Economic Outlook- What It Means to the Chemical Industry - China

Economic Outlook- What It

Means to the Chemical Industry

Mikiya Yamada

Managing Director

Barclays Capital Japan Limited

1

3rd China International Acetic Acid – Vinyl Acetate Forum

"Economic Outlook - What It Means to the Chemical Industry"

- The shape of economic recovery from a chemical ind ustry perspective, comparing before and after 2008

- Global energy snapshot, natural gas advantages, an d what these mean to us

- “Soft commodity” price hikes and synthetic fiber si tuation

- Acetyls in electronics appliances – it’s road ahead

EQUITY RESEARCH | Chemicals

Mikiya Yamada+81 3 4530 2911

[email protected], Tokyo

April 2011

Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 39.

Acetic Acid & VAM Demand vs. World GDP Growth

Source: IMF, Haver, The Chemical Daily, Barclays Capital estimatesNote: Acetic acid production volumes in 2009 and 2010 are based on Barclays Capital estimates

-2.0%

0.0%

2.0%

4.0%

6.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

2,500

5,000

7,500

10,000

Acetic Acid World Demand (RHS) Vinyl Acetate Monomer World Demand (RHS) World Real GDP Growth Rate (LHS)

Demand (Thousand Tonnes)Real GDP Growth Rate (%)

2


Acetic Acid & VAM Demand YoY Change vs. GDP Growth

Source: IMF, Haver, The Chemical Daily, Barclays Capital estimatesNote: Acetic acid production volumes in 2009 and 2010 are based on Barclays Capital estimates

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

Acetic Acid World Demand YoY Change (RHS) Vinyl Acetate Monomer World Demand YoY Change (RHS)

World Real GDP Growth Rate (LHS)

Demand YoY Change (%)Real GDP Growth Rate (%)

South

America

2.0%

Western

Europe

17.5%

China25.6%

Eastern

Europe &

Russia

2.3%Middle East

& Af rica

1.2%

North

America

22.0%

South &

Southeast

Asia

9.8%

Northeast

Asia

19.6%

VinylAcetate

30%

PTA20%

AceticAnhydride

19%

EthylAcetate

10%

ButylAcetate

5%

Others16%

Acetic Acid: VAM and PTA are the keys

Demand by Usage (11.2mn tonnes)(1) Demand by Region (9.16mn tonnes)(2) Capacity by Region (12.9mn tonnes)(2)

• New capacity additions currently scheduled are mostly Chinese MeOH

based capacities whose cost advantages may be at risk thanks to coal /

MeOH price hikes.

• Natural gas based MeOH becomes the industry choice as feedstock.

• Demand expected to grow steadily thanks to PTA (polyester / PET) and

VAM (paint, adhesives and coating / electronic appliances) growth.

• China and North Americas play key roles – healthy demand growth

should improve operating rates.

Top Acetic Acid Producers (2009)Owner Capacity (mn Tonnes)

Celanese 2.40BP 1.08Jiangsu Sopo 0.60Millennium 0.60Shanghai Wujing 0.48Sterling 0.48Yankuang Cathay 0.48Others 5.76Total 12.00

South

America

0.4%

Western

Europe

11.7%

Eastern

Europe &

Russia3.8%

Middle East

& Af rica

1.8%

China

31.6%

Northeast

Asia

14.9%

South &

Southeast

Asia12.5%

North

America

23.2%

Source: Prepared by Barclays Capital based on CMAI and The Chemical DailyNote1: 2009 Statistics, Note 2 2008 Statistics

3


Poly v iny lAlcohol

EVACopoly mers

Other/Unspecif ied

Poly v iny lAcetate

Middle &

South

America

3%

Japan

11%

Eastern Asia

29%

Middle East

& Af rica

2%

South &

SoutheastAsia

6%

Eastern

Europe3%

Western

Europe

22%

North

America

24%

Vinyl Acetate Monomer (VAM): Highly concentrated ma rket

Demand by Usage (4.3mn tonnes)(1) Demand by Region (5.05mn tonnes)(2) Capacity by Region (6.75mn tonnes)(1)

• VAM market is highly concentrated with Celanese holding 27% share,

top five producers combined holding 53% share.

