Polyolefins Overview. Nick Vafiadis, Senior Director Global Polyolefins and Plastics 1(281) FPA: September 2013

Transcription

1 Polyolefins Overview Nick Vafiadis, Senior Director Global Polyolefins and Plastics 1(281) FPA: September 2013

2 Agenda Ethylene Polyethylene Propylene Polypropylene 2

3 Ethylene Capacity Drivers Feedstock Cost Advantage Relationship of crude/natural gas. & coal Shale based NGL s in North America Abundant feedstock in Middle East Coal in China Proximity to Derivative Demand Adding capacity to supply domestic demand (China) 3

4 Global Ethylene Capacity = 154 MM tons 2013 Production = 133 MM tons; 86% Utilization Africa/Middle East 21% Asia Pacific 32% Propane 9% Butane 4% Naphtha 47% Europe 20% South America 4% North America 23% Ethane 36% Others 1% Coal to Olefins 0.2% Gas Oil 3% Ethylene Nameplate Capacity By Major Region Ethylene Production By Feedstock

5 Ethylene Cost Curve: A Feedstock Story. Dollars Per Metric Ton 1, World: Ethylene Cost Curve 1,500 1,200 Brazil Avg NEA Avg WEP Avg 900 SEA Avg SAM Avg MDE Avg NAM Avg Cumulative Production - Million Metric Tons

6 Ethylene Capacity vs. Demand Million Metric Tons AAGR Total Demand = 4.3% Total Capacity = 4.0% North America Middle East Asia Pacific West Europe Other South America Demand Change 6

7 Key to North American Advantage Crude to Natural Gas Ratio $US per Million Btu 18 Gas as % of Crude 120% % 12 80% 9 60% 6 40% 3 20% Natural Gas Crude (WTI) Gas as % of Crude 0%

8 Feedstocks & Cracker Economics The Range for NGL Prices has Expanded Constant 2012 Dollars Per MMBtu USGC Light Naphtha Brent Crude WTI Crude Henry Hub Gas Propane Ethane Butane

9 Feedstocks & Cracker Economics US Feedslates Will Continue Trending Lighter Weight Produced From Feedstock 100% 80% 60% 40% 20% 0% Ethane Propane Butane Naphtha Gas Oil

10 Ethylene Market View U.S. Supply/Demand Balance Remains Tight Billion Pounds Operating Rate 100% Total Demand Effective Operating Rate Nameplate Operating Rate 95% 90% 85% 80% 75% 70% 65% UPDATE FROM AUGUST 2013 Company Location Ethylene Capacity Propylene Capacity Status From Period Equistar Clinton, IA 1049 CG: 152 Maintenance Outage Early - Aug 8-9 Weeks Williams/SABIC Geismar, LA Accident/Maintenance Outage A detailed steam cracker operating schedule can be found in the North America Light Olefins Market Report Data Supplement or online at June April Months

11 US Ethylene Daily Cash Costs Cents Per Pound Purity Ethane = 10.8 cpp Weighted Average = 19.1 cpp Propane = 29.3 cpp Gas Oil = 59.3 cpp Ethylene Cash Costs as of Sep 12 Light Naphtha = 59.3 cpp Coprod. Int. Lt. Naphtha = 47.6 cpp Butane = 25.9 cpp Dollars Per Metric Ton 0 Jul 19 Jul 26 Aug 02 Aug 09 Aug 16 Aug 23 Aug 30 Sep 09 Light Naphtha Purity Ethane Weighted Average Coprod. Int. Lt. Naphtha Propane Butane Gas Oil

12 Ethylene Market View U.S. Spot Price Forecast to Remain Elevated versus Net Transaction Cents Per Pound Weight Avg. Cash Cost Net Contract Price Avg. Spot Price

13 Ethylene Market View Global Annual Cash Margins a stunning turn of events. Dollars Per Ton 1, U.S. Ethane U.S. Integrated Lt. Naphtha WEP Naphtha Discounted Price SEA Naphtha U.S. Weighted Average

14 Ethylene Market View Announced (-000- MT) BASF/Total (Port Arthur) 180 Chevron Phillips (Cedar Bayou) 1500 Dow (Taft / Freeport) Eastman 90 Equistar (All locations) 521 Exxon (Baytown) 1500 Formosa (Point Comfort) 800 Ineos (Chocolate Bayou) 107 Oxy (Ingleside) 550* Sasol (Lake Charles) 1400 Shell (Northeast) 1000* Westlake (Lake Charles/Calvert City) 310 Williams (Geismar) 300 Nova (Sarnia) 250* Braskem/Idesa (Mexico) 1000 Total 1,894 9,500 Cumulative Total 11,394 * Shell, NOVA, and Oxy capacity additions shown are IHS estimates

