4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene

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Review of Industry,
Energy/Feedstocks
and Polypropylene
Bob Dennett, Senior Principal Analyst,
Commodity Plastics
May 2012
Paul Blanchard, Senior Principal Analyst,
Engineering Resins
May 2012
Page 2
Energy & Polymer
Feedstocks
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
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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7%
Crude Oil Demand
> 84.0 Million BPD
(Global)
LPG
Naphtha
Gas Oil
Petrochemical
Industry
< 3% of Crude ends up in
Plastics 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)
Gas
Processing
Ethane, Propane
Butane, 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
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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0%
10%
20%
30%
40%
0
2
4
6
8
10
12
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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Feedstocks Energy Petrochemicals
Naphtha
Gas Oil
Ethane
Propane
Butanes
Field
Condensates
Propylene
Ethylene
Pygas
Benzene
Toluene
Xylenes
C
5
/C
6
Non Aromatics
Heavy Aromatics
Crude C
4
Butadiene
Mixed Butylenes
Fuel Oil
Methane/Hydrogen
Natural Gas
Crude Oil
Refinery
Gas
Separation
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
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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SE Asia Avg.
West Europe
Avg.
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 through
feedstock or processing costs when the predominant
alternative production is based on crude oil / naphtha
Low Gas Benefits Certain Chemicals
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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H
ig
h
ly
A
d
v
a
n
ta
g
e
d
Ethylene
Polyethylene
Ethylene
Oxide
Derivatives
MEG,
Amines,
Alpha Olefins
Mo
d
e
ra
te
A
d
v
a
n
ta
g
e
Chlorine &
Caustic
Soda
Vinyls
EDC /VCM
Styrenics
Methanol
N
o
A
d
v
a
n
ta
g
e
Refinery
Products
BTX
Propylene
Butadiene
Relative Cost Advantage gain from Natural Gas
A comparison
of some of the
products
impacted by
the difference
in natural gas
values vs. oil
prices.
Page 11
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Global Plastics Consumption 2011
HDPE
17%
LLDPE
11%
LDPE
9%
PP
25%
PS
5%
ABS
4%
PVC
18%
PET
7%
PC
1%
Nylon
3%
2011 World Polymer Demand => 205 Million Metric Tons
Page 12
Average Plastics/Composites in Light
Vehicles by Region in 2010
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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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
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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Polypropylene
25%
Polyethylenes
5%
Polyurethane
15%
PVC
8%
Acrylics
1%
Phenolics
3%
Unsat. Polyester
3%
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
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Polypropylene
Page 16
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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The Good Old Days
Cheap Material
Avenue to move excess
propylene
Versatile
Able to replace other
products
Poor mans engineering
polymer
Low price and versatility
drove growth
PP one of the polymers
with the highest demand
growth 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
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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0 1 2 3 4 5
PP
ABS
PET
LDPE
LLDPE
HDPE
PS
PVC
2002
2011
Molding grade resins
Cost, Cents Per Cubic Inch
U.S. Comparative Costs of Thermoplastic
Polymers
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,
Films
Polypropylene
On-Purpose
FCC
Unit
Whats Changing in Polypropylene
4/13/2014 Review of Industry, Energy/Feedstocks and 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 23
Consequence: 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 Rate
North America Europe
Northeast Asia
Southeast Asia South America
Middle East/Africa
Indian Subcontinent
*Bubble size represents size of
regional 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 Share
Company (000's MT) %
Basell 6207 16.70
BP Chemical 2242 6.03
Sinopec Group 2106 5.67
ExxonMobil 1772 4.77
ATOFINA 1712 4.61
Borealis 1400 3.77
Reliance Industries 1200 3.23
(Based on Estimate of Marketed Capacity)
2016
Capacity Share
Company (000's MT) %
LyondellBasell 6521 8.49
Sinopec Group 6458 8.41
SABIC
3715 4.84
PetroChina Group 4613
6.01
3455 4.50
ExxonMobil
3050
3050
3.97
Borealis/Borouge
2790 3.63
Braskem Group
Top Global Polypropylene Producers/Marketers
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DSM 985 2.65
Formosa Plastics 980 2.64
PetroChina 880 2.37
Total 19484 52.43
Total Capacity 37159
Reliance Industries
Total PC
2750 3.58
2715 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 Growth
Cumulative Global Excess Capacity Growth
Global Operating Rate
Excess Capacity, Million Metric Tons
Global Operating Rate, %
Page 29
China Will Become Increasingly
Self 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
Page 30
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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 Ton Price, Cents Per Pound
4/13/2014 Review of Industry, Energy/Feedstocks and Polypropylene
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661
882
1,102
1,323
1,543
30
40
50
60
70
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 Time
High 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 + domestic
transportation
Discount
Page 34
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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 Ton
Price, Cents Per Pound
Page 35
Change in Resin Producer Strategy
Historically
Try to maintain high
Today
Keep inventories lower
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operating rates
Strive for market position
or share
Lack of discipline in selling
Over investment
and supply tighter
Maintain 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 to
drive growth
Oversupply conditions expected in
next two years; benefits Asia
Trade to become competitive; trade
flows to change
Regional price disparities will ease,
longer term
Short term price to affect demand;
versatility to help long term
Page 38
Thank You!