SUPPLY/DEMAND

OUTLOOK
FOR POLYETHYLENE,
POLYPROPYLENE
BERNARDO E. FALLAS
Associate Editorial Director, Petrochemicals (Americas)
13 Congreso Argentino de Petroqumica
June 14-15, 2016
KEY AGENDA ITEMS

Global ethylene expansions where they are and how they affect PE
Status of North American olefins/polyethylene projects
South America as target for US, Middle East surpluses
Asias insatiable demand and its effect on region
Impact of lower crude prices on CTO/MTO economics
US propylene expansions and their effect on PP availability, pricing
Global PP supply/demand balance who has material to sell?
Latin America at a crossroads Opportunity versus challenges
PLATTS AT A GLANCE
PLATTS MARKET COVERAGE

Price
Polymers
Assessment
s

Aromatics
News &
Independent Commentary Platts is your source for
independent information on the
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Analysis Solvents

Real-time

4
 GLOBAL ETHYLENE EXPANSIONS

5
Source:S&PGlobalPlatts,EIA
 OLEFINS INVESTMENT ASIA, US LEAD
PACK

Capacity Additions by Region Capacity Additions by Feedstock

3% 1%
17%

28% 2% CTO/MT
North America O
3%
37% Middle East 40% Butane

Europe Propane
Asia
Naphtha
Africa
37%
14% 18%

Source:PlattsAnalytics
 MAJOR EXPANSIONS COMING IN US
Company Location mt/yr Startup
Occidental/Mexichem Texas 550,000 H1 2017
Dow Chemical Texas 1,500,000 H2 2017
ExxonMobil Chemical Texas 1,500,000 H2 2017
Chevron Phillips Chemical Texas 1,500,000 H2 2017
Formosa Plastics CUSA Texas 1,500,000 2018
Shintech Louisiana 500,000 2018
Axiall/Lotte/Westlake Louisiana 1,200,000 2018/2019
Sasol Louisiana 1,500,000 2018/2019
ShellChemical Pennsylvania 1,500,000 2020/2021
PTTGC Ohio 1,000,000 2021/2022

Source:S&PGlobalPlatts
 HISTORICAL ETHYLENE PRODUCTION
COSTS
$/MT

1.400 WE Naphtha

1.200
SE Asia
Naphtha
1.000
NE Asia
800 Naphtha
US Ethane
600

400 US E/P

200 Middle East

Ethane
-
ago-14

oct-14

dic-14
ene-15

may-15

ago-15

oct-15

dic-15
ene-16
jun-14
jul-14

sep-14

nov-14

feb-15
mar-15
abr-15

jun-15
jul-15

sep-15

nov-15

feb-16
Source:PlattsAnalytics
 NORTH AMERICAN PE EXPANSIONS
Capacity
Company Location Product (,000 mt/year) Startup
Nova Joffre, Canada LLD 431 2016
Braskem-Idesa Coatzacoalcos, Mx HD, LD 750, 300 2016
Ineos/Sasol JV LaPorte, US HD 460 2016
LyondellBasell Corpus Christi, US HD, LLD 227, 227 2016
CP Chem Sweeney HD, LLD 500, 500 2017
Dow Freeport, US LD, LLD 400, 650 2017
Exxon Mobil Mont Belvieu, US LLD, HD 650, 650 2017
Formosa Point Comfort, US HD, LD, LLD 225, 300, 225 2018
Sasol Lake Charles, US LLD, LD 450, 420 2018
Total additions 7,365

9
Source:S&PGlobalPlatts
 GLOBAL POLYETHYLENE OUTLOOK

Source:PlattsAnalytics
 N. AMERICA TO BE SUPPLY HEAVY ON PE
30.000
25.000
20.000
,000 MT

NA HDPE demand
15.000
NA LLDPE demand
10.000 NA LDPE demand
Total NA production
5.000
0

11
Source:PlattsAnalytics
 A KEY RELIEF VALVE FOR US PE
SURPLUS

Source:PlattsAnalytics
 LATIN AMERICA AT A GLANCE
Latin Americas population Latest IMF projections
(real GDP growth, annual % change)
Near 600 million, yet PE capacity totals only 5 Country 2015 2016 2017
million mt/year Argentina 1.2 -1.0 -2.8
Bolivia 4.8 3.8 3.5

