to rise up look down

An ICIS pricing Presentation

Salmon Aidan Lee 李沭福李沭福李沭福李沭福

Senior Editor

Asia Paraxylene & Terephthalic Acid

ICIS pricing

To Rise Up, Look Down:To Rise Up, Look Down:The growing importance of The growing importance of

downstream markets on PX pricingdownstream markets on PX pricingKorea & Japan, October 2008Korea & Japan, October 2008


TodayToday’’s Agendas Agenda

Disclaimer: All information from www.icis.com, www.icis.com/pricing and ICIS affiliated units. ICIS

pricing accepts no liability for commercial decisions based on information given in this presentation.

The view(s) expressed herewith are those of the presenter alone and does not necessarily represent

the view(s) of ICIS, Reed Elsevier, Reed Business or any affiliated units.

• The Energy Factor on PX• Energy, Aromatics and PX• PX and the downstream markets• Watershed years for Asian PTA and PX sectors• The PTA and polyester rebellions• The start of the PX Dilemma• The PTA (and PX) Nightmare• PX vs PTA vs Polyester: Must we all fight?• The need for a long-term solution• Conclusions


The Energy Factor on PXThe Energy Factor on PX

• For a long time, single most-important factor in determining PX

pricing in Asia and globally

• Most PX (and aromatics) producers are oil companies

• Aromatics (toluene and xylene) used in gasoline blending, thus close

association with energy price trends

• US Gulf a major production base of PX

• Asia’s major PX producers all oil companies

• Asia’s use of naphtha as the cracking feedstock; naphtha’s close link

to energy price trends


Energy & Aromatics: WeEnergy & Aromatics: We’’re Familyre Family

• Price trend graph on naphtha, toluene, xylenes and PXTrend follows energy prices


Downstream: Lady in WaitingDownstream: Lady in Waiting

• PX in short supply in Asia since 1990s

• Tight supply worsened from 2006 as more PTA starts up

• PTA and downstream markets influence on PX was there, but never

superseding energy trends

• Main reason was PTA and polyester still generally healthy enough to

accept high PX


PX & downstream: WhoPX & downstream: Who’’s boss?s boss?

PX, PTA & Fibres: to each his own


2006: Watershed Year for PTA2006: Watershed Year for PTA

• Rise of Chinese PTA producers

• Rise of Chinese way of doing business

• Loss of competitiveness of other Asian PTA producers

• PTA overcapacity & oversupply become reality

• Asian PTA makers start making losses for first time ever

• PTA sellers buy highest-price PX, sell lowest-priced PTA

• Trouble started to brew


New PTA CapacitiesNew PTA Capacities

Yisheng I&II, Ningbo 1300K

Hualian Sunshine, ShaoxingNo1-3, 1800K; No4 (TBC)

Siam Mitsui, Map Ta Phut 500K

NPC I&II,Iran 350K

IOC, India 550K

Polyprima, Indonesia (debottlenecking)

OPC, Pudong600K

Ningbo MCC 600K(I); 1000KT(II)

FCFC, Ningbo 600K

Liaoyang, 530K

Indorama, Map Ta Phut, 700K

XLP, Zhangzhou, 1500K

YPC, Nanjing 600K

RIL, Hazira 640K

Jinan Zhenghao, Shandong 500K

BP Zhuhai II, 900K; No3 (TBC)

MCC India II 800K

Tuntex Thailand (debottlenecking)

Dalian 1500K

Yizheng III, 1000K

Hanbang, Jiangyin 600K

Sinopec Jinshan 700K

Tae Kwang, Ulsan 650K (500K)

FCFC, Loong-der400K

XLP, Xiamen (debottlenecking)

Jialong, Shishi 600KT

BP Taicang (TBC)

Chongqing Fuling, 600K

Three TBC projects: Xiang Sheng, Cifu & Yuan Dong

Tongkun/KP, Zhapu (TBC)

Samnam, Qingdao (TBC)

Samsung Petchem, Korea (TBC)