• Operating rate bottomed in 2009.

• VAM primary end uses are emulsions for paints, textiles and adhesives,

with largest demand and highest growth both in Asia, thanks to

economic growth and fixed asset formation.

Top Vinyl Acetate Monomer Producers (2009)Owner Capacity (mn Tonnes)

Celanese 1.82Dairen Chemical 0.68Millennium 0.41Dow Chemical 0.34DuPont 0.34Ineos 0.27Shanghai Wujing 0.20Sichuan Vinylon 0.20Wacker Chemie 0.20Nippon Synthetic Chemical 0.20Others 2.16

Total 6.75

Source: Prepared by Barclays Capital based on CMAI, SRI Consulting and The Chemical DailyNote1: 2009 Statistics, Note 2 2007 Statistics

North

America

26.8%

West

Europe

17.3%

CIS & Baltic

States

2.2%

Indian Sub-

continent

0.6%Middle East

0.5%

Northeast

Asia

49.3%

Southeast

Asia

3.3%

Purified Terephthalic Acid (PTA): PET a.k.a Asia Driv en

Demand by Usage (34.5mn tonnes) Demand by Region (34.5mn tonnes)(1) Capacity by Region (45.9mn tonnes)(1)

• PTA is one of the major applications for acetic acid.

• PTA demand heavily depends on polyester fiber situation.

• Asia, especially China, drives PTA demand and its growth, thanks to

its position as the centre of global synthetic fiber production, especially

polyester for apparel textile.

Top PTA Producers (2009)

Owner Capacity (mn Tonnes)

BP 7.22Mitsubishi Chemical 3.01Invista 2.48Formosa Chemicals & Fibre Corporation 2.80Reliance 2.00Samsung Petrochemical 1.80Xianglu Petrochemicals 1.50Yisheng Dahua Petrochemicals 1.50Mitsui Chemicals 1.30Eastman 1.03Others 28.66

Total 53.30

Source: Prepared by Barclays Capital based on METI, The Heavy & Chemical Industries News AgencyNote1: 2008 Statistics

Most of PTA goes toPET / Polyesters

China43.7%

Oceania0.1%

Africa0.3%

WesternEurope(incl.

Turkey)6.1%

MiddleEast (excl.

Turkey)3.1%

CIS &EasternEurope0.9%

NorthAmerica

8.0%

Middle andSouth

America4.4%

Asia excl.China33.3%

China26.9%

Asia excl.China47.8%

Middle andSouth

America4.7%

NorthAmerica10.3%

CIS &EasternEurope0.5%

MiddleEast (excl.

Turkey)2.4%

WesternEurope(incl.

Turkey)7.3%

4


Acetic Acid Production Somehow Correlated with IIP

Source: Haver, The Chemical Daily, Barclays Capital estimatesNote: Acetic acid production volumes in 2009 and 2010 are based on Barclays Capital estimates

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-10%

-5%

0%

5%

10%

15%

Acetic Acid World Production YoY Change (RHS) IIP YoY Change (LHS)

Demand YoY Change (%)IIP YoY Change (%)

China Industrial Production Also Corrected in the R ecession

Source: Haver, Barclays Capital EstimatesNote: Numbers in 2011 and 2012 are based on Barclays Capital Estimates

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1991 1995 1999 2003 2007 2011

United States Germany Japan Australia Brazil China World

IIP YoY Change (%, Quarterly)

5


While Long-term Interest Rate Has Stabilized …

Source: Haver, Barclays CapitalNote: Long-term interest rate is based on 10-year national treasury’s yield. Final data point is as of January 2011.

0

2

4

6

8

10

12

14

16

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

US Japan UK Germany France Spain

(%)

… Short-term Interest Rate Has Plunged and Remains L ow

Source: Haver, Barclays CapitalNote: Short-term interest rate is based on 3-month national treasury’s yield or uncollateralized call rate. Final data point is as of January 2011.

