Polypropylene & Nylon Market Overview

Motor Vehicle Metals & Resins Conference May 23, 2013

Paul Blanchard Director, Engineering Plastics IHS Chemical

Polypropylene Market Overview

Propylene Market View

2012 Global PG/CG Propylene Market

Supply

Demand
Acrylonitrile 7% Acrylic Acid 4%
Cumene 4% Oxo Alc. 8%

Others Gas-to- HS FCC 2% Olefin Others OnOlefins 2.7% Cracking Purpose Propylene Oxide 1.2% 0.3% 0.7% 7% Stm. Metathesis Crackers 4.1% 54.6% Dehydro 4.8% FCC Production = 80.2 Million SplittersMetric Tons

Polypropylene 68%

31.6%

Domestic Demand = 80.4 Million Metric Tons

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Propylene Market View

U.S. PDH Margins Attracting New Investment 2012 cash costs
U.S. Dollars Per Metric Ton
1600 1400

U.S. Cents Per Pound

82 73

U.S. PG Price
1200
63

U.S. RG Price
1000

54 45

800 36 600 27 400 18 9 0 U.S. PDH MDE PDH China CTO West Europe Naphtha U.S. Splitter Northeast Asia Northeast Asia Naphtha PDH U.S. Metathesis

200

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Polypropylene : Global Overview

Demand
Global demand exceeds GDP driven by Asia and growth

economies in Latin America, Indian Subcontinent and Middle East

Developed economies continue to lag GDP

Capacity
Significant increases before, during and after global recession have

created global oversupply condition focused in Northeast Asia.

Costs and Margins

Non-integrated producers challenged especially as PDH and Coal

capacity grows.
PP to remain at premium to PE but cost advantaged to PS, PET
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Polypropylene Demand
Northeast Asia 31% Southeast Asia 8% Africa/Middle East 10%

2012-2022 AAGR West Europe = 1.3% North America = 2.0% South America = 4.5% Northeast Asia = 4.9%

Europe 20%

Indian Subcontinent 5% North America 20%

Global AAGR 12-17 = 4.9%

12-22 = 4.3%

South America 6%

2012 Total Global Demand = 53.9 Million Metric Tons

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Growth in Middle East and China Leads to Polypropylene Over-Capacity

Million Metric Tons 6.0

5.0
4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 2007 2009 2011 2013 2015 2017 2019 2021 2018 2020 2022
North America Africa/Middle East South America Indian Sub. Europe Northeast Asia

Southeast Asia

Global Demand Growth

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Coal-To-Propyleneto Polypropylene
PP Projects, Million Metric Tons 5.0

% of Capacity 30
25 20

4.0
3.0

15 2.0 10

1.0
0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CTP/CTO Based PDH Based Crude Based On Purpose PP as a % of Capacity
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5 0

As Supply Pressure Builds, Where will Middle East PP Go?

30 1213 550 22

376 408 1057

61

* 2012 Exports in -000- Metric Tons

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Multiple Challenges for Western Europe

Million Metric Tons 12.0 11.0 10.0 9.0 8.0 Operating Rate, % 95

Lower Domestic

Demand
90

Increasing Imports
85

7.0
6.0 5.0 4.0 3.0 2.0 1.0

Declining Exports Share of Global Production

80

Declines
75

Rationalization of 4-5 %
70
2007 2009 2011 2013 Domestic Demand Exports Op Rate 2015 2017 2019 2021 Imports Nameplate Capacity

0.0

Expected

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Significant Shift for Global Trade

3116 373 289 490 -1177 195 -754 201

2946

-370

-248

-2075

-567 -732 -240

-743 2012 Net Trade 2017 Net Trade
(Thousand Metric Tons)

18 -331

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Global Net Trade

Polypropylene Net Trade, Million Metric Tons 9.0

0.0

-9.0 2007 2009 2011 2013 2015 2017 2019 2021

North America Middle East Northeast Asia South America Africa Southeast Asia Europe Indian Subcontinent