IOC India 560K

ONGC India TBC

RIL India 1000K


PTA: The Downstream RebelsPTA: The Downstream Rebels

PTA no longer follows PX


Polyester: The Earlier RebellionPolyester: The Earlier Rebellion

• Serious polyester overcapacity since 2003, margins squeezed by

feedstock costs and stiff competition

• Rebelled against feedstock producers

• Caused sharp price decline every few months

• Since 2006, PTA sandwiched between polyester & PX


PTA & Polyester: Downstream RulesPTA & Polyester: Downstream Rules

• Graph to show how polyester brings about price crashes of PTA

between Jan 2004 and Dec 2006

Downstream brings down PTA

Downstream ignores PTA


2007: Start of PX Troubles2007: Start of PX Troubles

• Rising energy and naphtha prices

• PTA producers start to cut back on operating rates

• Occasional drop in demand for PX

• Downstream flexes muscles over influence of PX price trends

• Breakdown of the Asian contract price system


PTA & PX: Vicious Cycle since PTA & PX: Vicious Cycle since

20062006PTA ops resume

PX price fall

Temp PX supply glut PTA ops

cut

Squeezed PTA

margins

High PX prices

Tight PX supply

PTA overcapacity

PTA margins return

Vicious cycle


2008: Watershed Year for PX2008: Watershed Year for PX

• Record-high energy and naphtha prices

• Squeezed margins for PX producers

• Failure to transfer costs to PTA sector

• Asian PX producers make losses for the first time

• Massive cutbacks on PX ops not a viable option


PX: Lost Control Over PX: Lost Control Over

DownstreamDownstream

PX loses control over downstream trends


The Reality for PX ProducersThe Reality for PX Producers

• Polyester & PTA overcapacity not necessarily a boon to PX sellers

• Squeezed – or lack of – margins “moving from downstream to

upstream”

• Energy prices may correct downwards but still high

• Double whammy necessitates recognition of “The Power of

Downstream”


PX Looks Down: Some actionsPX Looks Down: Some actions

• Japanese producers start to understand polyester & downstream

• Western producer hangs on to ACP system, tries to find consensus

with PTA and polyester sectors

• Korean producers increase participation in open-market trading to

get their views across

• Some producers look to more spot price-related formulae to hedge

against uncertainties


The Years of NightmaresThe Years of Nightmares

• 2006: Beginning of the “PTA Nightmare”

• 2007: Intensification of the “PTA Nightmare”

• 2008: Start of the “PX Dilemma”

• 2009: The “PX Dilemma Becomes a Nightmare”?


2009: The PX Nightmare?2009: The PX Nightmare?

• Based on assumption that PX will go into oversupply

• Based on assumption that new PTA capacities will be delayed

PX market to flip from sellers’ to buyers’market in 2009


New PX CapacitiesNew PX Capacities

TPPI No1 (550K) & No2, Indonesia

Zhuhai, China (TBC)

Qingdao Lidong, China 700K

Zhenhai, China 650K

FCFC No3, Taiwan 700K

IOC, India 400K

RIL, India (debottlenecking)

Liaoyang, China 450K

Yangzi, China (debottlenecking)

Sinopec Tianjin, China

(debottlenecking)

ExxonMobil, Japan(debottlenecking)

Japan Energy, 420K

Thai PX, Thailand (debottlenecking)

ASMB, Malaysia (debottlenecking)

Borzouyeh, Iran 750K

CNOOC/Kings Grp, China 800K

ExxonMobil, Thailand (debottlenecking)

Sinopec/ExxonMobil/Saudi Aramco, China 700K

Kuwait Aromatics, 820K Sinopec Jinling 600K & Jinshan 600K, China

SK Energy,China (TBC)

Fujia Dahua,China 800K

Ras Tanura, Saudi Arabia 460K

S-Oil, Korea 900K

Sinopec Luoyang 450K, China

PetroChina Urumqi, China, 1000K

Dragon Grp, China 800K

PetroChina Sichuan, China 600K

Sinopec Hainan, China 600K

GPPC-led Kuokuang, Taiwan 800K

Jurong Aromatics, Singapore 800K

PTT Thailand 616K

PetroVietnam 480K

Essar & Hindustan, India (TBC) Aromatics Oman, 900K

Takreer AbuDhabi, 800K

Total/Saudi Aramco, Saudi Arabia (TBC)

ONGC Mangalore, India 905K

IOC, India, 3 lines 2220K

RIL, India 2600K

Cepsa/Hyundai Oilbank, Korea 600K


PTA PTA vsvs PX: PX wins 2006PX: PX wins 2006--0808

•PTA ~ 2005 to mid-2008:

– 16 new lines (excluding debottleneckings)

– Average capacity of 546K tonnes/year

•PX ~ 2005 to mid-2008:

– Only eight new lines (excluding debottleneckings)

– Average capacity of 561K tonnes/year

•Based only on new PTA capacities 2005 to date*:

– Another 5.85 million tonnes/year of PX needed

– But only 4.49 million tonnes/year* added

•Balance possible perhaps only in end-2009* On annualised basis; not counting debottleneckings


PTA PTA vsvs PX: PTA wins in endPX: PTA wins in end--2009?2009?

