The Changing Aromatics Market And ICIS

The Changing Aromatics Market And ICIS

Mahua ChakravartySeoul

27th October, 2008

AgendaAgenda

• The rise and fall of crude, naphtha and its impact

• New capacities and the benzene oversupply

• Toluene and its dependence on China

• Aromatics at ICIS

What’s affecting aromatics in Asia….

What’s affecting aromatics in Asia….

• Volatility in crude and upstream markets

• The bleak economic and financial scenario

• Asia’s dependence on China

Crude’s epic rise and fallCrude’s epic rise and fall

+120%

WTI

406080

100120140

02/0

1/20

07

02/0

3/20

07

02/0

5/20

07

02/0

7/20

07

02/0

9/20

07

02/1

1/20

07

02/0

1/20

08

02/0

3/20

08

02/0

5/20

08

02/0

7/20

08

02/0

9/20

08

Jan 07-Oct 08

USD

/bbl 138%

45%

Source: ICIS pricing

Naphtha and its impact on aromaticsNaphtha and its impact on aromatics

Source: ICIS pricing

Naphtha-BZ,TL Spread

400

600

800

1000

1200

140005

/01/

2007

05/0

3/20

07

05/0

5/20

07

05/0

7/20

07

05/0

9/20

07

05/1

1/20

07

05/0

1/20

08

05/0

3/20

08

05/0

5/20

08

05/0

7/20

08

05/0

9/20

08

Jan 07-Oct 08

USD

/TO

NN

E

The rapid rise and fall in naphtha plays havoc on margins

Source: ICIS pricing

Annual average increase in prices

Annual average increase in prices

0200400600800

10001200

2006 2007 Oct-08

Year

Naphtha Toluene Benzene

+20%+3.4%

+18%

+17%+10%

+5%

3Q 2008 losses wipe away gains seen until July 2008

3Q 2008 losses wipe away gains seen until July 2008

Source: ICIS pricing

Naphtha and Benzene, Toluene Spread

Naphtha and Benzene, Toluene Spread

129(-18%)

159 (-35%)

245190249Spread

216(-33%)

325(+15%)

284(-15%)

335440Spread

1,0781023868822830Benzene

945857829677639Toluene

2008 (Until 10 Oct)

2007200620052004US $/Tonne

Despite naphtha falling below $500/tonne levels, margins remain thin

Source: ICIS pricing

Impact on benzene & toluene (1)

Impact on benzene & toluene (1)

• As the petrochemical chain face pressure from upstream to downstream, margins of producers remain under pressure

• Slowing growth in key economies like China heavily impact demand for products

Impact on benzene & toluene (2)

Impact on benzene & toluene (2)

• From 3Q 2007, BTX producers forced to consider or implement operation cutback

Japan- Japan Energy, Nippon Oil, MaruzenSouth Korea- SK Energy, GS CaltexSoutheast Asia- PCS, IRPC

• The need to use alternative feedstock- from May 08 some crackers switchover to butane or use light naphtha

• Liquidity drop as caution prevails

• Tug-of-war to maintain prices- producers buy and end-users sell

• The spread between FOB Korea and CFR values narrow as demand for physical cargoes slacken across Asia

Benzene-Toluene spreadBenzene-Toluene spreadBenzene-toluene Spread

600700800900

100011001200130014001500

05/0

1/20

07

05/0

3/20

07

05/0

5/20

07

05/0

7/20

07

05/0

9/20

07

05/1

1/20

07

05/0

1/20

08

05/0

3/20

08

05/0

5/20

08

05/0

7/20

08

05/0

9/20

08

Jan 07-Oct 08

USD

/TO

NN

E

Benzene Toluene

TDP/HDA margins face pressure from end 2007

Source: ICIS pricing

Toluene to benzene spreadToluene to benzene spread

133(-20%)

166(+325%)

39(-73%)

145191Spread

1,0781023868822830Benzene

945857829677639Toluene

2008 (Until 10 Oct)

2007200620052004USD/tonne

Market uncertainty and poor demand maintain pressure on producers through

2008

Source: ICIS pricing

Impact of the benzene-toluene trend

Impact of the benzene-toluene trend

• Production margins remain under pressure all through 2008

• TDP/HDA operators who reduced operating rates from Q4 2007-

South Korea- SK Energy, GS CaltexJapan- Taiyo Oil, Maruzen, Japan Energy

• Excess availability of toluene in northeast Asia for most of theyear

Benzene oversupplyBenzene oversupply

• Net surplus in Asia expected to increase further in 2009

• Additional SM capacities, expected in 2008 and 2009 but it cannot fully absorb the excess benzene

New capacities from 2008New capacities from 2008

2002009ChinaShaanxi Yanchang

Thailand

Thailand

Philippines

Indonesia

KoreaJapan

China

ChinaCountry

1902008Kashima

1202009Chandra Asri

363+4502008PTT

22.82008Petron

170

120+200

50

250BZ (t/yr)

2008Thai PX

2008Lotte Daesan

Zhoushan Hebon

DalianPlants

2008

2008Start-up

An estimated 1.6 million tonnes of production added in 2008-09

New/Expanded SM capacitiesNew/Expanded SM capacities

250China2009Panjin Ethylene

777Saudi ArabiaSep 2008Chevron Philips

500Kuwait2009Equate

150South KoreaApr 2008LottePetrochemical

Iran

South China

East China

Location

600Q1 2009 (delay expected)

