polyester chain dynamics and outlook in south...
TRANSCRIPT
Polyester Chain Dynamics and Outlook
in South Asia
Steven Jenkins
PCI Xylenes & Polyesters Asia Sdn Bhd
Introducing PCI Xylenes & Polyesters Ltd
Established in 1988 PCI has grown alongside the polyester and raw materials industries,
providing insight into the changing markets, answering some of the toughest questions and
supporting many of the most significant investments.
The Group has developed through the years from market reporting, business analysis and
specific project work to provision of board-level strategy support and assisting leading clients in
developing major projects from conceptual phase through project realization.
Core team of 9 experienced industry consultants each with a minimum of 20 years expertise
covering all regional markets in the petrochemical and downstream businesses.
Our main centres, in Guildford-UK and Kuala Lumpur-Malaysia are supported by offices in
USA, Singapore, Korea, Taiwan, India, Pakistan, Turkey and Saudi Arabia. From these
locations our consultants and representatives support and study the industries in those
regions.
Access to a network of associated specialist consultants and technical consulting companies
Since 1988, PCI Xylenes & Polyesters has been the global leader in consulting for the
polyester and raw materials markets.
Polyester & Downstream Markets
India is set to grow faster than most leading economies
Currently, India has the world’s third largest national economy,
when measured in PPP terms. Over the next decade, the Indian
economy is forecast to grow more quickly than all of the other
large economies.
In 2024, the Indian economy will still be much smaller than
those of the USA and China.
However, it will be much larger than all other national
economies.
Over the next decade, the increment in India’s GDP (in PPP
terms) is forecast to exceed the increment in aggregated GDP
of Japan, Germany, Brazil and Russia.
The 10 Largest National Economies
PPP share of world GDP - 2013
0
2
4
6
8
10
12
14
16
18
20U
SA
Ch
ina
Ind
ia
Ja
pa
n
Ge
rma
ny
Ru
ssia
Bra
zil
UK
Fra
nce
Me
xic
o
Pe
r C
en
t
Projected Real GDP (PPP Terms) by 2024
The chart below applies growth rate projections to the 2013 world GDP shares of the ten largest national economies to demonstrate how the contribution of India to the global economy will increase in importance over coming years.
6.0%
2.5%
6.0% CAGR
1.0% 1.5% 3.0% 3.0% 2.0% 1.5% 3.0%
0
5
10
15
20
25
30
Chin
a
US
A
Ind
ia
Ja
pa
n
Germ
any
Russia
Bra
zil
UK
Fra
nce
Me
xic
o
% o
f 2
01
3 w
orld
rea
l G
DP
Sources: IMF WEO database, April 2014; author's computation; the percentage above each bar is the assumed CAGR
for 2013-23 for each country
Selected GDP Forecasts Q1 2015
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2012 2013 2014 2015 2016 2017 2018
USA Europe (EU28) China India NE Asia SE Asia
Source: Average of World Bank, IMF and Oxford Economic Forecasting data
Consensus points to reasonable economic growth Polyester typically grows @ 2x GDP
Indian textile & apparel market size is US$ 108 billion in 2013 and
growing at a healthy rate
14
+11%
2013
13 5
50
2012
68 63
4 4
35 45
13
40
50
3
44
11
31
2011 2009 2010
10
57
4
Apparel Home Textiles Technical Textiles
Total market size
US$ 108 billion
Domestic consumption
US$ 68 bn.
Apparel
US$ 50 bn.
Home textiles
US$ 5 bn.
Tech. textiles
US$ 13 bn.
Exports
US$ 40 bn.
Textiles
US$ 20 bn.
Apparel
US$ 15 bn.
H/crafts & carpets
US$ 5 bn.
