The 3rd Chemical Purchasing Summit

From Recession to Recovery Polymers Outlook: How Resilient is the North American Market?
Bruce A. Petersen
PCS,LLC Polymer Consulting Services, LLC

1 ICIS 2010 Conference

The plastics industry is vital to North Americas global competitiveness as, increasingly, plastic products are being used in a wide array of consumer goods, as well as in advanced applications including telecommunications, electronics, aviation and aerospace, medicine and life sciences, building materials, automotive, and renewable energy.
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Source: PlasticsEurope Association of Plastics Manufacturers

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Source: Plastics News March 5, 2010

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Source: Plastics News October 30, 2009

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World Demand for Plastics 2006

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Source: MOITI 2007

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Plastic Materials Consumption Per Capita By Region in 1980 2005 and 2010 Estimate

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Source: PlasticEurope Market Research Group (PEMRG)

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Plastics and the U.S. Economy

The plastics industry the third largest manufacturing industry in the United States, providing significantly to the nation's economy. The U.S. plastics industry employs more than 1.1 million workers. The U.S. plastics industry creates $379 billion in annual shipments. There are nearly 18,500 plastics facilities in the United States. The U.S. plastics industry had a $10.9-billion trade surplus in 2007. The plastics industry has a presence in every state. Since 1980, U.S. plastics industry shipments have grown 3.4 percent per year.
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Society of the Plastics Industry: Plastics Data Source

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Plastics and the Canadian Economy

The plastics industry is the largest manufacturing employer and the third largest by value of shipments in Canada. The Canadian plastics industry employs more than 113,000 workers, 5.3% of total manufacturing employment in 2007. The Canadian plastics industry creates $33 billion in annual shipments. In 2007 this accounted for 4.2% of GDP. There are over 3,400 plastics facilities in Canada. Plastics industry exports totaled $7.8 billion in 2008. Imports of plastics products amounted to $7.7 billion. Plastics firms are located in every province, and often they anchor employment in many smaller and medium-sized communities.
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Source: Canadian Plastics Industry Association

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Plastics and the Mexican Economy

Plastics production represents 46% of the chemical manufacturing sector, 38% of its employment, and 21% of its value added. The Mexican industrial plastic chain comprises around 4,500 companies employing 180,000 people. The Mexican plastics industry economic activity valued at $21.3 billion. Most plastics facilities are located in Central and Northern Mexico.

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Source: MOITI The Mexican Plastics Industry 2007

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U.S. Plastics Market

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SOURCE: ACC Plastics Industry Producers Statistics Group, as compiled by Veris Consulting, Inc. 11

PCS,LLC Polymer Consulting Services, LLC

Source: ACC Plastics Industry Producers Statistics Group, as compiled by Veris Consulting,

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U.S. Plastics Industry

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Source: ACC Plastics Industry Producers Statistics Group, as compiled by Veris Consulting,

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Major Markets for U.S. Plastics Resins

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SOURCE: ACC Plastics Industry Producers Statistics Group, as compiled by Veris Consulting,

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Key Elements to the Resilience of the North American Plastics Industry

The Economy Government Legislation Feedstock Availability Global Competition Technology
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Key Elements to the Resilience of the North American Plastics Industry

The Economy

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180 160

Major Economic Indicators and Federal Reserve Industrial Production Index

MEI (N.A.) MEI (U.S.)

140
FRIP 1992=100

120
FRIP 1997=100

100
FRIP 2002=100

80
FRIP 2007=100

60 40 20 0 July-2007 July-2008 July-01 July-02 July-06 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-03 Jan-05 Jan-06 Jan-09 Jan-2007 Jan-2008 Jan-10 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-03 Jul-04 Jul-05 Jul-09

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Source: IMM's Molders Economic Index

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MCUMFN: Manufacturing Capacity Utilization Manufacturing

Release Date: August 17, 2010

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Index of Major Injection Molding End Use Markets

