North American Resin Markets Trends Joel Morales, Director Polyolefins North America Western Plastics Association January 7, 2014
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Energy & Economy North America Energy Price Trends $US per Million Btu 18 16 14 12 10 8 6 4 2 Gas as % of Crude 120% 100% 80% 60% 40% 20% 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Natural Gas Crude (WTI) Gas as % of Crude 0%
Polyethylene Update
Polyethylene: Global Demand Growing 2013 Global Demand 2018 Global Demand HDPE LDPE LLDPE HDPE LDPE LLDPE AAGR 13-18 = 4.8% Growth Forecast = 1.3 x GDP of 3.6% Total Global Demand = 81.5 Million Metric Tons Total Global Demand = 102.9 Million Metric Tons
Polyethylene Capacity Changes Million Metric Tons 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0 2008-2012 =+19.4 MMT 2013 2018 = +24.6 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Asia Pacific Africa/ Middle East North America South America Central Europe/ CIS West Europe Global Demand Change
Global Operating Rates Regional Advantages Polyethylene, Operating Rate, % 95 90 85 80 75 70 World Average 13-18= 83.9% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 North America West Europe Middle East Northeast Asia South America World
South America: Imports Increasingly Important Million Metric Tons Operating Rate 8.0 100.0 7.0 90.0 6.0 80.0 70.0 5.0 60.0 4.0 50.0 3.0 40.0 2.0 30.0 20.0 1.0 10.0 0.0 0.0 2008 2010 2012 2014 2016 2018 Domestic Demand Exports Total Capacity Imports Operating Rate
North America Capacity Expanding Million Metric Tons 25.0 Operating Rate 90% 20.0 15.0 10.0 75% 60% 45% 30% 5.0 15% 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0% Domestic Demand Exports Total Capacity Imports Operating Rate
Shale Drives North America PE Projects North America - New Polyethylene Projects Company Location Country LDPE LLDPE HDPE 2012-2013 Resin Type TBA Startup Equistar LaPorte, TX United States 23 (4) Q4 2012 Equistar Morris, IL United States 45 (4) Q4 2012 2014 Equistar Bay City United States 100 (6) Q2 2014 2015-2016 Ineos Sasol Deer Park, TX United States 475 (7) Q2-Q3 2015 Braskem Idesa Nachital Mexico 300 (2) 750 (6,7) Q3-Q4 2015 Nova Joffre Canada 450 (4) Q4 2015 Equistar * Corpus Christi, TX United States 500 (3) 2016 Dow Freeport, TX United States 400 (2) 650 (5) Q4 2016 2017 ExxonMobil Mont Belvieu, TX United States 650 (4) 710 (4) Q2 2017 Formosa Point Comfort, TX United States 300 (2) Q3 2017 CPChem Sweeny, TX United States 500 (5) 500 (7) Q3 2017 2018-2019 Sasol Lake Charles, LA United States 420 (2) 450 (4) Q3 2018 Nova* Sarnia Canada 430 (3) Q3 2018 Shell* Marcellus United States 500 (3) 1000 (4,7) Q3 2019 Ascent (Braskem)* Marcellus United States 1500 (3) 2019 Totals, 000's MT 1420 3698 3535 2000 10,653 *Reported projects not fully verified or approved and not included in IHS capacity database. **Processes: (1) Autoclave, (2) Tubular, (3) TBA, (4) Gas Phase, (5) Other, (6) Ziegler, (7) PF Loop
Economics by Region: Price Forecast Cents Per Pound 120 100 80 60 40 20 Saudi ethane based 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 NAM Cash Cost, Integrated NAM LLDPE WEP LLDPE CHINA LLDPE (Spot) 13
All PE - America s Trade Balance Net Trade, Million Metric Tons 10.0 Trade as a % of Production 16% 12% 5.0 8% 0.0 4% 0% -5.0 2008 2010 2012 2014 2016 2018 South America Net Trade North America Net Trade NAM Exports - SAM Imports NAM Exports - SAM Imports as % of NAM Prod -4%
HDPE America s Trade Balance Net Trade, Million Metric Tons 3.0 2.0 1.0 0.0-1.0-2.0 2008 2010 2012 2014 2016 2018 South America Net Trade North America Net Trade NAM Exports - SAM Imports NAM Exports - SAM Imports as % of NAM Prod Trade as a % of Production 14% 12% 10% 8% 6% 4% 2% 0% -2% -4%
North America PE Contract Discounted Prices Cents Per Pound 100 90 80 70 60 50 40 30 20 1995 1998 2001 2004 2007 2010 2013 2016 LDPE GP LLDPE C4 HDPE BM 16
Polyethylene: Global Price Equilibrate Price, Cents Per Pound 90 Price, Dollars Per Metric Ton 1984 80 1764 70 1543 60 1323 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 North America Discounted West Europe Discounted CFR China Spot 1102