Historical growth pattern of domestic market
27
1 11
15 22
1 11
40
2009
10
2013
5
18
2012
33
1 13
19
34
2010
+16%
4
12
2011
20
15
Apparel Textiles H/crafts & Carpets
Historical growth pattern of Indian T&A exports
Note: Exports data for FY
Source: DGCIS & Wazir Analysis
India is the second biggest exporter of textile & apparel
Country 2013 Exports
China 274
India 40
Italy 36
Germany 35
Turkey 28
USA 27
Bangladesh 26
Vietnam 22
Belgium 16
France 16
Rep. of Korea 16
Spain 16
Pakistan 14
Indonesia 13
Largest Exporters of T&A
Data Source: UN Comtrade
2nd in Textile Export with 7% Share
6th in Apparel
Export with 3.7% Share
2nd in Global
Export with 5.2% share
India’s Ranking in Global T&A Trade in 2013
India has potential to
double its export share
from present 5% to 10% in
next 10 years
Values in US$ Billion
Indian fibres growth is based on strong fundamentals
Demographic dividend
Increased purchasing
power of consumers
Rapid urbanization
Increased penetration of
organized retail
Increase in residential
and commercial space
Growth of industry
sectors e.g.automotive,
healthcare, real estate,
etc.
Increasing awareness
about hygiene and safety
among common people
Increased Government
outlay for infrastructure
along with private
investments in the sector
Growth Drivers for Domestic
Apparel & Home Textiles
Market
Growth Drivers for
Domestic Technical
Textiles Market
Government schemes
for export promotion and
attracting FDI
Trade agreements with
major markets – CEPA
with Japan, FTA with EU
(under discussion)
Best alternative to China
as supply base
Growth Drivers for Export
Markets
Consumption of Polyester based end products will increase
in the domestic market, with strong export potential
• Increase in women’s participation in workforce and changes in culture/fashion will push the demand of western office wear, casual wear etc
Women’s western wear & Innerwear
• India’s large young population base with increasing awareness towards fitness will increase the consumption of active-wear / sportswear
Active wear
• Increasing no. of school-going children & consciousness of corporates towards their image are likely to create more usage of school & corporate uniform
Work wear / Uniform
• Awareness of Indian women towards health and hygiene will cause increased women’s hygiene product usage
Hygiene Products
• India’s emergence as global automobile manufacturing hub will surge the demand of technical textile products e.g. seat belts, airbags, seat covers and headliners
Mobiltech products
• Stricter compliance norms and increasing workers’ awareness towards health and safety will create large demand for protective wear products
Protective wear
Growing categories that will drive demand of Polyester textiles in the domestic market
Polyester Consumption vs GDP/Capita (Selected Countries)
0
5
10
15
20
25
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Kg
/Cap
ita
Po
lye
ste
r C
on
sum
pti
on
GDP/Capita Income (USD)
India
China
Indonesia
Turkey
S Korea
UK
USA
Source: PCI Analysis
Majority of global population still in “developing” countries. Polyester penetration is still relatively low in these areas, implying significant ongoing growth potential.
Key Synopsis: Indian textile industry may consume more polyester than
cotton within the next five years
Share of manmade fibre in total mill consumption is expected to reach
~65% by 2030. However, the share of cotton is expected to decrease from
current level of ~55% to 32% by 2030.
A drastic change is expected in the mill consumption of polyester fibre,
share of which is projected to grow to 53% (9,455,000 tonnes) by 2030.
Values in ‘000 Tonnes
Source: Wazir & PCI Analysis
40% 41% 42% 43% 44% 45% 46% 53%
6% 6% 6% 7% 7% 8% 8% 11%
51% 48% 47% 46% 45% 44% 43% 32%
3% 4% 4% 5% 4% 3% 3% 5%
2014 2015 2016 2017 2018 2019 2020 2030
Polyester Other MMF Cotton Other Natural Fibres
10189 9163 9741 10670 11093 11392 17951 11678
Total Fibre Consumption At Mill Level
PET Packaging Resin Growth
0
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016 2017
Volu
me
(000
met
ric
tons
)
North America South America West Europe East Europe Africa
Middle East China Indian Subcontinent NE Asia Rest of Asia
Key Drivers for Polyester 2015-2018
Lower oil and energy prices could add 0.8%-1% to global GDP growth.