Per capita PE consumption Brazil -3.8 -3.8 0.0

Chile 2.1 1.5 2.1
Central, S. America is of Western Europe, 1/3
Colombia 3.1 2.5 3.0
of North America
Dominican Republic 4.6 5.3 4.2
Ecuador 0.0 -4.5 -4.3
Exports from North America Guatemala 4.0 4.0 3.9

US/Canadian sellers target S. America due to Mexico 2.5 2.4 2.6

proximity & growth potential Paraguay 3.0 2.9 3.2

Peru 3.3 3.7 4.1

Venezuela -5.7 -8.0 -4.5
Brazils financial, political concerns
USA 2.4 2.4 2.5
IMF has revised regions GDP growth forecasts Lat Am & Caribbean -0.1 -0.5 1.5
down significantly; Brazil in heavy recession
 KEY SOUTH AMERICAN PE MARKETS

Production: 2.7 million

mt/year
Production: 40,000
Demand: 2.3 million mt/year
mt/year
Demand: 299,000 mt/year
Total South America
Production:
3.2 million mt/year
Production: 0 mt/year Demand:
Demand: 286,000 mt/year 5.05 million mt/year
Deficit:
1.45 million mt/year

Production: 0 mt/year
Production: 518,000 mt/year
Demand: 376,000 mt/year
Demand: 698,000 mt/year

14
Source:S&PGlobalPlatts
 ARGENTINA POLYETHYLENE BALANCE
800
700
600
500
400
,000 MT

300 Total Argentina Production Forecast

200 Total Demand Forecast for Argentina

Total Argentina Surplus/Deficit
100
0
-100
-200
-300
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source:PlattsAnalytics
 MIDDLE EAST WELL POSITIONED TO
EXPORT
25.000

20.000
,000 MT

15.000
Middle East PE Production
10.000
Middle East PE Demand
5.000

16
Source:PlattsAnalytics
 ASIA LEADS WAY IN PE DEMAND SHARE

Source:PlattsAnalytics
 ASIA EXPANDING, STILL NET SHORT
ChinaandIndiaKeyDrivers
85.000

65.000 IndianDemand

45.000 RestofAsiaDemand

25.000
ChineseDemand
5.000

15.000

35.000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

China accounts for close to 55% of total Asian PE demand

India accounts for close to 12% of total Asian PE Demand

Source:PlattsAnalytics
 CHINAS ANSWER: CTO/MTO PROJECTS

Inourforecastweexpectaround30MTO/CTOprojectswillcomeonstreamby2020
ThebulkoftheCTO/MTOethyleneprojectsareexpectedby2018
44%offutureproductionofethyleneisatrisk

Source:PlattsAnalytics
 MTO/CTO PROJECTS SEE ADVANTAGE
ERODED
InnerMongoliaSelfownedmine Jan16 Jun14 EasternChinanaphthacracker Jan16 Jun14

FeedstockCost NaphthaFeedstockCost
CoalPrice(explant) $42.88 $63.83 Naphthaprice(explant) $340.63 $991.63
CoalConsumptionper/tonMeOH 1.4 1.4 Naphthaconsumptionpertonolefins 2 2
MethanolConsumptionper/tonolefins 3 3
TotalFeedstockCostpertonolefins $180.11 $268.10 Feedstockcostpertonolefins $681.26 $1,983.26
CoProducts CoProducts
Totalcoproductcredits $69.52 $158.03 Totalcoproductcredits $419.03 $879.16
Electricity Electricity
Totalelectricitycostpertonolefins 103.7234 103.723 Totalelectricitycostpertonolefins $22.15 $22.15
DepreciationandLabor DepreciationandLabor
TotaldepreciationandLabor $91.19 $91.19 TotaldepreciationandLabor $54.40 $54.40
Watercost WaterCost
Totalwatercost $31.91 $31.91 Totalwatercost $4.99 $4.99
Effluenttreatmentcost Effluenttreatmentcost
pertonolefins $17.33 $17.33 pertonolefins $2.50 $2.50
Others Others
others $126.14 $126.14 others $159.36 $159.36
Transportationcostforolefinsproduct Transportationcostforolefinsproduct
Transportationcostpertonolefins $86.63 $86.63 Transportationcostpertonolefins 0 0
Totalproductioncostpertonolefins $567.51 $566.99 Totalproductioncostpertonolefins $505.63 $1,347.50
20
Source:PlattsAnalytics
 NAPHTHA IF CURRENT RATIOS HOLD