15 Polyethylene 15

16 Polyethylene: Global Momentum 2013 Global Demand 2018 Global Demand LDPE HDPE LDPE HDPE LLDPE LLDPE AAGR = 4.8% Growth Forecast = 1.3 x GDP of 3.6% Total Global Demand = 81.5 Million Metric Tons Total Global Demand = Million Metric Tons

17 Polyethylene Capacity Changes Million Metric Tons AAGR Total Capacity = 4.6% Total Demand = 4.8% Asia/Pacific Africa/ Middle East North America South America Central Europe/ CIS West Europe Global Demand Change

18 Shale Drives North America PE Projects Company Location Country LDPE LLDPE HDPE Resin Type TBA Startup Equistar LaPorte, TX United States 23 Q Equistar Morris, IL United States 45 Q Equistar Bay City United States 91 Q Ineos Sasol Deer Park, TX United States 475 Q2-Q Braskem Idesa Coatzacoalcos Mexico Q3-Q Nova Joffre Canada 450 Q ExxonMobil Mont Belvieu, TX United States Q Equistar * Corpus Christi, TX United States Formosa Point Comfort, TX United States 300 Q Dow Freeport, TX United States CPChem Sweeny, TX United States Q Sasol Lake Charles, LA United States Q Nova* Sarnia Canada 430 Q Shell* Marcellus United States Q Totals, 000's MT *Reported projects not fully verified or approved and not included in IHS capacity database.

19 Global Operating Rates Regional Advantages Polyethylene, Operating Rate, % World Average 13-18= 83.9% North America West Europe Middle East Northeast Asia South America World

20 Economics by Region: Price Forecast Cents Per Pound Saudi ethane based 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 NAM Cash Cost, Integrated WEP LLDPE SAM LLDPE NAM LLDPE CHINA LLDPE (Spot) 20

21 America s Trade Balance Net Trade, Million Metric Tons 10.0 Trade as a % of Production 25% % 0.0 5% South America Net Trade North America Net Trade NAM Exports - SAM Imports NAM Exports - SAM Imports as % of NAM Prod -5%

22 Polyethylene: Price Momentum Equilibrates Price, Cents Per Pound 90 Price, Dollars Per Metric Ton North America Discounted West Europe Discounted CFR China Spot 1102

23 Distribution of Margin Cents Per Pound Polyethylene Wtd. Avg. PE Margin - Contract Non-Int. Including Discounts Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs

24 PE: North America Current Situation Domestic demand: is positive by 0.1% through August Export volumes: are positive by 8.3% YTD. Total demand: is higher versus 2012 YTD by 1.9% Domestic & total: demand has been trending higher since July: August = strongest demand month of Export volumes: averaging about 790 million pounds per month = 24% of total sales through August. We expect: demand to continue on current path and 2013 domestic demand will approximate 2012 levels growth slightly below GDP levels

25 PE: North America: Current + Forecast Contract PE prices: HDPE +11cpp ytd (only 2 cpp since Feb). LLDPE / LDPE + 9 cpp ytd (flat since April). Price Increase Announcements cpp for Sept / Oct (supply/demand driven). 5 cents likely: particularly for HDPE Margins: YTD integrated margins avg approx. 40 cpp will be a record. Reference: 2012 = 28.5 cpp, 2011 = 14.6 cpp = 13.6 Forecast: Sellers market conditions continue to keep prices high and margins strong until new capacity drives competition and pressures pricing and margins.

26 Polyethylene End Use Demand Segments % Change 12 to 13 YTD Jul LLDPE Film 2.6% Food Packaging 4.6% Non-Food Packaging 3.6% LDPE Film -1.3% Food Packaging -6.5% Non-Food Packaging 13.9% HDPE Film -3.8% Food Packaging 6.0% Non-Food Packaging -19.2% Source: ACC 26

27 North America: New Momentum Million Metric Tons 25.0 Operating Rate 95% % 85% AAGR Total Capacity = 5.0% Domestic Demand = 2.3% Exports = 6% 80% 75% 70% % Domestic Demand Exports Total Capacity Imports Operating Rate

28 US PE: Strong Growth Projected Total Demand, Million Metric Tons 25.0 % Change, Year over Year AAGR Total Capacity = 3.7% 5.8% Domestic Demand = 2.7% 1.9% Exports = 3.8% 7.6% US Domestic Demand US Exports US Demand Change US GDP

29 Polyethylene Take Aways Global demand growth: continues to exceed GDP Production capacity growth: located in low cost or high demand regions Commoditization: of specialty products ex. MLLDPE Trade: US to increase exports of PE resins and finished goods as producer and processor capacity increases Demand: China drives global demand growth Threats: Economy, energy price surge, legislation (bag bans, shale gas) 29

30 Propylene / Polypropylene 30

31 Global Polypropylene Demand Today Asia Pacific 53% Europe 18% South America 5% Africa/Middle East 10% North America 13% AAGR Europe = 1.8% North America = 2.3% South America = 5.1% Asia Pacific = 5.9% Africa/Middle East = 5.3% 2013 Total Global Demand = 56.0 Million Metric Tons 2018 Total Global Demand = 71.6 Million Metric Tons Demand Growth = 28%