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Regional Prices Reflect Global Demand Slowdown & Overcapacity

Price, Cents Per Pound 120 Price, Dollars Per Metric Ton 2,646

90

1,984

60

1,323

30 Jan-08

661 Jan-09 Jan-10 Jan-11 North America Discounted North America Spot Export Jan-12 Jan-13 Jan-14 West Europe Discounted CFR China

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Arbitrage Windows Will Open and Close

North American Price, Cents Per Pound 120 100 80 60 40 Surcharge/Discount, Cents per Pound 25 Surcharge 15 5 -5 -15

Discount
20
Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14
Surcharge/Discount, Imported Resins Imported Resin Price Estimate* NAM Discounted Price, IHS Estimate

-25

* China PP Spot CFR + freight + tariff + transfer to bulk + domestic transportation

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Regional Prices Trend to Alignment

Price, Cents Per Pound 90 Price, Dollars Per Metric Ton 1984

70

1543

50

1102

30 2007 2009 2011 2013 NAM Discounted Contract WEP Discounted Contract 2015 2017 2019 2021 NAM Spot Export NEA Spot CFR China

661

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North America Polypropylene Outlook

Cost position to dampen domestic demand short term
Ratio of PP/HDPE cost 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 which will need to depend on export demand outside the Americas region

Prior to new on-purpose propylene capacity additions, volatility

to continue
Propylene supply not expected to improve until 2017 Loss in PP capacity over the past few years combined with decreased

domestic and export demand and increased propylene inventory positions has helped rebalance the propylene market. Still, supply demand remains tight and any unplanned outages have immediate affects
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Polypropylene Conclusions
Short Term High Cost, Regional Demand Shifts, Overcapacity
Major Trade Shifts, Regional Price Differentials

Challenges for Western Europe

New Capacity for North America

Longer Term Over-Capacity Persists New Trade Shifts to Consider Regional Prices Trend to Alignment
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Major events that could derail the baseline forecast

Government intervention concerning hydraulic fracking A compression of the global crude oil/natural gas spread. An extended global economic slowdown Rapid development of shale plays in other regions which provide advantaged feedstocks Development of economical alternate routes to ethylene production
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Nylon 6 & 6,6 Market Overview

Overview : Nylon 6 & Nylon 6,6

Demand Overview Feedstock impact Structural changes in supply / demand Outlook for prices
Chrysler oil pan in BASF Ultramid by Mahle

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2012 Global Nylon Resin Demand

Nylon 6 ETP 24%

Nylon 6,6 ETP 18%

Nylon 6 Fiber 46%

Nylon 6,6 Fiber 12%

Demand = 6.1 Million Metric Tons

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21

2012 Global Nylon ETP Demand

Industrial/ Machinery 13% Others 6%

Consumer 10% Wire & Cable 1% Film & Coating 15%

Automotive & Truck 35%

Appliances 8%

Electrical & Electronic 12%

2012 Global Demand 2.6 Million Metric Tons

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2012 Global Nylon ETP Demand

Thousand Tons

Automotive
E/E Appliance Film/Coating Wire/Cable Consumer Industrial

Others
0 100 200 300 400 500 600

Nylon 6

Nylon 6,6

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Nylon 6 Chain Overview

Benzene Cyclohexane Caprolactam Nylon 6

Benzene Cumene Propylene Phenol

Cyclohexanone

Nylon 6 Producers:

BASF, DSM, UBE, Univex,

Honeywell DSM - Europe

Baling PC,
Mitsubishi
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Nylon 6 Capacity
Ube Industries 3% SINOPEC 3% Zig Sheng 4%
Formosa Group 4% DSM 5% Li Peng 6% BASF SE 8% Northeast Asia 58%

Southeast Asia 4%
Others 67%

North America 12%

South America 1% Europe 17%

Top Producers

Capacity by Region
CIS & Baltic States 6% Indian Subcontinent 2% Middle East 0.26%

