Chinese petrochemical sector demand

Canadian Energy Research Institute Petchem Conference

Kananaskis
Jeff Kralowetz
8 June 2015

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Market Reporting
Consulting
Events

Who is Argus
Independently held energy
markets price reporting
agency
600+ staff, 23 countries

Publish > 8,000 daily

commodity price
assessments + energy
market intelligence
78 daily Asia-Pacific LPG
price assessments,
including Far East Index
basis for swaps
21 staff in China
2 full-time staff in Calgary
Consulting
Training
Conferences
illuminating the markets

Copyright 2015 Argus Media Ltd. All rights reserved.

Perspectives on Asian petchems

illuminating the markets

Copyright 2012 Argus Media Ltd. All rights reserved.

What we see on Chinese and Asian demand

Chinas GDP and manufacturing growth rates have slowed
Chinese naphtha cracker capacity growth slowing; expansions
have been delayed; overbuilt demand growth in 2015
Strong naphtha prices vs C3, C1 & coal incentivize diversity in
feeds
Ethane/LPG is taking greater share in ethylene cracker feed
China continues to need on-purpose propylene, especially as
naphtha cracking sees reduced share of feed slate

Copyright 2015 Argus Media Ltd. All rights reserved.

Core context: Chinese economic growth

Market Reporting
Consulting
Copyright 2015 Argus Media Ltd. All rights reserved.

Events

Chinese growth slowing

GDP growth of 7.0pc in
1Q15 slowest since 2009
March 15 industrial
growth 5.6pc annual
rate, slowest since Nov
2008
Exports down 15pc in
March (but were up
43pc in Feb)
IMF says China will grow
at 6.8pc in 2015

Chinese GDP growth

12

10

0
2010

2011

2012

2013

2014

2015

Sources: World Bank, IMF, Natl Bur Statistics, Tradingeconomics.com

illuminating the markets

Copyright 2015 Argus Media Ltd. All rights reserved.

Slowed naphtha cracker growth

Market Reporting
Consulting
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Events

Chinas naphtha cracker expansions being delayed

matching slowed capacity growth across Asia

Only two projects are under construction

CNOOC 2nd phase 1mn t/yr cracker,
start up end-2016
Sinopec Hainan Petrochemical 1mn
t/yr cracker, start up 2017

Approved, but construction put on hold

Huajin Petrochemical, Panjin
Liaoning, 1mn t/yr
Sinopec/Kuwait, Zhanjiang
Guangdong, 800kta
PetroChina/Shell/Qatar, Taizhou
Zhejiang, 1.2mn t/yr
Sinopec, Zhangzhou Fujian, 1.2mn
t/yr
Sinochem, Quanzhou Fujian, 1mn
t/yr

Reasons for delays: demand slow-down,

margin squeeze, CTO/MTO-based
capacities enhanced

illuminating the markets

Copyright 2012 Argus Media Ltd. All rights reserved.

Chinas new ethylene cracking capacity trailing demand

Downstream startups
will boost ethylene
demand
Expect + 8mn t/yr in
2015 for derivative
capacity expansions
Just 4mn t/yr of new
ethylene capacity

Part of the 8mn t/yr

project will be
further delayed to
2016.

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Asian ethylene capacity sees feedstock diversity

Asia Ethylene Production Capacity (million t/y)
75
70
65
60
55
50
45
40
35
30
2010

2011

2012

2013
Naphtha

2014
Ethane

Coal

2015

2016

2017

Methanol

Naphtha cracker capacity had increased in the past to absorb the additional
naphtha produced
But this is slowing now, CTO/MTO accounts for the majority of the capacity
increase
illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Across Asia, CTO/MTO take away growth from naphtha

Asia ethylene capacity expansions, effective

illuminating the markets

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Argus sees long-term growth in Chinese petchem demand

resuming, boosting NEA naphtha imports
Total naphtha import by country

Naphtha import (Major countries Asia)

25.0

70.0

20.0

50.0

Million T/A

million T/A

60.0
40.0
30.0
20.0
0.0
2008

0.0
2009

2010

Singapore+Thailand

10.0
5.0

10.0

15.0

2011

2012
NEA

2013

2008

2009

South Korea

2010
Japan

2011
China

2012

2013
Taiwan

Since 2008, South Korea has overtaken Japan as the largest naphtha
importer of the region
NE Asia is the largest importer of cracking naphtha. Full range naphtha
is also imported for aromatics production
Import growth likely to resume after current plateau

illuminating the markets

12

US naphtha exports to NEA rising, LTO (shale) effect

1.80

Japan Naphtha Import

Naphtha Import from US (million T/A)

1.60

Others
24%

1.40
1.20

South
Korea
18%

US
4%

1.00
0.80
0.60

Middle
East
38%

0.40
0.20
0.00
2008

2009
China

India
16%

2010
Taiwan

2011
Japan

2012
South Korea

Naphtha export to the Northeast Asia

increased from about 200kt/yr in 2011 to
1.6 mn t/yr now
We expect US naphtha to compete for
feedstock market in Asia as domestic US
production rises

illuminating the markets

Taiwan Naphtha Import

2013

Others
21%
US
7%

Other
Asia
10%

Middle
East
50%
India
12%

13

Balancing naphtha and LPG

Propane makes a run, but not as much in China

Market Reporting
Consulting
Copyright 2013 Argus Media Ltd. All rights reserved.