32 PP Capacity Builds in Middle East and China Leads to Over-Capacity Million Metric Tons AAGR Total Capacity = 4.9% Total Demand = 5.0% North America South America Europe Africa/Middle East Indian Sub. Northeast Asia Southeast Asia Global Demand Growth

33 Propylene Market View US PDH Margins Attracting New Investment 2012 cash costs US Dollars Per Metric Ton 1600 US.Cents Per Pound U.S. PG Price U.S. RG Price U.S. PDH MDE PDH China CTO West Europe Naphtha U.S. Splitter Northeast Asia Naphtha Northeast Asia PDH U.S. Metathesis 0

34 Short Term Price Outlook: N. America The Price Spike Pattern Continues as propylene is structurally tight PP supply constrained since June due to unplanned disruptions in both monomer and PP production. Phillips 66 has been preparing for a 45 day outage in October, resulting in sales allocation and an exit from spot sales. PP op. rates since April have been above 90% in May, July, and August. PP producers are pushing for margin improvement on the back of very tight supply and demand fundamentals. IHS has forecasted at least one cent of margin improvement effective 1 January

35 Short Term Price Outlook Continued Prices fcst. to erode in Nov. and Dec in line with C3 before moving up in Q14 (refinery ta s) peaking in April. Post April: prices forecast to moderate through the remainder of the year. Demand destruction in PP is likely to be the main lever to impact propylene price spikes until on-purpose propylene production comes on stream in

36 Global Demand Slowdown & Overcapacity Centered in Asia Price, Cents Per Pound 110 Price, Dollars Per Metric Ton 2, Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 North America Discounted North America Spot Export West Europe Discounted China Spot 2,205 1,984 1,764 1,543 1,323 1,

37 Regional Polypropylene Prices Price, Cents Per Pound Price, Dollars Per Metric Ton 2,645 2,424 2,204 1,983 1,763 1,542 1,322 1, North America Discounted West Europe Discounted SAM Domestic Delivered China spot (cfr China) 881

38 Polypropylene Price vs. HDPE Price Ratio PP/HDPE North America PP/HDPE West Europe PP/HDPE China PP/HDPE South America

39 N. America: Propylene Market View Future North America Propylene Production Steam cracker propylene production will trend slightly lower as additional ethane comes to market and is preferentially processed versus other feedstocks FCC (refinery grade propylene supply) operating rates are down as refiners optimize diesel production - decreasing refinery grade propylene supplies. IHS view: six new PDH units being added through the 2018 timeframe in North America.Dow (2), Enterprise, Formosa, Williams (Canada), and Ascend. Enterprise and Petrologistics (along with other companies) are exploring additional PDH units due to abundance of propane. 39

40 Propylene Market View US Weekly Propylene (Non-Fuel Use) Ending Stocks..Close To Five Year Lows Due To Unplanned Outages in Dec and Jan MM Barrels Source: EIA, Data Through 26-October-12 EIA; Data through September Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5-Yr MIN-MAX Range

41 PP North America Back in Growth Mode Million Metric Tons Operating Rate AAGR Total Capacity = 3.8% Domestic Demand = 2.3% Exports = 8.5% Domestic Demand Exports Total Capacity Imports Operating Rate

42 Abundant Propane Drives Investment North America PG/CG Propylene Capacity Additions Announced Company Location Type Capacity KT Start-up Date Debottlenecks / New build Dow Freeport, TX PDH 750 Q NB Enterprise Mont Belvieu, TX PDH 750 Q NB Formosa Point Comfort, TX PDH 600 Q NB Ascend Alvin, TX PDH 1000 Q NB Williams Redwater, Alberta PDH 500 Q NB Dow Freeport, TX PDH 750 Q NB Total 4350 On Hold Company Location Type Capacity KT Start-up Date Debottlenecks / New Build Petrologistics Houston, TX PDH 658 On hold DB/NB

43 PP Film Demand 2012 vs YTD July PP Category Percent Change Film 10 Mils and Below -5.0 Oriented Film -3.7 Non- Oriented Film Sheet 10 Mills and Over Packaging Other Sheet 4.0 Source: ACC, Plastics Division; Gov t Trade Data

44 North America Key Issues: Polypropylene Cost position to dampen short term domestic demand Ratio of PP/HDPE price and volatility restricting growth Excess propane from shale will drive new investments in on-purpose propylene capacity A portion of that new propylene capacity will need to be monetized in the form of polypropylene. Exports of PP will be concentrated within the America s Prior to new on-purpose propylene capacity additions, volatility to continue Propylene supply not expected to improve until late 2015 Loss in PP capacity combined with decreased demand and increased propylene inventory has helped rebalance the propylene market. Still, supply demand remains tight, and any unplanned outages have immediate affects