21
Source:PlattsAnalytics
 CHINA EXPANSIONS NOT ENOUGH

Source:PlattsAnalytics
 ADDITIONAL PE REQUIRED POST 2024

Source:PlattsAnalytics
 $/bbl

$15,00
$35,00
$55,00
$75,00
$95,00
$115,00
$135,00
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11

Source:PlattsAnalytics,Bentek Products
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
May-18
Oct-18
Bentek Oil Forecast

Mar-19
Aug-19
Jan-20
Jun-20
Nov-20
Apr-21
Sep-21
WTI
Brent
CRUDE DECLINES IMPACT PROPYLENE

WTI Forecast
Brent Forecast

24
ASIA C3 MARGIN SHRINKS AS SUPPLY
RISES
CFR China PGP vs Naphtha marker
1.800
1.600
1.400
1.200
1.000 Propylene
$/mt

Poly Grade
800 CFR China
600 Weekly
400
200 Naphtha C+F
0 Japan Cargo
Sep

Sep

Sep

Sep
May

May

May

May

May
Jan-

Nov
Jan-

Nov
Jan-

Nov
Jan-

Nov
Jan-
Mar

Mar

Mar

Mar

Mar
Jul-12

Jul-13

Jul-14

Jul-15
 IN US, WEAKER RGP PULLS PGP

USG Propylene
$1.850

$1.650

$1.450
USD per mt

$1.250

$1.050 Propylene Poly

Grade USG
$850 Contracts
Propylene Poly
$650
Grade FD USG
$450
Propylene Refinery
$250 Grade FD USG

Source: Platts

26
 PRODUCTION REMAINS STRONG

8.500
8.000
7.500
7.000
6.500
in million lb

6.000 Propylene
5.500 Production
5.000 Refinery
Sourced
4.500
Chemical
4.000 Sourced
3.500
3.000
2.500

Source: AFPM

16 March 2016 Americas Aromatics and Olefins H1 Outlook 27

 % utilization

82
84
86
88
90
92
94
96

Source: EIA
Jan-13
Feb-13

16 March 2016
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14

Americas Aromatics and Olefins H1 Outlook

Aug-14
Sep-14
Oct-14
REFINERY RUN RATES

Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
4-Week Average US % Utilization of Refinery Operable Capacity

Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
28
 NORTH AMERICAN PDH EXPANSIONS

Company Location mt/yr Startup

Dow Chemical Texas 750,000 Q4 2015 - completed

Enterprise Texas 750,000 Q2 2017 commissioning

Formosa Plastics CUSA Texas 700,000 2018/2019/?

Williams Alberta 500,000 2019/2020/?

29
Source:S&PGlobalPlatts
 PP MARGINS IMPROVE

95

85 Propylene Poly Grade

Dlvd USG CP cts/lb
75 Weekly
Cents/lb

65
Propylene Poly Grade FD
USG cts/lb M1
55

45
PP Homo Inj US Domestic
35 Dlvd Railcar cts/lb Weekly

25
Oct-13

Apr-14

Oct-14

Apr-15

Oct-15
Nov-13
Dec-13

Nov-14
Dec-14

Nov-15
Dec-15
Sep-13

Jan-14

May-14
Jun-14

Aug-14
Sep-14

Jan-15

May-15
Jun-15

Aug-15
Sep-15

Jan-16
Feb-14

Feb-15

Feb-16
Jul-14

Jul-15
Mar-14

Mar-15

Source: Platts

16 March 2016 Americas Aromatics and Olefins H1 Outlook 30

 GLOBAL POLYPROPYLENE OUTLOOK

Source:PlattsAnalytics
 ARGENTINA POLYPROPYLENE BALANCE
400

300

200
,000 MT

Argentina Production Forecast

100
Argentina Demand Forecast
Argentina Deficit
0

-100

-200
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source:PlattsAnalytics
 KEY TAKEAWAYS

Asia, US to undergo ethylene expansions, mainly geared toward PE

US cracker projects post-2019 questionable, but not impossible
S. America remains target for US, Middle East surpluses despite slump
Asia demand to continue to outpace supply; China, India main drivers
CTO/MTO economics have lost competitive edge in low-crude
environment
Lower Chinese demand could mean cancellation of projects
US C3 expansions having little effect on PP availability
China starting to export PP as domestic production ramps up
South American producers constrained by feedstock

Source:PlattsAnalytics
THANK YOU
CONTACT DETAILS:
BERNARO FALLAS, ASSOCIATE EDITORIAL
DIRECTOR