review of industry, energy_feedstocks and polypropylene
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4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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Page 1
Review of Industry,Energy/Feedstocksand Polypropylene
Bob Dennett, Senior Principal Analyst,
Commodity Plastics
May 2012
Paul Blanchard, Senior Principal Analyst,
Engineering Resins
May 2012
Page 2
Energy & PolymerFeedstocks
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4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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Where do Feedstocks come from?
Natural Gas Oil
Primarily Two Sources
Page 4
How Much Oil Goes Into Plastics?
93%
Refining
Gasoline
& Distillates
Heating or
Transportation Fuels
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4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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7%
Crude Oil Demand
> 84.0 Million BPD
(Global)
LPGNaphthaGas Oil
Petrochemical
Industry
< 3% of Crude ends up inPlastics Industry
Page 5
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How Much Natural Gas Goes Into Plastics?
92%
Methane
Ethane
(Fuel Gas)
8%
Petrochemical
Industry (25%)
Gas Demand
>285 Trillion Cubic
Feet/day (Global)
GasProcessing
Ethane, PropaneButane, Light
Naphtha
(NGL)
< 2% of Gas ends up in
Plastics Industry
Page 6
Crude - Expensive Relatively And Absolutely
50%
60%
70%
14
16
18
20
Dollars Per MMBtu Gas as a% of Crude, BTU Basis
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0%
10%
20%
30%
40%
0
2
4
6
8
1012
06 07 08 09 10 11 12 13 14 15 16
Crude (WTI) Natural Gas Gas as % of Crude
Page 7
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FeedstocksEnergy Petrochemicals
Naphtha
Gas Oil
Ethane
Propane
Butanes
Field
Condensates
PropyleneEthylene
PygasBenzene
Toluene
XylenesC 5/C 6 Non Aromatics
Heavy Aromatics
Crude C 4ButadieneMixed Butylenes
Fuel Oil
Methane/Hydrogen
Natural Gas
Crude Oil
Refinery
GasSeparation
Unit
Ethylene
Unit
Olefins Flow Diagram
Page 8
2012 Global Ethylene Cost Curve
NE Asia Avg.1,250
1,450
1,650
Dollars Per Metric Ton
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SE Asia Avg.
West EuropeAvg.
Middle East
Avg.
U.S. Avg.
50
250
450
650
850
1,050
0 20 40 60 80 100 120 140 160
Cumulative Ethylene Capacity (Million Tons)
U.S. Ethane
SAM Avg.
Page 9
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Polymer Ethylene Propylene Benzene Butadiene Chlorine Xylene
PE X - - - - -
PP X X - - - -
PS/EPS X X X X - -
PVC X - - - X -
PET X - - - - X
ABS X X X X -
PC - X X - - -
Nylon - X X X - -
Major Polymer Feedstocks
Page 10
Chemicals that can leverage low cost Btus either throughfeedstock or processing costs when the predominant
alternative production is based on crude oil / naphtha
Low Gas Benefits Certain Chemicals
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HighlyAdvantaged
Ethylene
Polyethylene
EthyleneOxide
Derivatives
MEG,Amines,
Alpha OlefinsMo
derateAdvantage
Chlorine &Caustic
Soda
VinylsEDC /VCM
Styrenics
Methanol
NoAdvantage
RefineryProducts
BTX
Propylene
Butadiene
Relative Cost Advantage gain from Natural Gas
A comparisonof some of the
products
impacted by
the difference
in natural gasvalues vs. oil
prices.
