10/27/2014

ASIA COMMODITY
POLYMER INDUSTRY
OUTLOOK

John King, Vice President, Asia Pacific

IHS Chemical Consulting
October 21, 2014
Bangkok

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IHS CHEMICAL

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IHS Chemical

Agenda

• Introduction

• Impact of Shale and Coal

• Asia: The Epi-centre of

Demand Growth

• Commodity Polymers’
Business Dynamics

• Conclusion

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Global Demand for Polymers

2013 World Polymer Demand = 225 Million Metric Tons

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5 reused, or otherwise distributed in any form without prior written consent.

Polymer Applications Overlap

 LLDPE taking market
share from LDPE in
film

LLDPE Polypropylene  HDPE taking some

11% 25%
PC
business from PVC in
HDPE 2%

16% ABS pipe

LDPE PET 3%
PS
9% 8% 5%  PP taking market
share from HDPE in
PVC injection molding
17%

 PP / PET taking
market share from PS
in sheet applications

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Relative Cost of Polymers determines usage

PVC

PS

HDPE
2013
LLDPE 2012

LDPE

PET

PP

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Price Per Cubic Inch

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7 reused, or otherwise distributed in any form without prior written consent.

Commodity Polymers’ Price Index

Price Index
140

130 Forecast

120

110

100

90

80

70

60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
PET LLDPE PP PS PVC

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Agenda

• Introduction

• Impact of Shale and Coal

• Asia: The Epi-centre of

Demand Growth

• Commodity Polymers’
Business Dynamics

• Conclusion

Energy and Hydrocarbon Feedstock Costs:

Key Drivers In Chemicals Manufacturing
FCC Propylene Raffinate
Benzene
REFORMER BTX Extraction Toluene
Xylene
Pygas
Naphtha Benzene
Refinery Toluene/Xylene
Gas Oil Heavy Aromatics
Propane C5/C6 Non Aromatics
Ethane Methane/Hydrogen
Butane Ethylene
Butadiene
Condensate
Mixed Butylenes
Unit
Propylene
Gas
Processing Ethylene
Gas Unit Fuel Oil
Steam SynGas
Reformer Methanol
Coal Synthesis
Methanol
Gasifier
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Feedstock Price Differential vs. Crude Oil Create

Opportunities
• North American gas cost Price Difference, $MMBtu
structure is fundamentally 20.0
changed by Shale; low-cost
supply dominates for the 16.0
foreseeable future
12.0
• US Ethane infrastructure in
place to supply new facilities,
but incremental ethane cost 8.0
structure begins to pull ethane
prices higher 4.0

• Coal prices’ dramatic decline 0.0

nearly over, but high spreads to
oil/naphtha remain – these high -4.0
differentials (or even higher) are
needed to pay for CTO capital
Brent - Nat Gas Brent - Coal Brent-ethane

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Unprecedented Ethylene Capacity Additions

Driven By Low Cost Ethane Supplies
US Ethylene Capacity Additions

Projected North American Ethylene (2014 - 2020)

(Thousand Metric Tons per Year) Total Additions
2014 2015 2016 2017 2018 2019 2020 Through 2020
Company Location

BASF/Total Port Arthur. TX 170 170

ChevronPhillips Cedar Bayou, TX 150 1350 1,500
Freeport, and
Dow Plaquamine 220 600 900 1,720
Eastman Longview, TX 17 17
Equistar All Locations 385 114 363 862
ExxonMobil Baytown, TX 750 750 1,500
FHR PT Arthur 100 100
Formosa Point Comfort, TX 1150 1,150
Oxy/Mexichem Ingleside, TX 413 137 550
Sasol Lake Charles, LA 387 1163 1,550
Westlake All Locations 94 122 216
Williams Geismar, LA 129 129 750 750 1,758
Braskem Idesa Mexico 250 750 1,000
Nova Sarnia 168 168
Firm: 795 935 1,113 918 4,537 3,076 887 12,261
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China Leads Coal Chemical Development

Gasification

Crude
Methanol

Merchant
MTO/MTP Oxalate Ester Acetyl MTA
Methanol

Ethylene Propylene MEG Ethanol PX

In Commercial Production In Pilot Test

13

Many Coal Chemical Projects on the Horizon

• Multiple plants are in

operation
• Many more are under
construction
• CTO and CTMEG projects
are built in coal-rich west
• MTO projects are built
along east coast
• Some planned projects will CTO
not be built
CTMEG
MTO

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reused, or otherwise distributed in any form without prior written consent.
reused, or otherwise distributed in any form without prior written consent.