Pars

150Mid 2009 (postponed from mid 2008)

BP-Secco

200Mar-Apr 2008Lishide

Capacity (kt/yr)Start-up time Plants

2008-09

Benzene- importance of arbBenzene- importance of arb

• Benzene-Benzene net supply in Asia on the rise

Volatility in oil and the US threatens price stability and exports

Due to rapid fluctuation in prices, arbitrage is affected in 07-08

US-Asia benzene spreadUS-Asia benzene spread

700800900

100011001200130014001500

05/0

1/20

07

05/0

3/20

07

05/0

5/20

07

05/0

7/20

07

05/0

9/20

07

05/1

1/20

07

05/0

1/20

08

05/0

3/20

08

05/0

5/20

08

05/0

7/20

08

05/0

9/20

08

Jan 07-Oct 08

USD

/TO

NN

E

FOB Korea FOB BargesSource: ICIS pricing

Volatility in markets make it difficult to predict arb

Volatility in markets make it difficult to predict arb

US-Asia benzene spreadUS-Asia benzene spread

+53(-9%)

+58 (-55%)

+129Spread

1,1481023868Asia- FOB Korea

1,2011081997US- FOB Barges

2008 (Until 10 October)

20072006USD/tonne

An estimated $70/tonne spread required for arb to open

An estimated $70/tonne spread required for arb to open

Source: ICIS pricing

Benzene exports to the USBenzene exports to the US

358,177 (-20%)882,2502008 (until Sep)

446,157 (-7.7%)1,165,0912007

483,434 (+29%)1,221,4082006

374,5131,179,3272005

TO: USTotal Exports (tonnes)

Year

Source: Korea International Trade Association (KITA)

Despite heavy arb flow in 3Q 2008, overall exports to the US drop

Despite heavy arb flow in 3Q 2008, overall exports to the US drop

South Korea

Benzene exports to the US-2007

Benzene exports to the US-2007

26,707December

29,271November

8,851 (-63.3%)October

24,160 (-42.7%)September

42,149 August

53,024July

33,315 (-62%)June

87,583May

To: US (tonnes)Month (2007)

Source: Korea International Trade Association (KITA)

Some traders forced to ship despite a closed arbitrage window

Some traders forced to ship despite a closed arbitrage window

South Korea

Benzene exports to the US- 2008Benzene exports to the US- 2008

17,899July 12,472August

23,612April50,124May5,717June

56,340September

53, 569March 96,538 February

To: US (tonnes)Month (2008)

Source: Korea International Trade Association (KITA)

Arb re-opens around Aug 2008 and exports jump

Arb re-opens around Aug 2008 and exports jump

South Korea

Where will toluene go?Where will toluene go?

• Demand for imports from China on the decline since 2005-06

• Import demand from the US has declined in the past few years

Asia’s largest market for toluene has progressively decreased demand for imports

Asia’s largest market for toluene has progressively decreased demand for imports

China toluene imports - 06 onwards

China toluene imports - 06 onwards

588,664

444,547

196897

0

100,000

200,000

300,000

400,000

500,000

600,000

Tonnes

2006 2007 2008Jan 2006-Aug 08

-24.5%

Average 15-20kt/mth

Source: China Customs

New toluene capacitiesNew toluene capacities

450July 2008LiaoningDalian

150May 2008ZhejiangZhoushan Hebon

1302007GansuLanzhou

70Oct 2008ShandongQiwangda Haizhong

145.7Oct 2008ShandongQilu

Shandong

Guangdong

Region/Province

160

140

TL (kt/yr)

Qingdao Lidong

Maoming

Plants

2006

2006

Start-up date

An estimated 1.25 million tonnes/year of production added since 2006

Toluene imports to S. KoreaToluene imports to S. Korea

30,159 (-61.2%)173,8832008 (until Sep)

77,753 (-29%)265,1082007

109,400 (-64.2%)328,0352006

305,722530,6452005

From: USTotal imports (tonnes)

Year

Source: Korea International Trade Association (KITA)

South Korea moves away from being a net importer from the US

South Korea moves away from being a net importer from the US

Toluene exports to US, ChinaToluene exports to US, China

166,466 (+10%)121,480120,8092008 (Until Sep)

151,457 (+91%)234,486299,413 (-20.6%)2007

79,255 (+235%)140,924376,966 (-28%)2006

23,65594,773524,1932005

USTaiwanTo: ChinaYear

Source: Korea International Trade Association (KITA)

As China imports less, Korean exports to the US grows

As China imports less, Korean exports to the US grows

South Korea

Toluene exports to the US vs. China- 2008

Toluene exports to the US vs. China- 2008

-8,831July

13,9524,010September

16,6442,009August

23,51915,565June

21,83315,906May

USTo: ChinaMonth (2008)

Chinese monthly demand for imports fall to about 10,000-15,000 tonnes

Chinese monthly demand for imports fall to about 10,000-15,000 tonnes

Source: Korea International Trade Association (KITA)

What lies ahead for AsiaWhat lies ahead for Asia

• Benzene- Increase exports from S. Korea to

the US but volatility, freight costs, etc could be a deterrent

- Reducing benzene operating rates further and/or shutting down plants

• Toluene- Increase exports from S. Korea and

Japan to the US and other regions- Finding fresh outlets within Asia like

increased use for the gasoline pool

mahua.chakravarty@icis.comPhone: +65 6780 4355