6th Annual ASIAN PETROCHEMICALS MARKETS CONFERENCE April 19-20, 2017 Shanghai Marriott Hotel Pudong East Shanghai, China RUSSIAN (CIS) PETROCHEMICAL INDUSTRY. MARKET OUTLOOK. Andrey Zotov, SIBUR
CONTENT RUSSIAN ECONOMIC OVERVIEW 2015 2017: trends, challenges and opportunities for business POLYOLEFIN INDUSTRY LANDSCAPE PP, PE POLITICS AND POLYOLEFINS HOW ARE THEY TWO RELATED IN THE CASE OF RUSSIA? NEW CIS PROJECTS IMPACT ON THE GLOBAL POLYOLEFIN MARKET 2
DIFFERENCE BETWEEN THE REGIONS General Figures Feedstock / Converter Russia Europe - LPG - Naphta Russia CAGR, 2013-2020 Russia Consumption Growth Outlook Europe 3 Source: state
FEEDSTOCK LANDSCAPE Available feedstock Natural gas production Russia 18% 50% 4% 19% USA The rest of the world 5% 3% Canada Iran Norway Oil production Russia 13% Saudi Arabia 56% The rest of the world 12% 9% 5% USA 5% Iran China 4 Source: state
PRODUCTION AND DEMAND OF PP IN THE WORLD CIS area North America +1,9% 10,8 9,3 9,7 7,8 7,8 7,8 8,7 7,3 2010 2015 2020 2025 Europe 3,5 +1% 2,0 1,3 1,5 1,8 9,8 9,6 9,3 9,3 9,3 9,3 10,5 0,8 1,0 1,3 9,0 2010 2015 2020 2025 2010 2015 2020 2025 Africa Middle East +4,1% +4,6% 11,3 8,3 7,1 6,4 4,9 4,1 5,1 3,3 Northeast Asia +5,4% 41,5 42,3 35,3 35,1 25,0 26,6 18,0 19,4 2010 2015 2020 2025 South America 2,4 2,6 2,4 2,6 +1,4% 2,9 3,0 3,2 2,5 2010 2015 2020 2025 +5,2% 2,3 1,8 1,3 0,8 1,0 1,0 2010 2015 2020 1,8 2,9 2025 2010 2015 2020 2025 India +9,1% 11,4 7,5 8,1 5,5 3,0 4,1 4,6 3,1 Southeast Asia +4,7% 8,1 6,4 6,6 7,2 4,9 5,3 3,8 4,1 2010 2015 2020 2025 Production Demand 2010 2015 2020 2025 +1,9% Demand CAGR 5 Source: IIHS, Million tons
PRODUCTION AND DEMAND OF PE IN THE WORLD Production Demand North America +2,1% 25,8 27,9 18,9 17,5 17,9 19,9 14,5 15,8 2010 2015 2020 2025 South America 4,8 5,1 3,4 3,4 +1,9% Demand CAGR +1,9% 3,3 5,5 3,8 6,4 2010 2015 2020 2025 Europe 7,5 +0,8% 3,4 13,5 13,5 14,4 15,1 1,9 2,3 2,6 3,0 2,0 13,3 12,8 12,2 12,8 2010 2015 2020 2025 Africa +4,7% 5,5 4,5 3,6 2,7 3,2 1,0 0,8 1,1 2010 2015 2020 2025 CIS area India +2,8% 3,5 2010 2015 2020 2025 Middle East +4,7% 25,8 21,3 17,5 11,6 4,7 5,8 7,4 9,4 2010 2015 2020 2025 +8,2% 7,6 5,0 4,9 3,4 1,8 2,6 2010 2015 2020 11,1 6,0 2025 Northeast Asia +5,4% 39,5 29,6 32,6 22,2 27,3 22,3 18,4 2010 2015 2020 Southeast Asia 48,9 2025 +4,7% 11,0 11,0 9,5 9,0 7,7 7,1 5,6 5,5 2010 2015 2020 2025 6 Source: IHS, Million tons
PP and PE PER CAPITA CONSUMPTION & GROWTH RATE 7 Source: IHS
RUSSIAN ECONOMIC LANDSCAPE Dynamics of GDP growth, % Index of industrial production, % 0,6 1,1 1,6-0,2-2,8 2015 2016 2017 Interest rate, % -3,4 2015 2016 2017 Inflation, % 12,7 10,6-8% 9,8 12,9 5,4-9% 4,9 2015 2016 2017 2015 2016 2017 Exchange rate (Rouble/EUR) 68,0 74,0-15% 62,5 Exchange rate (Rouble/USD) -12% 66,3 66,8 58,6 2015 2016 2017 2015 2016 2017 8 Source: Official state statistics, Central Bank, SIBUR
RUSSIAN PP MARKET LANDSCAPE Consumption forecast Comments Other TF Pipes Compounds NW BOPP Raffia IM +7% +2% +9% 1 181 1 202 1 108 1 012 131 53 82 119 105 145 72 96 105 115 171 139 158 159 75 76 102 105 105 93 130 132 +4% 1 255 161 165 77 79 109 112 +13% 1 319 1 282 170 81 116 94 96 98 1 357 175 84 120 100 136 139 142 145 182 204 236 239 241 243 176 182 202 204 207 211 216 221 207 222 227 230 235 242 255 269 DRIVERS: 1.Food industry 2.Retail 3.Agriculture 4.Chemical industry 5.Household chemicals 6.Home appliances THREATS: 1. Construction industry 2014 2015 2016 2017 2018 2019 2020 2021 9 Source: SIBUR, Strategy&