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 10/27/2014

Ethylene Capacity Additions by Region

Capacity additions in sync with demand growth
Million Metric Tons
15.0

10.0

5.0

0.0

-5.0

-10.0
10 11 12 13 14 15 16 17 18 19 20 21 22 23
Total Asia Others
Middle East West Europe
North America Annual Demand Increase

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Ethylene Cash Cost Snapshot

Regional Comparison
U.S. Dollars Per Metric Ton
1575
Ethylene Cash Costs From
Ethane in Saudi Arabia
1350

1125

900

675

450

225

0
Western U.S. U.S. China U.S. West U.S. Light Northeast Southeast China
Canada Ethane Weighted CTO Coprod. Europe Naphtha Asia Asia MTO
Average Int. Light Naphtha Naphtha Naphtha
Naphtha
2013 2023

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Three Routes to Produce Propylene

Motor Motor
Alkylation High Octane
Gasoline Gasoline
Unit Motor
FCC Gasoline
Crude
Unit Unit
Crude Other Fuel

Propylene
Oil Uses
Refining Industry
Chemical Direct Refinery Grade chemical consumption
Industry
Purification
Splitter Unit Injection
Molding,
Naphtha Fibers,
Steam Cracker Polypropylene Films
Ethane
Nat. (Olefins Plant)
Propane Other Propylene
Gas Ethylene consumers
& Olefins
On-Purpose
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A Wave of PDH Projects Is Also Coming

• Many PDH projects under

construction or in planning
• Located along coastal regions
• Rely on import of propane or
LPG
• Ease domestic propylene
supply constraint

In operation Under construction Planned

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reused, or otherwise distributed in any form without prior written consent.

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Unconventionals Drive Propylene Growth

Capacity, Million Metric Tons Percent of Unconventional
100 40%

80
30%

60
20%
40

10%
20

0 0%
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Conventional CTO/MTO PDH Percent of Unconventional

19

On-Purpose Propylene Production Trends

PDH & CTP Investments Accelerate
On Purpose Propylene Production, Million Metric Tons
30

20

25%

10

45%

0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2022
Ex Dehydro - PDH Metathesis Olefin Cracking
Via Methanol: CTP HS FCC Others On-Purpose

20

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Global Propylene Capacity Additions Vs.

Demand Growth
Million Metric Tons, Propylene
12

-4

-8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 23
North America Middle East
China West Europe
Others Annual Demand Increase

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reused, or otherwise distributed in any form without prior written consent.

Agenda

• Introduction

• Impact of Shale and Coal

• Asia: The Epi-centre of

Demand Growth

• Commodity Polymers’
Business Dynamics

• Conclusion

22

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Asia’s Share of the World

Percentage
Percentage
60

40

20

0
Population GDP Oil Reserves Gas Reserves Coal Reserves

Sources: IHS, BP Statistical Review of World Energy 2013

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23 reused, or otherwise distributed in any form without prior written consent.

Asia’s Share of the World is Growing

Taiwan Indonesia Rest of

Taiwan S. Korea 1.7% 4.4%
Indonesia Asia
S. Korea 2.2% 4.2%
3.9% 14.8%
5.7%
Rest of Japan
Asia 14.5%
17.1%
Japan India
27.3% 12.9%
China China
India 34.3% 47.4%
9.4%

2012 Asia GDP 2030 Asia GDP

20.3 Trillion US 2010 Dollars 45.8 Trillion US 2010 Dollars
29.9% Global GDP 37.8% Global GDP

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Asia’s Large Increase in Manufacturing Supports

Base Chemical and Polymer Demand Growth
Share of World Demand Growth 2008-2018, Percent
Percentage
100

80

60

40

20

0
PE PP PVC Polyester Butadiene Bz PX
China Rest of Asia

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25 reused, or otherwise distributed in any form without prior written consent.
25