Page 11
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Global Plastics Consumption 2011
HDPE17%
LLDPE
11%
LDPE9%
PP25%
PS5%
ABS4%
PVC18%
PET7%
PC
1%
Nylon
3%
2011 World Polymer Demand => 205 Million Metric Tons
Page 12Average Plastics/Composites in LightVehicles by Region in 2010
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0 10 20 30 40 50 60 70 80 90 100
Other
Polyvinyl
Other Engr
Polycarbonate
Polyethylenes
Polyvinyl
ABS
Nylon
Polyurethanes
Polypropylene
Source: American Chemistry Council
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Growth of Plastics in Light Vehicles
0
50
100
150
200
250
300
350
400
1999 2010
Polyolefins Polyurethane Polyvinyl Chloride Engineering Resins Other Plastics
Volume, Pounds per
Vehicle
Source: American Chemistry Council
Page 14
2010 Automotive Plastics Breakdown
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Polypropylene
25%
Polyethylenes
5%
Polyurethane
15%
PVC
8%
Acrylics
1%
Phenolics3%
Unsat. Polyester3% Other
3%
Nylon
12%
ABS
7%
Polyester ETP
6%
Polycarbonate
5%
Polyphenylene Ether
4%
Polyacetal
2%Other Engr
1%
Engineering Resins
38%
Source: American Chemistry
Council
Plastic Pounds / Vehicles 2010= 378
Page 15
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Polypropylene
Page 16
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The Good Old Days
Cheap MaterialAvenue to move excess
propylene
VersatileAble to replace other
products
Poor mans engineeringpolymer
Low price and versatilitydrove growth
PP one of the polymerswith the highest demandgrowth rate
Page 17
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In Last Two Years, Cost Position Changed
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
PP/HDPE North America PP/HDPE West Europe PP/HDPE China
Price Ratio
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0 1 2 3 4 5
PP
ABS
PET
LDPE
LLDPE
HDPE
PS
PVC2002
2011
Molding grade resins
Cost, Cents Per Cubic Inch
U.S. Comparative Costs of ThermoplasticPolymers
Page 19
Direct RG chemical consumption
Alkylation
Unit
High Octane
Motor Gasoline
Other Fuel Uses
Motor
Gasoline
Purification
Splitter Unit
Other Propylene
consumers
Crude
Oil
Steam Cracker
(Olefins Plant)Ethane
Propane
Naphtha
Ethylene
& Olefins
Refining Industry
Crude
Unit
Motor
Gasoline
Chemical Industry
Injection
Molding,
Fibers,
FilmsPolypropylene
On-Purpose
FCC
Unit
Whats Changing in Polypropylene
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Ethane Cracking Chemistry Reduces Co-
Product Volumes
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Ethane Naphtha
Million Tons, Production Yield for World Scale 1 Million Ton Cracker
Other
Benzene
Butadiene
Propylene
Ethylene
Page 21
0
5
10
15
20
25
0
5
10
15
20
25
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Percent, %
Propane Dehydro Metathesis Olefin Cracking
Methanol-to-Olefins HS FCC Others
Million Metric Tons
Global On-Purpose Propylene Production
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% Total Production
21
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30
40
50
60
70
80
90
100
Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013
PGP Contract PGP Spot Alky Values
Cents Per Pound
Propylene Prices Volatile
22
Page 23Consequence: Per Capita Demand
To Grow at Slower Pace Than Expected
4.0
5.0
6.0
7.0
8.0
9.0
10.0
0.0
5.0
10.0
15.0
20.0
25.0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Regional Per Capita Demand, kg/person Global Per Capita Demand, kg/person
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World United States West Europe
Northeast Asia South America
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Some Applications Growing Faster Than Others
0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0 24.0
Extrusion
Coating
Blow
Molding
Pipe &
Extrusion
Other
Fiber
Raffia
Film & Sheet
Injection
Molding
2011
2016
Global Demand Million Metric Tons
4.7%
5.4%
7.0%
4.3%
2.6%
4.1%
4.0%
6.2%
AAGR Global
Demand 11-16 = 5.0%
Page 25
New Leaders in PP Demand To Emerge
0
3
6
9
12
15
18
21
Per Capita, kg/person
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-3-3 0 3 6 9 12
2006-2011 Average Annual Growth RateNorth America Europe Northeast Asia Southeast Asia South America
Middle East/Africa Indian Subcontinent*Bubble size represents size ofregional demand in 2011*Bubble size represents size of
