Polyolefins Overview Nick Vafiadis, Senior Director Global Polyolefins and Plastics Nick.Vafiadis@ihs.com 1(281)752-3206 FPA: September 2013
Agenda Ethylene Polyethylene Propylene Polypropylene 2
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
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
Ethylene Cost Curve: A Feedstock Story. Dollars Per Metric Ton 1,800 2012 World: Ethylene Cost Curve 1,500 1,200 Brazil Avg NEA Avg WEP Avg 900 SEA Avg SAM Avg 600 300 MDE Avg NAM Avg 0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 Cumulative Production - Million Metric Tons
Ethylene Capacity vs. Demand Million Metric Tons 20 15 10 AAGR 13-18 Total Demand = 4.3% Total Capacity = 4.0% 5 0-5 -10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 North America Middle East Asia Pacific West Europe Other South America Demand Change 6
Key to North American Advantage Crude to Natural Gas Ratio $US per Million Btu 18 Gas as % of Crude 120% 15 100% 12 80% 9 60% 6 40% 3 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%
Feedstocks & Cracker Economics The Range for NGL Prices has Expanded Constant 2012 Dollars Per MMBtu 25 20 15 USGC Light Naphtha Brent Crude WTI Crude Henry Hub Gas Propane Ethane Butane 10 5 0 1995 2000 2005 2010 2015
Feedstocks & Cracker Economics US Feedslates Will Continue Trending Lighter Weight Produced From Feedstock 100% 80% 60% 40% 20% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ethane Propane Butane Naphtha Gas Oil
15 14 13 12 11 10 9 Ethylene Market View U.S. Supply/Demand Balance Remains Tight Billion Pounds 16 07 08 09 10 11 12 13 14 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 1578 - 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 www.ihs.com/chemical June 2013- April 2014 9 Months
US Ethylene Daily Cash Costs Cents Per Pound 80 70 60 50 40 30 20 10 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 1543 1323 1102 882 661 441 220 0 11
70 60 50 40 30 20 10 Ethylene Market View U.S. Spot Price Forecast to Remain Elevated versus Net Transaction Cents Per Pound 0 10 11 12 13 14 Weight Avg. Cash Cost Net Contract Price Avg. Spot Price
Ethylene Market View Global Annual Cash Margins a stunning turn of events. Dollars Per Ton 1,000 800 600 400 200 0-200 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 U.S. Ethane U.S. Integrated Lt. Naphtha WEP Naphtha Discounted Price SEA Naphtha U.S. Weighted Average
Ethylene Market View Announced (-000- MT) 2012-2014 2016-2020 BASF/Total (Port Arthur) 180 Chevron Phillips (Cedar Bayou) 1500 Dow (Taft / Freeport) 386 1500 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
Polyethylene 15
Polyethylene: Global Momentum 2013 Global Demand 2018 Global Demand LDPE HDPE LDPE HDPE LLDPE 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 2013 2018 AAGR Total Capacity = 4.6% Total Demand = 4.8% 4.0 2.0 0.0-2.0-4.0 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
Shale Drives North America PE Projects Company Location Country LDPE LLDPE HDPE Resin Type TBA Startup 2012-2013 Equistar LaPorte, TX United States 23 Q4 2012 Equistar Morris, IL United States 45 Q4 2012 2014 Equistar Bay City United States 91 Q4 2014 2015-2016 Ineos Sasol Deer Park, TX United States 475 Q2-Q3 2015 Braskem Idesa Coatzacoalcos Mexico 300 750 Q3-Q4 2015 Nova Joffre Canada 450 Q4 2015 ExxonMobil Mont Belvieu, TX United States 650 710 Q3 2016 Equistar * Corpus Christi, TX United States 500 2016 Formosa Point Comfort, TX United States 300 Q4 2016 2017 Dow Freeport, TX United States 400 650 2017 CPChem Sweeny, TX United States 500 500 Q3 2017 2018-2019 Sasol Lake Charles, LA United States 420 450 Q3 2018 Nova* Sarnia Canada 430 Q3 2018 Shell* Marcellus United States 500 500 Q3 2019 Totals, 000's MT 1420 3698 3026 500 8644 *Reported projects not fully verified or approved and not included in IHS capacity database.