RUSSIAN PP MARKET LANDSCAPE (PRICING) Volume of PP total production in Russia, mt/year +199% 471 496 595 627 607 652 825 1,035 1,227 1,378 1,408 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10 Source: SIBUR, MRC, Alliance Analytics
IMPORT SUBSTITUTION AND ROUBLE DEVALUATION SUPPORT RUSSIAN POLYOLEFINS DEMAND 2015 2016 GDP -3,9% -1,4% Industrial production -3,0% -1,8% Housing construction -18,0% -0,8% Retail sales -3,1% -0,2% Home appliances -5,0% -1,8% Agriculture 1,0% -1,0% Textile production -8,8% 1,0% Roads construction 3,0% 2,9% Pipes 0,9% 0,6% Cars production -39,1% -3,6% Food industry 0,3% 1,8% Impact on PE domestic market Demand for PE in Russia 2015 to 2014 was stable. In the most saturated LDPE and HDPE segments growth was slightly negative (-2%) although LLDPE has shown positive growth (+5%). Demand growth from local PE flexible and rigid packaging compensates slowdown in pipes and construction applications Impact on PP domestic market Rouble devaluation makes import of PP and PP final goods more expensive, encouraging import substitution. Growth in pipes production and especially food packaging supports PP market growth (11% in 2015) 11 Source: Official State statistics
RUSSIAN AND CIS POLYOLEFIN CAPACITIES 2017 Europe Karpatneftehim, Kalush HPDE: 100 Polimir, Novopolotsk HDPE: 90 / LDPE: 40 NPP Neftekhimiya, Moscow PP: 120 Kazanorgsintez, Kazan LDPE: 225 / HDPE: 500 NKNH, Nijnekamsk HD/LL: 250 / PP 215 UOS, Ufa LDPE: 100 / PP: 130 Tobolsk-Polymer, Tobolsk PP: 500 Gazprom Neftekhim, Salavat HDPE: 120 / LDPE 40 Zabsib-2, Tobolsk PP: 500/ PE: 1500 Polyom, Omsk PP: 180 Russia Tomskneftekhim, Tomsk PP: 140 / LDPE: 250 Rosneft, Angarsk LDPE: 80 Total LINIK, Luganskaya obl. PP Stavrolen, Budenovsk HDPE: 250 / PP: 120 TKNPZ, PP: 90 Azerkhimia, Sumganit, LDRE:138 Shurtan GHK, HDPE: 125 Ustyurtskiy GHK, PE: 390 / PP: 80 Neftekhim Ltd PP: 30 China 4,283 PP 1,625 HDPE 1,415 LDPE 993 HDPE/LLDPE 250 12 Source: Sibur; thousand tons
CAPACITY EXPANSIONS IN CIS Sibur s share is 47 % on all new capacity expansions 13 Source: SIBUR, Alliance Analytics
CIS PP MARKET FORECAST Market Balance PP, kt. 2014-2021 2014 2021 3491 1 801 1 318 2536 232 251 1 690 Russia will become net exporter of PP in several years 1157 996 110 51 186 72 75 39 1 265 957 123 185 519 436 185 1 218 Production Net Import Consumption Production Net Export Consumption 287 3,5% 6,5% 6,0% The internal consumption growth is forecasted to be stable year to year PPH PPC PPR 14 Source: SIBUR, Alliance Analytics, Russian official statistics
CIS PE MARKET FORECAST Market Balance PE, kt. 2014-2021 2014 2021 5378 2 272 1 774 1827 927 58 842 727 462 307 42 2 554 1 389 365 800 3466 684 1228 340 158 3 106 1 692 526 888 2,9% 5,4% 0,6% Russia will become net exporter of PE in several years. The internal consumption growth will continue after 2016. Production Net Import Consumption Production Net Export Consumption HDPE LLDPE LDPE 15 Source: SIBUR Alliance Analytics, Russian official statistics