0

2

4

6

8

10

12

14

16

18

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

US Japan UK Germany France Spain

(%)

6


Acetyls Related Asian Market: Start Recoveries afte r 2H08FY

Source: Bloomberg, DataStream, Barclays Capital Note: Final Data Point is as of 3rd March, 2011

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jun-1996 Jun-1998 Jun-2000 Jun-2002 Jun-2004 Jun-2006 Jun-2008 Jun-2010

Acetic Acid, C&F Southeast AsiaVAM, CFR Southeast AsiaC2, CFR Far East AsiaMethanol,Far East CFR Taiwan

(USD /metric tonne)

Acetic Acid Spot Price

Source: Bloomberg, Barclays Capital Note: Final Data Point is as of 3rd March, 2011

0

200

400

600

800

1,000

1,200


C&F Far East AsiaC&F Southeast AsiaFOB Northwest EuropeFOB US Gulf

(USD /metric tonne)

7


Vinyl Acetate Monomer Spot Price

Source: Bloomberg, Barclays Capital Note: Final Data Point is as of 3rd March, 2011

0

200

400

600

800

1,000

1,200

1,400

1,600


CFR Far East AsiaCFR Southeast AsiaFOB Northwest EuropeFOB US Gulf

(USD /metric tonne)

Vulnerable Euro / Unstable Rates

Source: Datastream, Haver, Barclays CapitalNote: Exchange rates for Euro before February 1999 are calculated with historical Deutsche Mark’s exchange rate and DEM/EUR conversion factor 1.95583.

80

100

120

140

160

180

200

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

0.6

0.8

1

1.2

1.4

1.6

1.8

USDJPY (LHS) EURJPY (LHS) EURUSD (RHS)

(USDJPY, EURJPY) (EURUSD)

8


While RMB Appreciates … Not Back to the Early ’90s Y et

Source: Datastream, Haver, Barclays CapitalNote: Exchange rates for Euro before February 1999 are calculated with historical Deutsche Mark’s exchange rate and DEM/EUR conversion factor 1.95583.

80

100

120

140

160

180

200

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

4

5

6

7

8

9

10

USDJPY (LHS) EURJPY (LHS) USDRMB (RHS)

(USDJPY, EURJPY) (USDRMB)

China to Remain Firm while Others Face Tougher Time s

Source: IMF, Haver, Barclays Capital EstimatesNote: GDP Numbers in 2010 and 2011 are based on Barclays Capital Estimates.

-10%

-5%

0%

5%

10%

15%

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

United States（LHS) Germany（LHS) Japan（LHS) Australia（LHS)

Brazil（LHS) China（LHS) World　（LHS)

Real GDP Growth Rate（%）

9


Synthetic Fiber Global Production Volume

Source: Japan Chemical Fibers Association, Barclays Capital

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2002 2003 2004 2005 2006 2007 2008 2009

China Asia except China Rest of World

(Thousand Tonnes / Year)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1960

1970

1975

1980

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

(1,000 Metric Tonnes)

Nylon Acrylic Polyester Others Synthetic Fibres Cellulose

Global Production of Synthetic Fibers

0

1,000

2,000

3,000

4,000

5,000

6,000

2002 2003 2004 2005 2006 2007 2008 2009



0

500

1,000

1,500

2,000

2,500

3,000

3,500

2002 2003 2004 2005 2006 2007 2008 2009



Polyester

Acrylic Nylons

Housing Start Plunge Not Pulling Acetyls Down

Source: Datastream, Barclays Capital.Note: Final data point is January 2011.

0

50

100

150

200

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

0

600

1,200

1,800

2,400

Number of housing starts (LHS)US Acetic Acid Demand(RHS)US VAM Demand(RHS)

(1,000 units) (1,000 tonnes)

10


Acetic Acid: One of the Major Methanol (MeOH) Applica tions

Source: CMAI, Barclays Capital、2009 data

Methanol41,340

(Thousand Metric Tons)

Formaldehyde13,300

Acetic Acid4,245

MMA(Methyl

Methacrylate)880

MTBE/TAME5,485

UreaFormaldehyde

Resins6,120

PhenolFormaldehyde

Resins1,615

MDI(Methyl

diphenyldiisocyanate)

535

1,4 Butanediol665

Pentaerythritol430

MelamineResins

800

Polyacetals(Engineering

Thermo-plastics )

1,275

Particle Board

MDF (MediumDens ity

Fiberboard)