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
Economics by Region: Price Forecast Cents Per Pound 120 100 80 60 40 20 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
America s Trade Balance Net Trade, Million Metric Tons 10.0 Trade as a % of Production 25% 5.0 15% 0.0 5% -5.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 South America Net Trade North America Net Trade NAM Exports - SAM Imports NAM Exports - SAM Imports as % of NAM Prod -5%
Polyethylene: Price Momentum Equilibrates 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
Distribution of Margin Cents Per Pound Polyethylene 60 50 40 30 20 10 0-10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Wtd. Avg. PE Margin - Contract Non-Int. Including Discounts Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs
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 2013. 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. 2014 growth slightly below GDP levels
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. 5-10 cpp for Sept / Oct (supply/demand driven). 5 cents likely: particularly for HDPE Margins: YTD integrated margins avg approx. 40 cpp. 2013 will be a record. Reference: 2012 = 28.5 cpp, 2011 = 14.6 cpp 2000 2010 = 13.6 Forecast: Sellers market conditions continue to keep prices high and margins strong until new capacity drives competition and pressures pricing and margins.
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
North America: New Momentum Million Metric Tons 25.0 Operating Rate 95% 20.0 15.0 90% 85% 10.0 5.0 2013-2018 AAGR Total Capacity = 5.0% Domestic Demand = 2.3% Exports = 6% 80% 75% 70% 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 65% Domestic Demand Exports Total Capacity Imports Operating Rate
US PE: Strong Growth Projected Total Demand, Million Metric Tons 25.0 % Change, Year over Year 10.0 20.0 5.0 15.0 0.0 10.0 5.0 2018 2013-2023 2018 AAGR Total Capacity = 3.7% 5.8% Domestic Demand = 2.7% 1.9% Exports = 3.8% 7.6% -5.0-10.0 0.0 2008 2010 2012 2014 2016 2018 2020 2022 US Domestic Demand US Exports US Demand Change US GDP -15.0 28
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
Propylene / Polypropylene 30
Global Polypropylene Demand Today Asia Pacific 53% Europe 18% South America 5% Africa/Middle East 10% North America 13% 2013-2018 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 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 2013 2018 AAGR Total Capacity = 4.9% Total Demand = 5.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 North America South America Europe Africa/Middle East Indian Sub. Northeast Asia Southeast Asia Global Demand Growth
Propylene Market View US PDH Margins Attracting New Investment 2012 cash costs US Dollars Per Metric Ton 1600 US.Cents Per Pound 82 1400 1200 1000 800 600 U.S. PG Price U.S. RG Price 73 63 54 45 36 27 400 18 200 9 0 U.S. PDH MDE PDH China CTO West Europe Naphtha U.S. Splitter Northeast Asia Naphtha Northeast Asia PDH U.S. Metathesis 0
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 2014. 34
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 2015. 35
Global Demand Slowdown & Overcapacity Centered in Asia Price, Cents Per Pound 110 Price, Dollars Per Metric Ton 2,425 100 90 80 70 60 50 40 30 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 1,102 882 661
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 North America Discounted West Europe Discounted SAM Domestic Delivered China spot (cfr China) 881
Polypropylene Price vs. HDPE Price Ratio 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 2007 2008 2009 2010 2011 2012 2013 2014 PP/HDPE North America PP/HDPE West Europe PP/HDPE China PP/HDPE South America
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
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 6.0 5.0 4.0 3.0 2.0 1.0 Source: EIA, Data Through 26-October-12 EIA; Data through September 13 2013 0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5-Yr MIN-MAX Range 2011 2012 2013 40
PP North America Back in Growth Mode Million Metric Tons 12.0 10.0 8.0 Operating Rate 100 90 80 6.0 4.0 2.0 0.0 2013-2018 AAGR Total Capacity = 3.8% Domestic Demand = 2.3% Exports = 8.5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 70 60 50 40 Domestic Demand Exports Total Capacity Imports Operating Rate
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 Q3 2015 NB Enterprise Mont Belvieu, TX PDH 750 Q4 2015 NB Formosa Point Comfort, TX PDH 600 Q3 2016 NB Ascend Alvin, TX PDH 1000 Q1 2017 NB Williams Redwater, Alberta PDH 500 Q2 2017 NB Dow Freeport, TX PDH 750 Q3 2018 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
PP Film Demand 2012 vs. 2013 YTD July PP Category Percent Change Film 10 Mils and Below -5.0 Oriented Film -3.7 Non- Oriented Film -11.7 Sheet 10 Mills and Over Packaging -2.1-5.8 Other Sheet 4.0 Source: ACC, Plastics Division; Gov t Trade Data
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