OUR NEW PROJECT ZAPSIBNEFTEHIM (start in 2020) Location: Product: Capacity: Product: Capacity: Tobolsk Polypropylene (homo + random + block) 500 000 tones a year Polyethylene (LLDPE + HDPE) 1 500 000 tones a year Russia 16
ZAPSIBNEFTEKHIM: EXPANSION OF POLYOLEFINS PRODUCTION IN TOBOLSK Unique growth opportunities 1,400 1,200 1,000 800 600 400 200 (USD per tonne) Light olefins (2019) NA avg. WE avg. Tomskneftekhim Tobolsk-Polymer ZapSibNeftekhim ME avg. / NA ethane Project Overview Greenfield construction of ethylene cracking unit and polyolefin production complex in Tobolsk within the SIBUR s Tobolsk petrochemical hub Configuration: Cracking unit: 1.5 mtpa of ethylene, 500 ktpa of propylene, 100 ktpa of crude C 4 (LINDE AG, Germany) PE production units: 1.5 mtpa of PE (INEOS, the UK) PP production unit: 0.5 mtpa of PP (LyondellBasell, the Netherlands) Russian State support for the project expected through investment agreements with the Tobolsk regional Government and City Administration Strong Position on the Global Cost Curve (1) China coal-to-olefins NEA avg. ME Middle East NA North America NEA Northeast Asia WE Western Europe 000 tonnes Ethane 300 t Propane 1 700 t N-Butane 1 000 t 1,500 t Ethylene cracking unit (ECU) Production Scheme Ethylene 1,500 Propylene 525 HDPE 350 t Ineos Innoven S HDPE 350 t Ineos Innoven S LLDPE / HDPE 400 t Ineos Innovene G LLDPE / HDPE 400 t Ineos Innovene G PP 500 t LBI Spheripol 0 0 50,000 100,000 150,000 200,000 250,000 Cumulative capacity ( 000 tonnes) 17 Source: SIBUR, Alliance Analytics, November 2014
General View of Construction Site Winter 2015 18
Construction of steam cracker Spring 2015 19
Construction of PP unit and rail-road transportation infrastructure Winter 2015 20
ZAPSIBNEFTEKHIM (ZAPSIB-2): MAJOR EXPANSION OF POLYOLEFINS PRODUCTION IN TOBOLSK 21
SIBUR S TOBOLSK PETROCHEMICAL HUB IS STRATEGICALLY LOCATED IN CLOSE PROXIMITY TO FEEDSTOCK BASE TOBOLSK Founded in 1587 Population 98,3 th people Average temperature January -17 o C March -7 o C July +18 o C October +2 o C Western Siberia 48 bln bbl 22 tcm Western Europe SIBUR s petrochemical hub in Tobolsk Largest oil & gas reserves region in Russia China and Northeast Asia Source: IEA 22 SIBUR s production assets Feedstock & Energy segment Petrochemicals segment Saudi Arabia Jeddah port Production sites with joint operations of Feedstock & Energy and Petrochemicals segments SIBUR s JVs
ZapSibNeftekhim is in top five biggest petrochemical projects in the world Country Company Location/ proj. name Project rating Capacity, KT Start-up year Projects geography 1 China Hanbang PC Jiangyin PTA 2200 2016 2 China Yizheng/Oriental JV Yangzhou PTA 2000 2016 3 Russia SIBUR Amur GCC Ethylene beyond 1500, PE 2023-2024 4 USA SASOL Lake Charles Ethylene 1550, PE 870 2018 5 Russia SIBUR ZapSibNeftekhim Ethylene 1500, PE 1500, PP 0.5 2019 6 USA ExxonMobil Baytown Ethylene1500, PE 1300 2017 7 Saudi Arabia Sadara Chemical Al Jubail Ethylene1500, PE 1100 2015 8 USA Here Chevron is Phillips where SIBUR s Cedar Bayou projects for Ethylene1500, PE 1000 2017 9 USA 2015-25 Dow would have Freeport been Ethylene1500, PE 450 2017 10 Taiwan Oriental PC Taiwan Kuan Yin PTA 1500 2016 11 India Reliance Industries Jamnagar Ethylene1350, PE 950, PP 135, MEG 