DecorativePlywoods

OSB (OrientedStrand Board)

ConstructionPlywoods

Automotive

Electronics

Appliances

Extrusion

Laminates

SurfaceCoating

-Appliances

Alkyd Res ins(Paints)

PowderCoating Resins

SyntheticLubes &Additives

Tetrahydrofuran(Urethane

Elas tomers)

GBL(Gamma

Butyrolactone)

PBT(Polybutylene

Terephthalate)

Polyurethanes

Flexible Foams

Rigid Foams

Elastomers

Others1,860

Paraformaldehyde(Foundry Resins)

Chelating Agents

TMP(Trimethylolpropane)

NPG(Neopentyl glycol)

Rubber(Polyisoprene)

Pyridines

Pesticides

DME(Dimethyl

Ether)2,780

Gasoline/Fuel5,490

DMT(Dimethyl

Terephtalate)765

Solvents1,500

Others6,895

Vinyl Acetate1,570

AceticAnhydride

510

Acetate Esters635

PTA1,145

Other385

PolyvinylAcetate

PolyvinylAlcohol

EVACopolymer

Paints

Cellulose Acetate-Textiles &-Clothing

Pharmaceuticals

Detergents

Ethyl AcetateButyl Acetate

Propyl Acetate

PET Bottles

Polyesters

PolyethyleneTerephthalate

Polyester Film

Polyes ter Fiber-Carpet-Apparel

MCAVinegarTextiles

Acetate Salts

PMMA400

MBS Resins140

Methacrylate/Acrylate

CoPolymers190

Other150

AcrylicPlastics &

Sheets

MoldingPowder &

Resins

SurfaceCoatings

ImpactModifiers

Magnetic Films- Computer &Video disks

GasolineAdditive/

Oxygenate5,100

High PurityIsobutylene

385

RubberTires

LPGBlendstock

2,420

Aerosols360

Biodiesel1,590

Used asMethanol

3,900

GasolineBlending

Direct Fuel

Fuel Cells

PET(Polyethylene

Terephthalate)765

WindshieldWasher Fulid

Fragrances

Solvents

Disinfectuants

BleachedPaper

Polyesters

PolyethyleneTerephthalate

Polyester Film

Polyester Fiber-Carpet-Apparel

Methyl Acetate

Methyl Chloride

Methylene Chloride

Methyl Amines

Glycol Methyl Ether

Methyl Acrylate

Methanol-to-Olefins

Natural GasProcessing

WastewaterTreatment

Aerosols

CleaningChemicals

Consistent MeOH Demand Growth

Source: The Chemical Daily, Barclays Capital

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Asia North America West Europe Others

(mn tonne)

11


Relative Price ：：：：Crude Oil vs. Thermal Coal

Source: CMAI, Haver, Barclays Capital. Note: Final data point is end of January 2011. Coal price is “Australian Thermal Coal, 12000- Btu/Pound, Less Than 1% Sulfur, 14% Ash, Fob Newcastle/Port Kembla”.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Feb-79 Aug-81 Feb-84 Aug-86 Feb-89 Aug-91 Feb-94 Aug-96 Feb-99 Aug-01 Feb-04 Aug-06 Feb-09

(X)

0

50

100

150

200

(US$)Oil/Coal ratio (LHS) parity=0.23(LHS)

WTI Crude Price(US$/barrel) (RHS) Australia Thermal Coal(US$/tonne) (RHS)

Relative Price ：：：：Thermal Coal vs. Natural Gas

Source: CMAI, Haver, Barclays Capital. Note: Final data point is end of January 2011. Coal price is “Australian Thermal Coal, 12000- Btu/Pound, Less Than 1% Sulfur, 14% Ash, Fob Newcastle/Port Kembla”.

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Jan-90 Jul-92 Jan-95 Jul-97 Jan-00 Jul-02 Jan-05 Jul-07 Jan-10

(X)

0

50

100

150

200

(US $)Coal/Gas ratio (LHS) parity=26.5(LHS)Australia Thermal Coal (US$/tonne)(RHS) US Natural Gas (US$/10 Million BTU)(RHS)

12


Relative Prices: Crude Oil vs. Natural Gas

Source: CMAI, Haver, Barclays Capital. Note: Final data point is end of January 2011.

