Global petrochemical industry outlook

– shifting trade flows

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A macro outlook on the petrochemical industry –
gauging demand

Page 3
 We forecast rising global economic health
Global GDP Growth Estimates
8%

7%

6%

5%

4%

3%

2%

1%

0%

-1%
World Real US Real GDP OECD Real Euro zone Total Asia SE Asia Real NE Asia Real China Real Brazil Real
GDP (y/y) (y/y) GDP (y/y) Real GDP (ex JPN) Real GDP (y/y) GDP (y/y) GDP (y/y) GDP (y/y)
(y/y) GDP (y/y)

2012 2013E 2014E

Source: Macquarie Capital (USA), September 2013 Page 4

 We forecast rising global economic health
8% 2013 GDP Estimates
7%

6%

5%

4%

3%

2%

1%

0%

-1%

-2%
World Real GDP US Real GDP OECD Real GDP Euro zone Real GDP Total Asia (ex JPN) China Real GDP
Real GDP

2013 LTM 2013 YTD 2013E 4Q13E

Source: Macquarie Capital (USA), September 2013 Page 5

A macro outlook on the petrochemical industry – a
look at the cost landscape

Page 6
 Oil-to-gas ratio likely to remain elevated

50x

40x

30x

20x

10x

0x
99

00

01

02

03

04

05

06

07

08

09

10

11

12

E
13

14

15
19

20

20

20

20

20

20

20

20

20

20

20

20

20
20

20

20
Macquarie - Predicted Oil/Gas Ratio

Source: IHS, Macquarie Capital (USA), September 2013 Page 7

 Global Cost Setting – Advantage USA
1,200 Ethylene
Production Costs,
US$/MT
2007
2012
1,000 2016E
North East Asia
Western Europe Avg
US Avg North East Asia
800
Western Europe Avg
South East Asia

South East Asia US Avg

600

US Ethane
US Avg
400 US Ethane
Middle
East Alberta Ethane
Avg Middle East Avg
200

Middle East Ethane

Cumulative Ethylene Capacity, million MT
-
0 20 40 60 80 100 120 140 160 180

Source: IHS, Macquarie Capital (USA), September 2013 Page 8

 Ethylene cash costs – North America remains highly favorable
Regional Cash Costs (US$/MT)
1400

1200

1000

800

600

400

200
North American cash costs
have dropped 65% since 2008
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

North America Northeast Asia Southeast Asia West Europe

Source: IHS, Macquarie Capital (USA), September 2013 Page 9

 North American ethane prices have de-coupled from oil

140 Ethane has decoupled $14 180

Propane has also fallen $14
from crude sharply,towards nat. gas
160
120 $12 $12
140
100 $10 $10
120

80 $8 100 $8

60 $6 80 $6
60
40 $4 $4
40
20 $2 $2
20

0 $0 0 $0
1Q02
3Q02
1Q03

1Q04
3Q04
1Q05

1Q06
3Q06

1Q08
3Q08

1Q10
3Q10

3Q11
1Q12
3Q12
3Q03

3Q05

1Q07
3Q07

1Q09
3Q09

1Q11

1Q13

1Q02

1Q03
3Q03

3Q04
1Q05

1Q06
3Q06

3Q07
1Q08

1Q09
3Q09

3Q10
1Q11

1Q12
3Q02

1Q04

3Q05

1Q07

3Q08

1Q10

3Q11

3Q12
1Q13
Brent ($/bl) - LHS Ethane (c/gal) - LHS Natural Gas ($/mmbtu) - RHS Brent ($/bl) - LHS Propane (c/gal) - LHS Natural Gas ($/mmbtu) - RHS

Source: Bloomberg, Macquarie Capital (USA), September 2013 Page 10

 US ethane production poised to rise further, sharply…

Source: Macquarie Capital (USA), September 2013 Page 11

 Ethylene margins – a regional outlook

Regional Ethylene Margins (US$/MT) Regional Ethylene Margins (US$/MT)

1000 600

500
800

400
600

300
400
200

200
100

0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
North America NorthEast Asia SouthEast Asia Western Europe North America NorthEast Asia SouthEast Asia Western Europe

2000-2009 Avg 2010-2014E Avg

Source: IHS, Macquarie Capital (USA), September 2013 Page 12

A macro outlook on the petrochemical industry
– what do these shifts mean for co-products
and aromatics?