Approx $2tn per year diverted from energy to other expenditure.
Consumer disposable income will increase as a direct result of lower
energy pricing (unlike QE1/2/3)
Higher population and GDP drives fibre growth. Demand is relatively
inelastic for polyester, which sees little inter-product competitive threat
PET growth is driven by rising living standards, urbanisation and retail
sector growth, especially in Asia/Middle East/Africa, innovative
package and performance development for food and non-food
applications.
Innovation in niche markets for fibre and packaging driving value-
added growth.
World Polyester Forecast
2013 2014 2015 2016 2017
Staple 15,600 16,392 17,264 18,141 19,089
Filament 28,167 29,042 31,014 33,296 34,873
Total Fibre 43,767 45,433 48,278 51,437 53,962
PET Resin 18,428 19,335 20,593 22,001 23,128
Film 3,214 3,458 3,688 3,979 4,215
Other Resins 1,876 2,000 2,136 2,232 2,339
Net Polymer Production
(excl recycle) 63,186 65,630 69,778 74,311 78,213
Polymer Capacity 79,439 86,909 91,435 96,099 99,456
Polymer Utilisation Rate 80% 76% 76% 77% 79%
Polymer Production
Growth 5.2% 3.9% 6.3% 6.5% 5.3%
PSF 4.8% 5.1% 5.3% 5.1% 5.2%
PFY 5.9% 3.1% 6.8% 7.4% 4.7%
PET 3.4% 4.9% 6.5% 6.8% 5.1%
World Polyester Production Growth by Product
0
1,000
2,000
3,000
4,000
5,000
6,000
2013 2014 2015 2016 2017
Kt
Staple Filament PET Resin Film Other Resins
Chain destocking (price)
Higher GDP growth (oil effect) Chain re-stocking (price)
Return to trend growth
GDP and lower oil prices expected to stimulate volume growth 2015-16
60%
65%
70%
75%
80%
85%
-
5,000
10,000
15,000
20,000
25,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
KT
PSF ISC PSF SE Asia PFY ISC PFY SE Asia
PET ISC PET SEA Film ISC Film SE Asia
Polyester Production Utilisation
South Asia Polyester Capacity Growth by Sector
After cyclical over-investment in polyester 2011-2014, we expect capacity rationalisation, M&A as well as project delays and cancellations to improve polyester markets 2015-2018 as production growth remains steady
Outlook for Polyester 2015-2017
Margin cycle may have bottomed out for polyester, with increasingly competitive PX/PTA prices giving positive margin outlook.
Oil price fall has forced chain destocking in 2014. Forecast is for inventory recovery in 2015 and higher growth (+1% over forecast) by 2016 as oil stabilises at lower levels.
Scale investment has driven the business cycle, but now anticipating some rationalisation and M&A activity. Utilisation recovering in 2016-17 on strong volume growth and delayed/cancelled projects in Asia.
Many polyester assets sit idle in China, Korea, and Taiwan and are likely to be scrapped as M&A options are limited. Actual industry utilisation is higher than nameplate rates would indicate.
Paraxylene & PTA Markets
World PTA Supply Demand
Demand growth remains solid at
6% .
Market pricing dynamics begin to
see positive recovery.
Net capacity additions forecast to
stabilise post-2015.
Plant closures are being seen,
rationalisation set to pick up pace in
2015.