Events

Asia is worlds balancing market for cracker feeds

Flexibility allows response to feedstock pricing
Share of LPG in ethylene
crackers to climb from 810pc:

Supported by new LPG

handling and storage
facilities
Limited by cracker
configurations and demand
for cracker co-products

Naphtha and LPG prices

unlikely to move on Asian
LNG prices

Direct substitution is not

expected

illuminating the markets

Source: Argus Media

Copyright 2013 Argus Media Ltd. All rights reserved.

China has less feedstock flexibility

Chinese crackers have
LPG import limitation
Most tied to refineries
and most tied to
refineries

illuminating the markets

Chinese LPG output from refining up,

but doesnt meet new demand

Source: Argus China Petroleum,

May 2015
Copyright 2013 Argus Media Ltd. All rights reserved.

Chinese LPG imports up 164pc YTD vs 2014 despite

restrictions; 259,000 b/d in March 2015

Source: Argus China Petroleum, May 2015

illuminating the markets

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China is #2 consumer and #3 producer of LPG

2013 LPG consumption '000 t

2013 LPG output ('000 t)

60000

70000

50000

60000

40000

30000

20000

50000
40000
30000
20000

10000
10000
0
0
US

Saudi China Russia

Arabia

Source: 2014 World Statistical Review of Global LP Gas

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

UAE

Qatar Canada India

Closer Look: Propylene and PDH

Market Reporting
Consulting
Copyright 2013 Argus Media Ltd. All rights reserved.

Events

Unlike ethylene, new propylene capacity exceeds

demand for 2015
Expected derivative
demand addition =
2.8mn t/yr in 2015
Propylene additions up
to 6mn t/yr
Close to 40pc from
CTO/MTO
30pc from PDH and
24pc from RFCC
(residue FCC)

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Propylene expansions in NEA mainly from PDH/MTO

Northeast Asia Propylene Capacity Additions (effective)
Unit: million tonnes

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Better margins across Asia for PDH than for C3 cracking;

encourages building PDH units in Asia.
Gross Margin Comparison - NEA C3 PDH vs C3 Cracking (U$/t)
350.00
300.00

PDH Attractive

250.00
200.00
150.00
100.00
50.00
0.00

C3 Cracking Attractive

-50.00

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

Dec-12

Aug-12

Apr-12

Dec-11

Aug-11

Apr-11

Dec-10

Aug-10

Apr-10

Dec-09

Aug-09

Apr-09

Dec-08

Aug-08

Apr-08

Dec-07

Aug-07

Apr-07

Dec-06

Aug-06

Apr-06

Dec-05

Aug-05

Apr-05

Dec-04

Aug-04

Apr-04

Dec-03

Aug-03

Apr-03

-100.00

Consistent PDH premium of 50 100 USD/T over C3 cracking is

observed.
Premium increased since 2010, providing relatively strong incentive for
PDH projects in Asia.

illuminating the markets

22

Asias propylene feedstock is now more diverse

NE Asia Propylene capacity mnt
60
50
40
30
20
10
0
2010

2011

2012

2013

FCC

illuminating the markets

Naphtha

2014

CTO

Others

2015

MTO

Copyright 2012 Argus Media Ltd. All rights reserved.

PDH

2016

2017

Across NEA, less propylene coming from refineries or

steam crackers, more from PDH, CTO, MTO

illuminating the markets

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China propylene imports may have peaked last year

Mideast is
increasing
propylene output
for export to
Asia.
But Chinese
demand for
imports may
have peaked last
year

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

China had 2.1mnt of PDH start-ups in 2013-2014

Added about 40,000 b/d in C3 demand
Tianjin Bohua
600,000 t/yr
started up in October 2013.
Stabilised only in Jan 2014

Shaoxing Sanyuan
450,000 t/yr
Started up in late September 2014.
Currently operating at full rate
Ningbo Haiyue
600,000 t/yr
Started up in early September 2014.
Currently operating at full rate (not
integrated)
Zhejiang Satellite
450,000 t/yr
Started up in mid September 2014.
Currently operating at half rate
illuminating the markets

Copyright 2014 Argus Media Ltd. All rights reserved.

New PDH Capacities in 2015

South
Korea:
300,000
Hyosung
750,000
Wanhua
660,000
Yangzijiang

illuminating the markets

Copyright 2014 Argus Media Ltd. All rights reserved.

t/yr

Capacity additions outstrip demand growthfor now

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Supply surpluses will force lower propylene operating

rates in NE Asia

illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

Chinas PDH plans now less aggressive

New propane demand from PDH

could hit 230,000 b/d by 2018
illuminating the markets

Copyright 2013 Argus Media Ltd. All rights reserved.

NEA propylene prices have recovered vs ROW

Source: Argus DeWitt Propylene report, 3 June 2015

Copyright 2015 Argus Media Ltd. All rights reserved.

Cash margins of Asian PDH recovered from January

Source: Argus Media

illuminating the markets

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Conclusions

Market Reporting
Consulting
Copyright 2013 Argus Media Ltd. All rights reserved.

Events

Slowed growth, but advantaged feedstocks

Chinas GDP and manufacturing growth rates have slowed
Naphtha cracker capacity growth in China has slowed & some
naphtha cracker expansions have been delayed
But new capacity in 2015 will fall short of new demand

Chinese petchem sector diversifying feedstocks

China continues to need on-purpose propylene
China using less naphtha and more CTO/MTO for ethylene cracking
means making less propylene
Margins for Chinese PDH still good in spite of big capacity additions.

Copyright 2015 Argus Media Ltd. All rights reserved.

Jeff Kralowetz
VP Business Development, Argus Media Inc.
Email:
Phone:
Office:
Web:

Jeff.kralowetz@argusmedia.com
+1 832-492-6082
Houston
www.argusmedia.com

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