reduction of Big Buyer Premium for HDPE
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
80.0
85.0
90.0
Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May-18Big Buyer Domestic Premium HDPE Net Transaction
North America HDPE BM Price vs Big Buyer Premium (Netback domestic minus Netback CFR China)
Source: IHS Markit © 2017 IHS Markit
Cen
ts P
er
Po
un
d
Pre
miu
m, C
en
ts P
er
Po
un
d
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
China Recycle PE Market Update
• 2016 PE recycle market size: 4.3MMT; Recycle imports: 2MMT; Recycle market share of
total PE =14%
• National Sword Campaign : Feb 2017, crack down on illegal imports of “foreign trash”;
inspection on all major ports, ~3 months delay on imports; local environmental department
investigation of factories—import license suspended if violation recorded during the last two
years; shutdown of factories not meeting codes
• Scrap Ban : mid-July 2017, announced through WTO, ban (by year end 2017) on plastics
scrap imports—including PE, PP, PS, PVC, PET etc.. Complete ban possible by 2018-2020
• Implication: loss of 700-800KT PE scrap imports in 2017, 800KT~1.2MMT in 2018;
• Potential outcome: increase on virgin resin demand; relocate recycle facilities to Southeast
Asia countries; bolsters prime resin prices
41
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Bonus Prime Resin Demand Results from Scrap Ban
0
5
10
15
20
25
0
10,000
20,000
30,000
40,000
50,000
2000 2005 2010 2015 2020
PEVirgin Demand Recycled Total Recycled Market Share,%
China PE Recycle vs. Prime Demand
© 2017 IHS Markit
Th
ou
sa
nd
Me
tric
To
ns
Source: IHS Markit
Pe
rce
nt
42
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Polyethylene: Near to Medium Term Market Trends (2017-2022)
• Hurricane Harvey impact supports PE prices and margins through Q1 2018
• Oversupply conditions (2018 – 2019) and increasingly competitive regional production
economics impact price and margins; PE prices trend towards global parity.
• Project delays and PE/C2 disconnect support PE margins
• China recycle ban bolsters virgin resin demand and supports higher operating rates
• Metallocene capacity wave reduces price spread over commodity grades: LDPE and
LLDPE affected
• N. America domestic premium declines as new players (Shell, Sasol) seek domestic
market share
Increasing C6 competition pressures C4 market as well as existing C6 market
• US LDPE capacity increasing by more than 35% in 2017-2020
43
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Polypropylene
44
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Global PP Capacity Additions: Tight Market Developing
-1
0
1
2
3
4
5
6
7
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27North America South America West EuropeAfrica/Middle East Indian Sub. ChinaSoutheast Asia Central Europe/CIS Global Demand Change
Millio
n M
etr
ic T
on
s
Regional PP Capacity Additions
Source: IHS © 2017 IHS Markit
Millio
n M
etr
ic T
on
s
Regional PP Capacity Additions
Source: IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Very high operating rates required to meet demand through 2022
70
80
90
100
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
World NAM WEP MDE NEA
Regional operating rates
© 2017 IHS Markit
Op
era
tin
g R
ate
, %
Source: World Analysis Polypropylene
46
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
• 40% of global demand by 2027
(2012 = approx 30.%)
• 50% annual demand growth for
each of next 5 years
0% 50% 100%
2012
2017
2022
2027
China West Europe North America
Indian Sub. Rest of the World
Global share of PP demand by region PP demand share by region
Source: World Analysis Polypropylene © 2017 IHS Markit
China taking the “Dragon’s” share!
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Time to find new markets near term other than China!
0
1
2
3
4
5
6
2015 2016 2017 2018 2019 2020 2021 2026
Middle East Northeast Asia Southeast Asia Europe North America Other
PP imports to China
Millio
n M
etr
ic T
on
s
Source: World Analysis Polypropylene © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
2017
2022
Million Metric Tons
1.3
1.1
0.03
- 0.4 - 0.4 - 0.2
1.0
0.1
- 1.1 - 1.3
- 0.9
-0.6 - 0.6
.01
- 0.9
3.8 3.1
- 2.8
- 0.9
- 1.3 - 0.9
- 0.1
Russia, Africa, and India grow in significance!