250

North American Injection Molding Markets

Medical Electronics Electrical Packaging

200

150

Furniture & furnishings Other Industrial & machinery

100

Consumer & institutional

Transportation
Toys

50

Building & construction

Feb-04

Oct-2006

Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-07

Oct-08

June-01

June-02

Feb-02

Feb-03

Feb-05

Feb-06

June-2007

Feb-08

June-2008

Feb-09

Oct-09

Feb-10

Jun-03

Jun-04

Jun-05

Jun-06

Jun-09

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Base: 1994 = 100

Feb-2007

Source: IMM's Molders Economic Index 19

Jun-10

(thousands of units) 2006 2007 2008 2009 2010 2011 2012 Total Housing Starts 1,812 1,342 900 554 610 871 1,225 Single Family 1,474 1,036 616 442 503 730 1,015 Multifamily 338 306 284 112 107 141 210 New Single Family Sales 1,049 769 482 374 375 572 851 Existing Single-Family Sales 5,712 4,959 4,338 4,567 4,628 5,263 6,012

Housing Forecast August 20,2010

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Source: National Association of Home Builders

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Key Elements to the Resilience of the North American Plastics Industry

Government Legislation

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National Association of Manufacturers

Manufacturing Strategy For Jobs and a Competitive America June 2010

Tax policies to bring America more closely into alignment with major manufacturing competitors Government investments in infrastructure and innovation Trade initiatives to reduce barriers and open markets to U.S. exports
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John Engler President & CEO National Association of Manufacturers

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While the Administration and the U.S. Congress continue to debate energy legislation, the EU Energy Trading System (ETS) enters its 3rd Phase in 2013. The ETS could cost the industry in Europe billions rather than millions. A system that penalizes companies just for operating could be the final straw.
Source: Joseph Chang Global Editor, ICIS Chemical Business September 6-12, 2010
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If the U.S. petrochemical and refining industries ceased to exist, Americans would have to import the products we refine and the petrochemicals we manufacture. This would weaken our national security, worsen unemployment and increase Americas trade deficit. The refining and petrochemical industries are part of a vitally important, but shrinking sector of the American economy our manufacturing base. Keeping these industries alive and vibrant is in the national interest.
NPRA President, Charles T. Drevna
Source: Business & Industry Connection (BIC) September, 2010
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Key Elements to the Resilience of the North American Plastics Industry

Feedstock Availability

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One of the biggest beneficiaries of this new shale gas technology is the U.S. petrochemical industry. Chemical Data Inc. August, 2010

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"Natural gas consumption here peaked nearly 40 years ago. Over the next three decades, it fell by 25 percent, and reserves fell by nearly half. But since then, the entire market has turned with production capacity rising, lower prices and growing reserves, and we foresee a century of domestic supply. Conflicting, changing and shortsighted government policies played a major role. As recently as 2003, the National Petroleum Council as well as others warned that imported LNG would be increasingly necessary. "But since then, the entire market has turned with production capacity rising, lower prices and growing reserves, and we foresee a century of domestic supply. "Some people even forecast the United States becoming an LNG exporter. What happened? Never underestimate the power of technology to drive human progress.
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ConocoPhillips Chairman and CEO James J. Mulva: Natural Gas is The Gift Business & Industry Connection (BIC) magazine June/July 2010
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Ethylene Feedstocks
North America Over 75% Natural Gas Based

Rest of the World Crude Oil Based

Primarily Ethane/Propane With Some Naphtha

Feedstock 2008 % Capacity Ethane 57.6 Propane 16.4 Butane 3.6 Lt. Naphtha 16.9 Gas Oil 5.5 Total: 100.0

Primarily Naphtha/Gas Oil With Some Ethane

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Source: Formosa Plastics

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PCS,LLC Polymer Consulting Services, LLC

Source: U.S. Energy Information Administration

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Consider that the world uses 107 trillion cubic feet (TCF) of gas a year. Proven conventional reserves are 6,500 TCF, a 60-year supply. "With undeveloped conventional resources, there is potentially more than a century of supply, Mulva explained. "Now, adding unconventional gas expands total resources to more than 38,000 TCF, or multiple centuries of supply.
ConocoPhillips Chairman and CEO James J. Mulva: Natural Gas is The Gift Business & Industry Connection (BIC) magazine June/July 2010
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World Proved Reserves of Oil and Natural Gas, Most Recent Estimates

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Source: U.S. Energy Information Administration

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Key Elements to the Resilience of the North American Plastics Industry

Global Competition

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U.S. Plastics Industry Trade Flows 2007-2008

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Source: SPI
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PCS,LLC Polymer Consulting Services, LLC