Production discipline starts to
emerge in China with positive
impact on margins
Effective utilisation rates support
margin recovery in next 2-3 years
70%
72%
74%
76%
78%
80%
82%
84%
86%
88%
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017
Mill
ion
To
nn
es
Total Consumption
Capacity
Utilisation Rate (Effective)
Utilisation Rate (Nameplate Basis)
Bottom of cycle reached – improving outlook for 2015-2017
World PTA Production Growth by Region
(2000)
(1000)
-
1,000
2,000
3,000
4,000
5,000
2013 2014 2015 2016 2017
KT
North America South America Europe Middle East/Africa Asia/Far East Net Growth
2015 volume growth boosted by re-stocking, low oil prices and increased polyester competitiveness
70%
75%
80%
85%
90%
95%
0
10
20
30
40
50
60
2012 2013 2014 2015 2016 2017 2018
Mill
ion
To
nn
es
Capacity Production
Consumption Utilisation Rate (RHS)
(China in light shaded bars)
-1,200
-1,000
-800
-600
-400
-200
0
200
400
600
2010 2011 2012 2013 2014 2015 2016 2017 2018
‘00
0 T
on
ne
s
Import Export Net Trade
India small compared to China and becomes a PTA exporter 2015-2017
China dominates PTA pricing and
polyester economics New capacity additions (RIL and JBF)
turn India in to PTA exporter 2015-2017
Indian Subcontinent PTA Supply Demand
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
60%
65%
70%
75%
80%
85%
90%
95%
0
2
4
6
8
10
12
Mill
ion
To
nn
es
Total Production Total Consumption Capacity Utilisation Rate
RIL & JBF PTA expansions set to change South Asian dynamics considerably
Outlook for PTA
South Asia margins have potential to improve as China’s “discipline” to hold lower production levels establishes a new modus operandi.
Cash generation now paramount in China as recognised by central bank decision to cut interest rates. This policy move should reinforce local production discipline, supporting margin recovery.
Rate of investment is slowing in Asia, but capacity will continue to be added into 2015, diluting the industry’s effort to restructure.
Any project not yet under construction now likely to be delayed or is considered very doubtful.
Investment in India will redefine Asian PTA trade and will inevitably have a major impact on N Asia and Middle East balances
Lower energy prices will provide cost benefit to many PTA producers via lower production costs
76%
78%
80%
82%
84%
86%
88%
90%
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2013 2014 2015 2016 2017
Mill
ion
To
nn
es
North America South America
Europe Middle East/Africa
Asia/Far East Utilisation (RHS)
World Paraxylene Capacity Growth 2012-2017
11 new PX units started 2013-2014,
increasing competitive supply
Utilisation rates drop from the high
80’s to the low 80’s.
Asset closures (or idling) in Korea,
Japan and Taiwan has been
underway for 12 months already.
Anticipate similar asset outages in
Europe and North America.
PX buyers now in stronger position
than in prior years as excess supply
increases competition
RIL set to expand in India by end
2015
Further projects in India being
evaluated
MT
% 2.4
4.8
2.9
7.5
4.7
11.3
3.5
7.7
2.5
4.8
Growth per annum
Indian Subcontinent Paraxylene Supply Demand
2010 2012 2014 2016 2018 2020
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
0
1
2
3
4
5
6
7
Mill
ion
To
nn
es
Total Production Total Consumption Capacity Utilisation Rate
Increased domestic demand into PTA in 2015 ahead of RIL PX
Consumption growth broadly supportive of further investment in PX in India
Regional PX Net Trade 2013-2016 (Thousand Tonnes)
-1000
-500
0
500
1000
2013 2014 2015 2016
0
500
1000
0
2000
4000
6000
8000
0
2000
4000
6000
8000
10000
-1000
-500
0
500
1000
-12000
-8000
-4000
0North America
EU28
South America
Middle East
China
Other Asia
W Hemisphere balanced. China is the major importer. Middle East, N Asia and S Asia all net exporters
Paraxylene Summary
China remains the focus of consumption growth in the medium term and is
struggling to meet domestic demand, with growing deficit of 10 million tes +
Feedstock for new PX growth is not widely available to all potential investors
India has an advantage via good access to feedstock heavy naphtha
Increasing scale and complexity of build and higher capex per tonne for
grassroots projects
Supply addition in 2014 has reversed the business cycle
PX markets increasingly competitive and highly integrated
Middle East PX increasingly important dynamic for South Asian markets
PX-naphtha spreads set to decline to cyclical low 2015-2017
Planned capacity under construction likely to keep PX market highly competitive
and well-supplied until 2018/2019