Polyethylene Net Trade Flows 6318 13105 9956 2699-1637 -3225-5759 -8715-2267 -2860-1945-1949 2013 Net Trade 2018 Net Trade (Thousand Metric Tons) -1792-2948 745277
PE Summary Two low cost producing regions emerge (N. Am, MDE) - compete for global market share. China also adds low cost capacity domestic focus N. American domestic demand accelerates: driven by increased low cost production, competitive market dynamics, and increased exports of finished goods Increased capacity / competition drives PE prices toward global parity N. American integrated margins decline as: new capacity starts, feedstock prices rise, and competition increases. Commoditization of higher margin resins develops as producers add capacity 19
Polypropylene Update
Global Polypropylene Demand Today China 33% Northeast Asia 9% Africa/Middle East 10% Indian Sub. 2% Southeast Asia 9% Other 5% West Europe 14% North America 13% South America 5% 2013 Total Global Demand = 56.0 Million Metric Tons 2018 Total Global Demand = 71.6 Million Metric Tons 2013-2018 AAGR Global = 5.0% West Europe = 1.4% North America = 2.3% South America = 5.1% Northeast Asia = 6.0% Southeast Asia = 5.6% China = 6.9% Africa/MDE= 5.3% Demand Growth 2013-2018 = 28%
PP Capacity Builds in Middle East and China Leads to Over-Capacity Million Metric Tons 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 North America South America West Europe CEP/CIS Africa/Middle East Indian Sub. Northeast Asia Southeast Asia Global Demand Growth
Global Polypropylene Operating Rates Operating Rate, % 100 90 80 70 60 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 World Northeast Asia West Europe North America Middle East South America
Oversupply Explains Why Asia Lowest Price Price, Cents Per Pound 110 100 90 80 70 60 50 40 Price, Dollars Per Metric Ton 2,425 2,205 1,984 1,764 1,543 1,323 1,102 882 30 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 North America Discounted West Europe Discounted North America Spot Export China Spot 661
Regional Polypropylene Prices Price, Cents Per Pound 120 110 100 90 80 70 60 50 Price, Dollars Per Metric Ton 2,645 2,424 2,204 1,983 1,763 1,542 1,322 1,101 40 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 881 North America Discounted SAM Domestic Delivered West Europe Discounted China spot (cfr China)
North America Polypropylene Demand Today Canada 17% Mexico 6% 2013-2018 AAGR North America = 2.3% United States = 2.1% Mexico = 3.1% Canada = 2.3% US 77% 2013 Total Demand = 8.9 Million Metric Tons 2018 Total Demand = 10.6 Million Metric Tons Demand Growth 2013-2018 = 19%
North America Polypropylene Demand by End Use Other 30% Film & Sheet 17% Raffia 2% Fiber 16% Blow Molding 2% 2013 Total Demand = 8.6 Million Metric Tons Injection Molding 33% 27
PP North America Supply and Demand Forecast Million Metric Tons Operating Rate 12.0 100 90 10.0 80 8.0 70 60 6.0 50 40 4.0 30 2.0 20 10 0.0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Domestic Demand Exports Total Capacity Imports Operating Rate
North American Integrated Producers To Benefit The Most North America PP Margin, Discounted Contract, Dollars Per Metric Ton 900 700 500 300 100-100 2010 2012 2014 2016 2018 Non-integrated Producer PDH-Integrated Producer Refinery-Integrated Producer
South America PP Supply and Demand Forecast Million Metric Tons Operating Rate 5.0 90 80 4.0 70 60 3.0 50 2.0 40 30 1.0 20 10 0.0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Domestic Demand Exports Total Capacity Imports Operating Rate
Polypropylene: Americas Trade Balance Net Trade, Million Metric Tons 1.5 1.2 0.9 0.6 0.3 0.0-0.3-0.6-0.9 Trade as a % of Production 15% 12% 9% 6% 3% 0% -3% -6% -9% -1.2 2008 2010 2012 2014 2016 2018 South America Net Trade North America Net Trade NAM Exports - SAM Imports NAM Exports - SAM Imports as % of NAM Prod -12%
Significant Shift for PP Global Trade 3167 2880 900 331 498 740 280 1105 120 630 158 280 43 264 1748 131-249 547 644 1382 2008 Net Trade 306 296 959 1039 248 461 759 2013 Net Trade 2018 Net Trade (Thousand Metric Tons)
How has Polypropylene compared versus other materials?