Source: Plastics News June 11, 2010

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Chinas output of plastic and synthetic resins

First half of 2010 21.07 million tons (46.45 billion pounds) Up 23.21% from 2009

Chinas output of plastic products

First half of 2010 25.76 million tons (56.79 billion pounds) Up 21.11% from 2009
Source: Research In China
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Chinas output of plastic and synthetic resins and Plastic Products 2008 to 2010

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Source: Research In China

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Key Elements to the Resilience of the North American Plastics Industry

Technology

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Plastics and Sustainability

SPI and its member companies continue to embrace the

concept of sustainability: A balance of protecting the natural systems of the planet, providing high quality of life for all people, and fostering global competition, economic freedom, and growing prosperity for all. SPI advocates continuous innovation and improvement in applying sustainability principles in the manufacturing, distribution, use and disposition of plastic materials.
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Source: Society of the Plastics Industry

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Plastics can be made from any feedstock containing carbon and hydrogen. Currently fossil fuels are the preferred feedstock but already today plastics are made from renewable resources, e.g. sugar and corn.

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Source: PlasticsEurope Association of Plastics Manufacturers

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Companies Involved in Bioplastics

Dow Chemical, DuPont, BASF, Braskem, Arkema Cereplast, Metabolix, Cargill, Gevo, Purac, Lapol

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Iowa State researchers Ronald Holtan (L) & Walter Trahanovsky (R) using high-pressure vessels like this to create high-value chemicals from biomass
PCS,LLC Polymer Consulting Services, LLC Source: SpecialChem - Sep 10, 2010

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How Resilient is the North American Plastics Industry? Current Statistics and Forecasts

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U.S. Sales and Captive Use of Major Plastic Resins

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Source: ACC Plastics Industry Producers Statistics Group

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U.S. Sales and captive use of major plastic resins

July 2010 6.6 billion pounds Up 6.9% from 2009

2010 Year-to-date 43.4 billion pounds Up 3.3% from 2009

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Source: ACC Plastics Industry Producers Statistics Group

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Forecast for plastics raw materials consumption (tons)

Country 2008 2009 2010 2011 2012 2013 Canada 3,358,460 2,909,150 3,380,100 3,612,000 3,718,000 3,809,000 U.S. 32,927,620 30,504,320 33,301,380 35,322,000 37,115,000 37,972,000 Mexico 4,741,000 4,064,740 4,791,360 4,940,000 5,406,000 5,973,000 NAFTA 41,027,080 37,478,210 41,472,840 43,874,000 46,239,000 47,754,000 Source: VDMA and The Repton Group

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Forecast for plastics raw materials consumption

(% change from prior year)

Country Canada U.S. Mexico NAFTA

2009 -13% 7% 14% 9%

2010 16% 9% 18% 11%

2011 7% 6% 3% 6%

2012 3% 5% 9% 5%

2013 2% 2% 10% 3%
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Source: The Repton Group

Conclusions:
The North American polymers market has weathered the severe recession of the past two years. While the plastics market has started to rebound, sustained improvement will depend on the strengthening of the U.S. economy and the ability of U.S. manufacturers to compete in the global economy. Never underestimate the power of technology to drive human progress.
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PCS, LLC Polymer Consulting Services, LLC

Bruce A. Petersen has more than 30 years of international experience in plastics compounding and resin distribution. He has served as a senior executive, principal and board member of firms in North America, Europe, and Asia including Vice-President Materials Management of A. Schulman, Inc., President of Diamond Polymers, Inc., and Chairman and CEO of Lynn Plastics Company, LLC. In 2005 he founded consulting firm PCS, LLC offering management and technical expertise in the polymer and chemical industries. The firm's activities have included strategic and tactical planning, financial modeling and task-force execution, establishing factories and management teams, as well as developing supply chains, creating strategic partnership agreements, and overseeing various manufacturing programs. In 2010 PCS, LLC became affiliated with Mathelin Bay Associates, LLC, a firm dedicated to helping resin processors navigate the world of resin procurement, cost effective sourcing of support services and materials, and mergers and acquisitions advisory services for plastics, packaging, and chemicals transactions. Among Petersens many professional plastics affiliations have been President of the Society of Plastics Engineers, and voting member of the Society of the Plastics Industry. Petersen holds a BA degree from Syracuse University.
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