regional demand in 2016
2011-2016 Average Annual Growth Rate
Page 26
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Global Polypropylene Capacity by Region
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
North America
South America
West Europe
Central Europe
Former Soviet
Union
Africa
Middle East
India Subcontinent
Northeast Asia
Southeast Asia
2016
2011
(78 Million MT)
(63 Million MT)
Million Metric Tons
Page 27
2002
Capacity ShareCompany (000's MT) %Basell 6207 16.70BP Chemical 2242 6.03Sinopec Group 2106 5.67ExxonMobil 1772 4.77ATOFINA 1712 4.61Borealis 1400 3.77Reliance Industries 1200 3.23
(Based on Estimate of Marketed Capacity)
2016Capacity Share
Company (000's MT) %LyondellBasell 6521 8.49Sinopec Group 6458 8.41
SABIC
3715 4.84PetroChina Group 4613 6.01
3455 4.50
ExxonMobil
30503050
3.97
Borealis/Borouge
2790 3.63Braskem Group
Top Global Polypropylene Producers/Marketers
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DSM 985 2.65Formosa Plastics 980 2.64PetroChina 880 2.37
Total 19484 52.43
Total Capacity 37159
Reliance IndustriesTotal PC
2750 3.582715 3.53
Formosa Plastics 2273 2.96
Total 38340 49.92
Total Capacity 76809
Page 28
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Demand Not Expected to Catch Up,
Oversupply Conditions to Ensue
76.0
78.0
80.0
82.0
84.0
86.0
88.0
90.0
92.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Global Excess Capacity GrowthCumulative Global Excess Capacity GrowthGlobal Operating Rate
Excess Capacity, Million Metric Tons Global Operating Rate, %
Page 29China Will Become IncreasinglySelf Sufficient
20
30
40
50
10
15
20
25
Domestic Demand, Million Metric Tons Imports as a % of Domestic Demand
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0
10
0
5
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China Domestic Demand Imports as a % of Domestic Demand
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Trade Flows to Change
2011 Net Trade
-702-663
2016 Net Trade
3622
-690
-1302
575
53
-893
-154
-524
2346
-1803
-38
-392
444
121
(Thousand Metric Tons)
Page 31
North American Prices Still Highest
1,764
1,984
2,205
2,425
80
90
100
110
Price, Dollars Per Metric TonPrice, Cents Per Pound
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661
882
1,102
1,3231,543
30
40
50
6070
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
North America Discounted West Europe Discounted China Spot
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-20
-15
-10
-5
0
5
10
15
20
Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012
Monthly Price Change, Cents Per Pound
PP Homopolymer Discounted Contract
Average = 5.7
Average = -6.6
North America: Price Volatility At All TimeHigh Level
Page 33
10
20
30
80
100
120
Price, Cents Per Pound Surcharge/Discount, Cents Per Pound
Surcharge
Arbitrage Windows Will Open & Close
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-30
-20
-10
0
0
20
40
60
Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13
Surcharge/Discount, Imported Resins NAM Discounted Price, CMAI Estimate
Imported Resin Price Estimate*
* China PP Spot CFR + freight + tariff + transfer to bulk + domestictransportation
Discount
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Prices to Converge, But Remain Expensive
441
661
882
1,102
1,323
1,543
1,764
1,984
20
30
40
50
60
70
80
90
1995 1998 2001 2004 2007 2010 2013 2016
North America Discounted West Europe Discounted China spot
Price, Dollars Per Metric TonPrice, Cents Per Pound
Page 35
Change in Resin Producer Strategy
Historically
Try to maintain high
Today
Keep inventories lower
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operating ratesStrive for market position
or share
Lack of discipline in selling
Over investment
and supply tighterMaintain or grow margins
Discipline in selling
Controlled investment
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Versatility Vs. Price Which Will Win?
VERSATILITY
Page 37
PP to remain expensive
Developing economies will enjoy
Conclusions
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most of the growth
Consumer products/packaging todrive growth
Oversupply conditions expected innext two years; benefits Asia
Trade to become competitive; tradeflows to change
Regional price disparities will ease,longer term
Short term price to affect demand;versatility to help long term
Page 38
Thank You!