Global Polypropylene Competiveness (PP/HDPE Ratio) vs. HDPE Improving Price Ratio 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 2003 2005 2007 2009 2011 2013 2015 2017 PP/HDPE North America PP/HDPE West Europe PP/HDPE China
North American Material PP Spreads (cents/cubic inch) 1.0 0.0-1.0-2.0 2003 2005 2007 2009 2011 2013 2015 2017 PP to PE Spread PP to PS Spread PP to PET Spread
Polypropylene: Key Takeaways North American PP margins forecasted to expand and improve with likely peak in the 2016/2017 time period Cost to remain competitive with HDPE While positioned favorably to PS and neutral to PET PDH based PP in North America to be advantaged New PP capacity will continue to drive off propane based economics Next 5 Years brings significant shifts in trade China becomes more self sufficient Middle East Redirects Exports New capacity in North America increases export position post 2017 Europe transitions to new import position
PET Update
Polyethylene Terephthalate End Uses PET Resin (Rigid Packaging) 31% Oriented PET Film 4% Other 3% Fiber 62% 2012 Total Demand = 55.6 Million Metric Tons 38
World PET Capacity Versus Demand Million Metric Tons Operating Rates, % 40 100 30 75 20 50 10 25 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EMEA Capacity Americas Capacity Asia Capacity EMEA Demand Americas Demand Asia Demand Op. Rate w/o Hypo Capacity 0
North America PET Demand Million Metric Tons Operating Rate, % 8 100 6 80 4 60 2 40 0 20-2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 U.S. Mexico Canada Net Exports Capacity Operating Rate
North American Capacity Growth M&G 1 million metric Million Metric Tons ton expansion at 3.0 Corpus Christi, Texas Operating Rate, Percent 100 2.0 90 80 1.0 70 0.0 60 50-1.0 40-2.0 Indorama 540 thousand 30 2007 2008 2009 2010 2011 2012 2013 metric 2014 ton 2015 expansion. 2016 2017 DAK Indorama M&G Nan Ya Selenis Eastman Invista Wellman Hypothetical Domestic Demand Growth Excess Regional Capacity Operating Rate
Conclusions - PET Global PET markets will continue to be vastly oversupplied. North America is embarking on even further capacity expansion which will change the economic dynamic.
Polystyrene Update
Polystyrene Demand Decline in Developed Regions Demand, Million Metric Tons 12.0 10.0 8.0 Average Annual Demand Decline (0.6%) 6.0 4.0 2.0 0.0 2003 2005 2007 2009 2011 2013 North America West Europe China World
North American High Heat Polystyrene Cash Cost & Margin Cents Per Pound 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 High Heat Polystyrene Cash Cost NAM Polystyrene HH Net Transaction Polystyrene Non-Integrated Producer Margin
Polystyrene Market Summary Pricing Outlook High No shale gas benefits - Benzene/ Styrene prices to remain high NAM PS prices at highest level seen to date driven by benzene. Despite margin improvement, PS reinvestment economics still not there Demand Outlook Weak Below GDP growth globally for PS in the next five years Future demand growth from Electronics and Consumer segment. Packaging market remains weak threat from substitution and environmental pressures (New York ban)
Resin Markets Summary Conditions very favorable today for PE producers Conditions improving for PP and PS producers PET producers look to continue to struggle Converters to benefit post 2015 time frame with more competitive pricing for PE and PP on a global basis Converter North American PE and PP demand expected to see bump as a result Tough sledding for converters with PS but PET prices should be competitive with ceiling set by Asian imports.
Thank you and upcoming in March World Petrochemical Conference March 25 28 th Houston, Texas Hilton Americas Global Plastics & Polymers Market Advisory Service Polyolefins North America Joel Morales Robin Waters Nick Vafiadis Javier Ortiz Joel.Morales@ihs.com Robin.Waters@ihs.com Nick.Vafiadis@ihs.com Javier.Ortiz@ihs.com 832 619 8588 832 619 8576 281 752 3206 281 752 3293 48