Page 13
 US shale gas has contracted ethylene co-product and aromatic production

2,500
Butadiene (000 MT) 9,000
Propylene (000 MT)

8,000
2,000 7,000

6,000
1,500
5,000

4,000
1,000
3,000

2,000
500
1,000

- -

Benzene (000 MT) 250

Toluene (000 MT)
300

250 200

200
150

150
100
100

50
50

- -

Source: IHS, Macquarie Capital (USA), September 2013 Page 14

 Benzene values have lifted amid tightening supply
U.S. Benzene Imports U.S. Benzene Netback Values
Thousand Metric Tons Dollars Per Metric Ton
Cents Per Gallon
350 200 700

300 100 600

250 0 500

200 -100 400

150 -200 300

100 -300 200

50 -400 100

0 -500 0
May-11Aug-11 Nov-11 Feb-12May-12Aug-12 Nov-12 Feb-13May-13
Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul-
Other 08 08 09 09 10 10 11 11 12 12 13 13
W. Europe Benzene Contract SM
Asia
Spot SM Cumene, Formula
Delta: Asia Spot - U.S. Contract

Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013 Page 15

 Margin and Spread Forecasts - Asia

2010 2011 2012 2013E 2014E 2015E Avg (2003-2012)

Dubai Crude (US$/bbl) 78 106 109 105 113 115 69

NCC benchmark margin (US$) 282 285 250 260 275 302 259
Ethylene-Naphtha spread 386 260 276 350 380 430 371
Propylene-Naphtha margin 474 510 411 400 380 400 421
Benzene-Naphtha spread 200 175 276 400 450 450 256
Butadiene-Naphtha spread 1,085 1,895 1,155 700 860 1,000 736
PX-Naphtha spread 328 616 570 570 500 480 438

HDPE-Naphtha 457 387 373 452 482 583 509

PP-Naphtha 501 500 378 421 434 507 494
HDPE-Ethylene 70 125 94 100 100 150 135
PP-Propylene 25 -10 -31 20 50 100 69
PVC-Ethylene 391 418 320 350 370 400 358
MEG-Ethylene 211 465 291 370 430 470 300
PTA-PX 256 228 80 50 40 50 177
Polyester cash margin 397 336 200 160 200 250 305

Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013 Page 16

A macro outlook on the petrochemical industry – a
quick look at technology and supply growth

Page 17
 Example: Benzene. Most new technologies will unlikely be meaningful near term

New Technologies for Benzene – not

yet commercialized
LPG
• BP/UOP, Cyclar
• Mobil, M-2 Forming
• IFP/Salutec, Aroforming
• Research Association of Japan, Z F
orming
• Asahi Chemical, Alpha Process

Methanol
• In research

Other Advantaged Feedstocks (Paraff

inic, etc)
• ChevronPhillips, Aromax
• UOP, RZ Platforming
Source: IHS, CEH, Macquarie Capital (USA), September 2013 Page 18
 Regional capacity growth
Regional Ethylene Capacity Growth (000 MT)
1990-1999 2000-2009 2010-2019E
Additional % of Additional % of Additional % of
Capacity Additional Capacity Additional Capacity Additional
Middle East 3,127 10% 14,192 40% 13,281 26%
North America 8,863 29% 791 2% 11,090 21%
Northeast Asia 7,994 26% 11,587 32% 16,894 33%
Southeast Asia 3,177 10% 2,541 7% 4,538 9%
W estern Europe 5,045 17% 2,850 8% (2,264) -4%
Others 2,122 7% 3,874 11% 8,052 16%
30,328 35,835 51,591

Regional Paraxylene Capacity Growth (000 MT)

1990-1999 2000-2009 2010-2019E
Additional % of Additional % of Additional % of
Capacity Additional Capacity Additional Capacity Additional
Middle East 154 1% 1,653 15% 3,454 16%
North America 1,899 18% (1,071) -10% 900 4%
Northeast Asia 6,188 60% 7,399 68% 9,410 42%
Southeast Asia 1,530 15% 2,191 20% 2,985 13%
W estern Europe 478 5% 25 0% 120 1%
Others 55 1% 679 6% 5,296 24%
10,304 10,876 22,165

Regional Propylene Capacity Growth (000 MT)

1990-1999 2000-2009 2010-2019E
Additional % of Additional % of Additional % of
Capacity Additional Capacity Additional Capacity Additional
Middle East 1,049 6% 5,369 28% 6,293 33%
North America 6,104 36% 1,916 10% 4,868 25%
Northeast Asia 793 5% 1,262 7% 772 4%
Southeast Asia 2,233 13% 2,080 11% 3,701 19%
W estern Europe 5,268 31% 3,071 16% (1,333) -7%
Others 1,497 9% 5,679 29% 4,967 26%
16,944 19,377 19,268