China Leads Global Chemical Demand Growth &

Manufacturing since Joining WTO
China Share of Global
Manufacturing China has become the World’s
Rest of World United States China factory floor
100%
90% • 2001 entry into WTO
80%
70%
catalyzed a rush to off-
60% shore
50%
40% • Global supply-chains were
30%
20%
redesigned to leverage low
10% labor costs
0%
• Developed countries bore
the brunt

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China Leads Global Chemical Demand Growth &

Manufacturing since Joining WTO
China Share of Global China's Share of Global
Manufacturing Demand
Chemical Growth
Growth, China
Rest of World United States China KTA ROW Growth China Growth China Share Share
100% 120 175%
90% 100 150%
80%
80 125%
70%
60% 60 100%
50% 40 75%
40%
20 50%
30%
0 25%
20%
10% -20 0%
0% -40 -25%

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More Olefins Investment in Asia than US and

Middle East Combined
Incremental Ethylene + Propylene Capacity 2013-18, Million Metric Tons

Rest of Asia

China

MDE/Afr

Europe

Americas

-5 0 5 10 15 20 25 30 35
LPG + Liquid Cracking Ethane Cracking
Coal/ Methanol PDH
Others
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Agenda

• Introduction

• Impact of Shale and Coal

• Asia: The Epi-centre of

Demand Growth

• Commodity Polymers’
Business Dynamics

• Conclusion

29

Polyethylene Capacity
Growing in Low Feedstock Cost Locations
Million Metric Tons
10.0

8.0

6.0

4.0

2.0

0.0

-2.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Asia/Pacific Africa/Middle East North America

Central Europe/CIS South America West Europe
Global Demand Change

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reused, or otherwise distributed in any form without prior written consent. 30

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Polypropylene Market View

China leading the PP Capacity Growth
Million Metric Tons
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Asia/Pacific Africa/Middle East North America

Central Europe/CIS South America West Europe
Global Demand Change
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Polypropylene Market View

Northeast Asia
• China’s self-sufficiency grows from
75-93%, 2013-18
Million Metric Tons Operating Rate
40 100% • China CTO producers prefer to select
35 CTP-PP process as this production cost
90% is relatively competitive compared
30
with those in Middle East and NAM.
25 80%
• China avg. operation rate will reduce
20
to 77-80% (75%?) after 2018 as China
70%
15 comes under pressure of higher
10 production costs and export impact of
60% low production cost resins in NAM &
5
Middle East.
0 50%
09 10 11 12 13 14 15 16 17 18 19
Domestic Demand Exports
Total Capacity Imports
Operating Rate, %
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PVC Capacity Growth is Slowing Down

Million Metric Tons Operating Rate, %
80 AAGR 2013-2018 = 4.1%
100
Forecast Forecast
90
60

80
40
70

20
60

0 50
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Demand Capacity Operating Rate, %

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33 reused, or otherwise distributed in any form without prior written consent.

Global PET Resins Supplies will continue to

remain long
Million Metric Tons Operating Rate, %
40 100
AAGR 2013-2018 = 5.2%

90
30
Forecast
80
20
70

10
60

0 50
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Food Beverage Pharmaceutical
Cosmetics Other PET Total Capacity
Operating Rate, %
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34 reused, or otherwise distributed in any form without prior written consent.

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PS Demand Growing at the Slowest Rate among

Commodity Polymers
Million Metric Tons Operating Rate, %
20 AAGR 2013-2018 = 2.0% 100
Forecast
90
15
80
10
70
5
60

0 50
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Packaging Consumer Products

Electronics / Appliances Building / Construction
Others Total Capacity
Operating Rate, %

© 2014 IHS, Inc. No portion of this presentation may be reproduced,

35 reused, or otherwise distributed in any form without prior written consent.

Agenda

• Introduction

• Impact of Shale and Coal

• Asia: The Epi-centre of

Demand Growth

• Commodity Polymers’
Business Dynamics

• Conclusion

36

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Key Takeaways
 Excess Capacity in all Commodity
Polymers
 Demand for polymers is expected
to pick up during the next 5 years
 Polymer Price outlook needs
regular monitoring considering
several influencing factors
 Producers’ margins will remain
under pressure
 Large proportion of the polymer
trade in Southeast Asia will be intra
– regional due to ASEAN FTA

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37 reused, or otherwise distributed in any form without prior written consent.

THANK YOU

John King
Vice President, Asia Pacific
IHS Chemical Consulting
Thailand
John.King@ihs.com

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