5.3
- 2.9
- 2.3
2.3
2027
- 1.1
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Global PP Prices - Prices to Increase with Oil and Margin gain
0
500
1000
1500
2000
2500
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
NAM Net Transaction NEA Spot Avg. CFR China WEP Disc Contract
Regional PP Homopolymer Price
Source: IHS Markit © 2017 IHS Markit
Do
lla
rs P
er
Me
tric
To
n
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Global Non Integrated Margins
-440
-220
0
220
440
660
-20
-10
0
10
20
30
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
NAM Current WEP Current SEA Current
Cents Per Pound Dollars Per Metric Ton PP Non Integrated Margins
© 2016 IHS
Ce
nts
Pe
r P
ou
nd
Source: IHS
Do
lla
rs P
er
Me
tric
To
n
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Integrated margins for “on purpose” propylene to PP are strong
0
200
400
600
800
1,000
WesternCanada PDH to
PP
US PDH to PP China CTO toPP
China MTP toPP
China PDH toPP
Middle EastPDH to PP
WEP PDH toPP
2011 2016 2021
PP margins by producer
Do
lla
rs P
er
Me
tric
To
n
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited
Polypropylene North America
53
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Hurricane Harvey Impact: Polypropylene
• . 60% of NAM PP capacity affected by the storm
• Expectation of ~300 million pounds of lost September production
• All but one plant back up by September 10
• Wide spec market peaked up 15 to 20 cpp
• Imports to increase in Q4
• 3 cent margin enhancement likely….by October
• Propylene volatility expected to hurt demand post recovery
54
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
55
0%10%20%30%40%50%60%70%80%90%
100%
23-Aug 30-Aug 6-Sep 13-Sep 20-Sep 27-Sep 4-Oct 11-Oct 18-Oct 25-Oct
Sh
are
US
Ca
pa
cit
y
PGP/CGP SUPPLY RGP SUPPLY Consumption
Propylene Capacity Capability
Source: IHS Markit © 2017 IHS Markit
5 Week impact
for C3 and PP
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
48.0
52.0
56.0
60.0
64.0
68.0
72.0
76.0
Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 Apr-2018 Jul-2018 Oct-2018
Pre-Harvey Prices Post-Harvey Prices
North America PP Homopolymer Net Trans Price
Source: IHS Markit © 2017 IHS Markit
Ce
nts
Pe
r P
ou
nd
Harvey impact =
11cpp
56
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Short Term Highlights
–Domestic demand: down 5.3% through August and will not recover by year end.
–Producer domestic sales: through August are up 1.4% per ACC data. Difference due to
decline in 2017 import levels, down 41% through August (IHSM estimate)
–PP production: through August is off by 1.5% compared to prior year.
–Recent demand recovery: in May/June coupled with multiple supply disruptions led to
margin increase announcements for August of 3 cpp.
–Hurricane Harvey likely to support margin: near term though structural challenges for
the market exist for 2018
57
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
North America PP Imports (combined homo and impact) – repeat of 2016 unlikely
0
100
200
300
400
500
600
700
2010 2012 2014 2016 2018 2020 2022 2024 2026
KOS BRA SAR GFR SIN COL FRA JAP ISR Rest of the world Forecast
© 2017 IHS Markit
Th
ou
sa
nd
Me
tric
To
ns
Source: IHS Markit
58
IHS Estimates
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
North America PP Producer Cash Cost Margin Comparison
-100
100
300
500
700
900
1,100
0
10
20
30
40
50
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Non-Integrated Producer Margin Integrated RGP Producer Margin
Integrated PDH Producer Margin
Ce
nts
Pe
r P
ou
nd
Source: IHS © 2017 IHS Markit
D
oll
ars
pe
r to
n
Source: IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
No major change in PP competitiveness versus other plastics
60
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
2006 2007 2008 2010 2011 2013 2014 2015 2017 2018 2020 2021 2023 2024 2025
PS HDPE PP PET
North America Plastic Prices North America Plastic Prices
© 2017 IHS Markit
Ce
nts
pe
r p
ou
nd
Source: IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Company When Location Capacity
Debottlenecks 2016-18 Various 400
Formosa 2019 Point Comfort, TX 250
Braskem 2020 La Porte, TX 450
Inter Pipeline 2020+ Alberta, Canada 520
Canada Kuwait
Petrochemical Co. 2020+
Alberta, Canada
550
Hypo plant 2020+ ? 500
New NAM capacity on paper but limited
steel in the ground
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62
0200400600800
1,0001,2001,4001,6001,800
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18
NAM-China Spread NAM Net Transaction NEA Spot Avg. CFR China
Regional PP price
Source: Global Plastics & Polymers
Do
lla
rs P
er
Me
tric
To
n
© 2017 IHS Markit
North America price closely tied to Asia
Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.
Polypropylene Near Term Key Takeaways North America
Demand
• Slow start due to spike in propylene pricing but currently forecasting strong second half of the year but
can’t reach positive territory (this is for domestic demand including imports). Operating rates remain
high through 2023
Production
• Down so far and unlikely to be able to take advantage of increased production capacity
Inventories
• Were balanced to tight prior to Harvey for some segments; will take a few months to recover from
Harvey
Pricing
• Prices will be affected by Harvey spike in monomer plus margin; volatility will lead to decline with
imports setting an upper bound on commodity markets
63