Source: IHS, Macquarie Capital (USA), September 2013 Page 19

 PX sees new capacity pressure from Korea in 2014

Source: Macquarie Capital (USA), September 2013 Page 20

 On-Purpose Propylene and Butadiene Production
Company Project Capacity (t/yr) Location Cost Start-up Likelihood
Announced On-Purpose Propylene Projects
Dow Chemical PDH 750,000 tonnes Texas 2015 Likely
Enterprise Products PDH 750,000 tonnes Texas 2015 Committed
Enterprise Products PDH 750,000 tonnes Texas 2015 Speculative
Formosa Plastics PDH 600,000 tonnes Texas 2016 Likely
Dow Chemical PDH TBD US Gulf 2018 Speculative
Williams PDH 1,000,000 tonnes Alberta TBD Speculative
LyondellBasell Metathesis TBD Texas TBD
PetroLogistics PDH Expansion Texas TBD Likely

Announced On-Purpose Butadiene Projects

TPC Group Dehydro unit Texas $300m 2014
TPC Group OXO-D unit 272,000 tonnes Texas $300m 2015

China's PDH Projects under Construction or in Planning Stage

Company name Location Capacity ('000 t/yr) Start-up date Progress
Tianjin Bohai Chemical Industry (Group) Tianjin 600 Late August 2013 Under construction
Ningbo Haiyue New Materials Co Ningbo, Zhejiang 600 Early 2014 Under construction
Zhejiang Satellite Energy Co Pinghu, Zhejiang 450 Early 2014 Under construction
Sanyuan Petrochemical Shaoxing, Zhejiang 450 End 2013 Under construction
Yantai Wanhua Group Yantai, Shandong 750 End 2014 Under construction
Zhangjiagang Yangzijiang Petrochemical Zhangjiagang, Jiangsu 600 Early 2014 Under construction
600 2016 Planning
Haiwei Group Hengshui, Hebei 500 2015 Under construction
500 2017 Planning
Huanghua, Hebei 500 N/A Planning
500 N/A Planning
Fujian Meide Petrochemical Fuqing, Fujian 660 End 2015 Under construction
660 N/A Planning
Shandong Haili Chemical Industry Co Dafeng, Jiangsu 750 N/A Construction to start in H1 2013
ZOUEC Ningbo, Zhejiang 660 N/A Waiting for approval
660 N/A Waiting for approval
Changjiang Gas Chemical Nantong, Jiangsu 650 N/A Suspended
Total 10,090

Source: Company data, Macquarie Capital (USA), September 2013 Page 21

 Chinese propane imports set to spike
Company Project Capacity (t/yr) Location Cost Start-up Likelihood
Announced On-Purpose Propylene Projects
Dow Chemical PDH 750,000 tonnes Texas 2015 Likely
Enterprise Products PDH 750,000 tonnes Texas 2015 Committed
Enterprise Products PDH 750,000 tonnes Texas 2015 Speculative
Formosa Plastics PDH 600,000 tonnes Texas 2016 Likely
Dow Chemical PDH TBD US Gulf 2018 Speculative
Williams PDH 1,000,000 tonnes Alberta TBD Speculative
LyondellBasell Metathesis TBD Texas TBD
PetroLogistics PDH Expansion Texas TBD Likely

Announced On-Purpose Butadiene Projects

TPC Group Dehydro unit Texas $300m 2014
TPC Group OXO-D unit 272,000 tonnes Texas $300m 2015

China's PDH Projects under Construction or in Planning Stage

Company name Location Capacity ('000 t/yr) Start-up date Progress
Tianjin Bohai Chemical Industry (Group) Tianjin 600 Late August 2013 Under construction
Ningbo Haiyue New Materials Co Ningbo, Zhejiang 600 Early 2014 Under construction
Zhejiang Satellite Energy Co Pinghu, Zhejiang 450 Early 2014 Under construction
Sanyuan Petrochemical Shaoxing, Zhejiang 450 End 2013 Under construction
Yantai Wanhua Group Yantai, Shandong 750 End 2014 Under construction
Zhangjiagang Yangzijiang Petrochemical Zhangjiagang, Jiangsu 600 Early 2014 Under construction
600 2016 Planning
Haiwei Group Hengshui, Hebei 500 2015 Under construction
500 2017 Planning
Huanghua, Hebei 500 N/A Planning
500 N/A Planning
Fujian Meide Petrochemical Fuqing, Fujian 660 End 2015 Under construction
660 N/A Planning
Shandong Haili Chemical Industry Co Dafeng, Jiangsu 750 N/A Construction to start in H1 2013
ZOUEC Ningbo, Zhejiang 660 N/A Waiting for approval
660 N/A Waiting for approval
Changjiang Gas Chemical Nantong, Jiangsu 650 N/A Suspended
Total 10,090

Source: Company data, Macquarie Capital (USA), September 2013 Page 22

Challenges relating to feedstock availability

Page 23
 China shale: Vast resource base, ambitious targets

Source: EIA, Macquarie Capital (USA), September 2013 Page 24

 China shale: Vast dry gas and oil potential, wet gas
(NGL) opportunity appears less well defined