• End-2009 to 2010: new PTA capacities starting up…

� Fujian Jia Long: 600K *

� Dragon Group / Xiang Lu: 1.5m *

� Jiangyin Hanbang: 600K *

� Yisheng Dahua (Dalian): 1.5m *

� Chongqing Fuling: 600K *

� FCFC Loong-der: 400K *

� MCC India: 800K *

� Total: 6m tonnes/year *

* On annualised basis; not counting debottleneckings


PTA PTA vsvs PX: PTA wins in endPX: PTA wins in end--2009?2009?

• End-2009 to 2010: New PX capacities starting up…

� Total: 17.55m tonnesyear*

� ExxonMobil / Sinopec and

affiliates in Fujian: 800K*

� Petrochina Chengdu: 600K*

� Jinling Petchem: 600K*

� Oman: 900K*

� Takreer Abu Dhabi: 800K*

� Kuwait : 820K*

� Cepsa / Hyundai: 850K*

� S-Oil: 900K*

� Shanghai Petchem: 600K*

� Urumqi Petchem: 1m*

� CNOOC Huizhou: 800K*

� Fujia Dahua: 700K*

� Dragon Group: 800K*

* On annualised basis; not counting debottleneckings


PTA PTA vsvs PX: postPX: post--20102010

• At least ten more PTA lines planned with capacities 600K-1.5m

tonnes/year each

• At least 15 more PX lines planned

• BUT…

� Will all the lines come onstream as planned?

� If no, will PX market flip into sellers’ market again?

� What about polycondensation, when oversupply recurs and

squeezes PTA margins from bottom again?

� What would be the consequence for PX and the reactions?


PTA PTA vsvs Polyester: PTA keeps losingPolyester: PTA keeps losing

•End-2007, approx 21-22m* polycondensation capacity in

China

� needs around 19.5m* of PTA

•End-2007, around 43-44m* of PTA capacity worldwide

(38-39m* in Asia, including around 10.6m* in China)

�China satisfies >50% of own PTA needs

�Rate of PTA capacity increase faster than polyester

capacity increase

�Imported PTA facing more competition from local Chinese

PTA (price, taxes, geographical / logistical etc advantages)

*calculated in tonnes/year and on an annualised basis


PX & downstream: CanPX & downstream: Can’’t we all win?t we all win?

Oversupply in PX may not last beyond two years;

oversupply of PTA may not last beyond two years;polyester capacities also expected to keep increasing


The Need for LongThe Need for Long--term Solutionterm Solution

• Buyers and/or sellers’ markets no longer last long

• Downstream factors as important as upstream factors in PX pricing

• Holistic approach should be the way to go

• Long-term solution:

� Downstream and upstream voices need to be heard

� ACP system may collapse, but should preferably be preserved

for stability and sustainability with modifications

� Own reality check every 1-2 years by each sector

� References to price mechanism which shows the real market

situation


ICIS: Part of the SolutionICIS: Part of the Solution

� More than 25 years of experience in petrochemicals

� Global reach, including China, Singapore & India in Asia

� Editor has 8 years of experience watching this chain

� Prices used by biggest corporations in Taiwan, China and rest of

the world

Independent & thus fair

Rigorous & thus accurate

Experienced & thus trustworthy


ConclusionsConclusions

• What worked previously for PX producers may no longer work

• Focus only on energy sector not wise, broad-based, holistic

approach needed

• Recognition of “The Power of the Downstream”

• Recognition of changed market dynamics & the Rise of China

• ICIS could be part of this solution

• Concerted and pragmatic efforts from all sectors needed to find

long-term solution

…because petrochemical plantsare for the long term


Some wise wordsSome wise words……

Know thyself and thy enemy;Know thyself and thy enemy;

A thousand battles, a thousand victoriesA thousand battles, a thousand victories

Sun TzuSun Tzu

知己知彼

知己知彼

百戰百勝

百戰百勝

孫子

孫子


Thank You

謝謝

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