745 2016-17 12 China Yangzijiang PC Zhangjiagang Propylene (propane dehydration) 1320 2015, 2018 13 China Fujian Meide PC Fuzhou Propylene (propane dehydration) 1320 2016, 2019 14 China Baota PC Yinchuan PTA 1250 2018 15 China Zhuhai Biyang Zhuhai PTA 1250 2015 16 India JBF Industries ltd. Mangalore PTA 1250 2016 17 Russia TAIF НКНХ Ethylene1200, PE 900, PP 360 2019, 2024 18 China Jiaxing PC Jiaxing PTA 1200 2017 19 USA Mossi & Ghisolfi Corpus Christi PTA 1200, PET1000 2017 20 China Xinjiang Zhongtai Urumqi PTA 1200 2016 21 USA Ascend Choc. Bayou Propylene (propane dehydration) 1173 2019 22 USA FPC USA Point Comfort Ethylene1150, PE 800, PP 450, MEG 800 2018-19 23 India Reliance Industries Dahej PTA 1150, PET325 2015 24 India OPAL Dahej Ethylene1100, PE 1040, PP 340 2015 25 Oman Oman Oil/LG Intl JV Sohar PTA 1100, PET500 2019 26 Vietnam Long Son PC Co. Ba Ria-Vung Tau Ethylene 1050, PE 950, PP 500 2020 27 Mexico Braskem-Idesa JV Ethylene XXI Ethylene 1000, PE 1050 2015 28 Malasia Petronas RAPID Ethylene 1000, PP 900, MEG 700 2020 29 China CNOOC Huizhou Ethylene 1000, PE 720, PP 400 2018 30 China Sinopec Hainan R&C Hainan Ethylene 1000, PE 600, PP 400 2019 31 Iran Kavyan PC Bandar Assaluyeh Ethylene 1000 2016 32 China Sinopec Guandong Ethylene 1000, derivatives 2018 33 China China Chengda Eng. Chengdu PTA 1000, PET500 2016 34 China Henan Longyu Kaifeng PTA 1000 2016 35 Kazakhstan LG Chem/KPI Atyrau Ethylene 840, PE 800 2016 36 UAE TAKREER Ruwais Propylene (propane dehydration) 800 2015 37 USA Enterprise Mont Belvieu Propylene (propane dehydration) 800 2016 38 India Indian Oil Paradip Propylene (propane dehydration) 700, PP 700 2018 39 China Sinopec Zhongtian Ordos CTO (Ethylene670, Propylene 700), PE, PP 2016 40 USA Lotte Chemical Lake Charles PCC: MEG 700 2019 41 China Ningbo Fuji Ningbo Propylene (propane dehydration) 660, PP 400 2016 42 China Shenhua Group Yuling CTO (Ethylene610, Propylene 610) 2018 43 China CPI/Total JV Ordos CTO (Ethylene400, Propylene 600), PE, PP 2019 44 China Shanghai PC Jinshan Ethylene 600, PE 300, PP 200 2017 45 Юж.Корея SK Advanced Ulsan Propylene (propane dehydration) 600 2016 46 China Zhejiang Satellite PC Pinghu Propylene (propane dehydration) 600 2018 47 China Jilin Bohai Biochem Jilin Bio-EO 600 2016 48 USA Oxy/Mexichem JV Ingleside Ethylene 550 2018 49 Canada Williams Company Redwater Propylene 525 2020 50 USA Indorama (Alpha PET) Decatur PET500 2017 23 4 6 8 9 19 21 22 37 40 48 50 Sources: CapitalIQ, Alliance Analytics, company reports, specialty mass media, commodity markets analysis 27 49 17 5 3 15 35 33 1 14 2 32 16 12 13 18 45 31 20 29 30 34 39 41 42 43 7 36 11 23 44 46 47 10 25 24 38 26 28
RUSSIAN POLYOLEFIN EXPANSION FORECAST RUSSIA Europe South America Africa China South Asia 24
SUMMARY I. Russian polyolefin industry is still growing despite all the negative economic trends II. New CIS projects are on stream and push the global polyolefin industry a lot. III. SIBUR s long-term globalization strategy is based on taking full advantage of its leading feedstock position to produce the lowest comparative cost products. IV. Russian export will be focused on CIS, Europe, China and developing countries. 25
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