Source: EIA, Macquarie Capital (USA), September 2013 Page 25

 NGL Supply Trends

Source: IEA, Macquarie Capital (USA), September 2013 Page 26

 U.S. NGL Production Grows Lighter

Source: EIA, Macquarie Capital (USA), September 2013 Page 27

 New crudes more paraffinic but N+2A ratings comparable to old crudes

Source: IEA, Macquarie Capital, Naphtha and NGLs analysis, September 2013

Page 28
Will China stabilize and recharge growth

Page 29
 Regional indicators denote improving conditions

Regional PMI China PMI by subindex

60 55

55

50
50

45

45
40 Apr-12

Apr-13
Sep-12

Feb-13
Jun-12

Jun-13
Jul-12

Jul-13
Dec-12
Mar-12

Mar-13
Oct-12
Aug-12

Aug-13
Nov-12

Jan-13
May-12

May-13
Apr-12

Apr-13
Sep-12

Feb-13
Jun-12

Jun-13
Jul-12

Jul-13
Mar-12

Dec-12

Mar-13
Oct-12
Aug-12

Aug-13
Jan-13
Nov-12
May-12

May-13

China New Orders PMI

China New Export Orders PMI
US PMI Germany PMI China PMI China Manufacturing PMI
Source: Bloomberg, Macquarie Capital (USA), September 2013 Page 30
 End market growth in key products in China has improved

YoY Growth of key products in China 2010 2011 2012 1H13

Textile production volume 18% -5% 1% 1%
Garment and clothing export value 21% 18% 4% 13%
Refrigerator and washing machine production volume 27% 11% 1% 12%
Auto production volume 33% 1% 5% 13%
Auto sales volume 32% 3% 4% 12%
Construction (GFA new start) 42% 16% -7% 4%
Property GFA sold 10% 5% 1% 29%

Source: Bloomberg, Macquarie Capital (USA), September 2013 Page 31

 Chinese auto production and sales have improved

Source: Bloomberg, Macquarie Capital (USA), September 2013 Page 32

 China residential property sold vs. new starts (6m lag)

120%

100%

80%

60%

40%

20%

0%

-20%

-40%

-60%
Jul-10

Jul-11

Jul-12

Jul-13
Jan-10

Jan-11

Jan-12

Jan-13
Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13
GFA new starts (6m lag, YoY,%) GFA sold (YoY,%)

Source: Bloomberg, Macquarie Capital (USA), September 2013 Page 33

 Conclusions
•Demand is moving in the right direction – we anticipate a YoY pickup globally in 2014

•A wide oil/gas ratio will persist – this showcases a significant difference in regional base chemical production
costs.

•Ethylene cracker co-product production will remain under pressure – this due to light feeds

•NGL and ethylene –chain export opportunities out of North America are set to rise., but many co-products (i.e.
benzene) will need to be imported

•Companies from around the world are studying investment opportunities in the US.

•Capex targeting on purpose co-product production has picked up in China.

•China’s forecast growth rates will not be what they were, and we remain cautious medium term.

Source: IHS, Macquarie Capital (USA), September 2013 Page 34

 Additional tables

Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013 Page 35

 Additional tables

Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013 Page 36

 Additional tables

Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013 Page 37

Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand
Outperform – return > 3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return > 3% below benchmark return
Benchmark return is determined by long term nominal GDP growth
plus 12 month forward market dividend yield
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected <-10%
Macquarie First South - South Africa
Outperform – return > 10% in excess of benchmark return
Neutral – return within 10% of benchmark return
Underperform – return > 10% below benchmark return
Macquarie - Canada
Outperform – return > 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Macquarie - USA
Outperform – return > 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Volatility index definition*
This is calculated from the volatility of historic
price movements.
Very high–highest risk – Stock should be
expected to move up or down 60-100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40-60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up
or down at least 30-40% in a year.
Low–medium – stock should be expected to
move up or down at least 25-30% in a year.
Low – stock should be expected to move up or
down at least 15-25% in a year.
* Applicable to Australian/NZ stocks only
Recommendation – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging, IFRS
impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
EPS = adjusted net profit /efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average number
of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).

Recommendation proportions – For quarter ending 30 June 2013

AU/NZ Asia RSA USA CA EUR
Outperform 49.80% 57.68% 48.05% 41.13% 61.75% 47.10% (for US coverage by MCUSA, 8.12% of stocks covered are investment banking clients)
Neutral 39.85% 24.45% 42.86% 54.70% 34.42% 30.89% (for US coverage by MCUSA, 6.60% of stocks covered are investment banking clients)
Underperform 10.35% 17.87% 9.09% 4.17% 3.83% 22.01% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)

Page 38
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