Global Capacity = 6.2 Million Metric Tons

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Global Demand for Nylon 6 Resin

Million Metric Tons 8.0 7.0 Operating Rate 100% 90%

6.0
5.0 4.0 3.0 2.0 1.0 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Engineering Plastic Demand Fiber Demand Total Capacity

80%
70% 60% 50% 40% 30% 20%

Forecast

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Nylon Resin Capacity Changes Nylon 6

Thousand Metric Tons
600 500 400 300 200 100 0 -100 2012 West Europe 2013 2014 2015 China 2016 2017

CIS & Baltic States

Rest of Asia

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Caprolactam Capacity Changes

Thousand Metric Tons 1,400 1,200 1,000 800 600 400 200 0

2012
Europe

2013

2014

2015
China

2016

2017

CIS & Baltic States

Rest of Asia

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North America Nylon 6 Resins Cash Cost and ETP Market Price
Cents Per Pound 180 160 140 120 100 80 60 40 20 0 -20 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
~

Nylon 6 Cash Cost

Nylon 6 Pre-tax Margin

N6 Market Price

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Nylon 6 Summary
Nylon 6 growth in Asia tightened caprolactam

supply in 2011, pressuring polymer prices upward globally. This has changed North American suppliers have relied on exports of caprolactam and nylon 6 Asia demand slump limits export opportunity Buyers market on base resin emerging New capacity announced in China is built ahead of demand

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Nylon 6,6 Chain Overview

Benzene Cyclohexane Adipic Acid Nylon 6,6 Crude C4 Butadiene Adiponitrile HMDA

Propylene Acrylonitrile Ammonia Invista, DuPont Rhodia, Shenma Ascend Asahi

Nylon 6,6 Producers:

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Nylon 6,6 Capacity

Invista 16% DuPont 14% Solvay/ Rhodia 12% Shenma Industrial 8% BASF SE 5%
Europe 25% CIS & Baltics 1% Africa/ Middle East 3%

S. America 5%

Top Producers
Ascend 21%

Capacity by Region
N. America 41% NE Asia 23% SE Asia 2%

Others Radici 20% Chim SpA 4%

Global Capacity = 2.4 Million Metric Tons

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Global Adiponitrile Capacity

Solvay/Rhodia 15% Asahi Kasei 5%

Invista 60%

Ascend 20%

ADN Capacity = 1.7 Million Metric Tons

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Nylon 6,6 Global Capacity Additions

Thousand Metric Tons 120 100 80 60 40 20 0

2012

2013

2014

2015

2016

2017

West Europe

Middle East

Northeast Asia

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Global Nylon 6,6 Demand

Million Metric Tons 3.0
2.5 2.0 1.5 1.0 0.5

Operating Rate 100%

90% 80% 70% 60% 50%

0.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fiber Demand Engineering Plastic Demand Total Capacity

40%

Forecast

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Butadiene Price Forecast

S. Korea, West Europe, and the United States
Dollars Per Metric Ton 4409

Cents Per Pound 200

175 150 125 100

3858
3307 2756 2205 1653 1102 551 0 09 AprJulOct 10 AprJulOct 11 AprJulOct 12 AprJulOct 13 AprJulOct Spot Korea, FOB Contract WEP, CIF Contract USA, FOB

75
50 25 0

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North America Nylon 6,6 Resin Cash Cost And Market Price
Cents Per Pound 200 180 160 140 120 100 80 60 40 20 0 Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13
~

Nylon 6,6 Cash Cost

Nylon 6,6 Pre-tax Margin

Nylon 6,6 Market Price

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Nylon 6,6 Summary

Supply of nylon 6,6 intermediate adiponitrile is

stabilizing factor that supports the market Suppliers have capacity to grow Competitive intensity has increased Invistas Shanghai investment in nylon 6,6 intermediates and polymer is progressing toward 2015-2016 startup

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Thank You