0

5

10

15

20

25

30

Jan-90 Jul-92 Jan-95 Jul-97 Jan-00 Jul-02 Jan-05 Jul-07 Jan-10

(X)

-10

10

30

50

70

90

110

130

150Oil/Gas ratio (LHS) parity=6(LHS)WTI Crude Price(US$/barrel) (RHS) US Natural Gas (US$/10 Million BTU)(RHS)

(US$)

Ethylene Cost Curve: Gas Advantages

Source: Company reports and Barclays Capital estimates

50

250

450

650

850

1,050

1,250

1,450

1,650

1,850

0 20 40 60 80 100 120 140 160 180

Cumulative Global Ethylene Capacity, Million Metric Tonnes

Eth

ylene

Cash

Cos

ts, $

/MT

Crude Oil Price Assumptions:1998 = $13/brl2008 = $97/brl2009 = $45/brl2010E = $79/brl2013E = $83/brl

2013E

1998

2008

2009

M East

W EuropeNE Asia

N AmericaSE Asia

M East

NE AsiaW Europe

N AmericaSE Asia

2010E

N Am

SE AsiaS America

W EuropeNE Asia

13


Relative Price ：：：：MeOH Still Cheaper than Gasoline

Source: Datastream, Petroleum Association of Japan, Barclays CapitalNote: Final data point is end of January 2011.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

0

200

400

600

800

1,000

1,200Methanol / Gasoline Ratio (LHS)Parity = 0.5 (LHS)Northeast Asia Methanol Price (Taiwanese CFR Price, RHS)Northeast Asia Gasoline Price (Japanese CIF Price, RHS)

(USD/tonne)(X)

Regional MeOH Prices: EU & NAM Premium over Asia

Source: Datastream, Barclays CapitalNote: final data point is March, 2011

-200

-100

0

100

200

300

400

Jan-1990 Jan-1993 Jan-1996 Jan-1999 Jan-2002 Jan-2005 Jan-2008 Jan-2011

North America Europe

(USD/tonne)

14


Synthetic Fibre Prices Mostly on the Rise

Source: DataStream, Barclays Capital Note: Final data point is February, 2011.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Nylon FY Poly Sf Acrylics Sf

(USD/tonne)

PTA/EG/Cotton/Polyester Staple

0

50

100

150

200

250


0

20

40

60

80

100

EG Poly Sf PTA Cotton (RHS)

(USC/kg) (USC/kg)

Source: DataStream, Barclays Capital Note: EG, Polyester ,PTA = Asian prices, Cotton = Memphis market price, Final data point is February, 2011.

15


AN/Wool/Acrylic Staple

Source: DataStream, Barclays Capital Note: Wool=Australia Market, AN=Asia Market Final data point is February, 2011.

0

5

10

15

20

25


0

800

1,600

2,400

3,200

4,000

Wool AN (RHS) Acrylics Sf (RHS)

(USD/kg) (USD/tonne)

Japan’s Case: Economic Growth Fuels Acetic Acid Dem and

Source: INDB, Haver, Barclays Capital EstimatesNote1: GDP Numbers in 2011 and 2012 are based on Barclays Capital Estimates. Note2: Japanese GDP before 1980 and after 1980 are based on SNA68 and SNA93 respectively.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

0

100

200

300

400

500

600

700

800

Japanese Acetic Acid Production (99% Equivalent, RHS) Japanese Vinyl Acetate Production (RHS)

Japanese Real GDP Growth Rate (LHS)

Production (Thousand Tonnes)Real GDP Growth Rate (%)

16


… until the Service Industry Starts Driving the Econ omy

Source: INDB, Haver, Barclays Capital EstimatesNote1: GDP Numbers in 2011 and 2012 are based on Barclays Capital Estimates. Note2: Japanese GDP before 1980 and after 1980 are based on SNA68 and SNA93 respectively.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

-32%

-24%

-16%

-8%

0%

8%

16%

24%

32%

Japanese Acetic Acid Production YoY Change (RHS) Japanese Vinyl Acetate Production YoY Change (RHS)Japanese Real GDP Growth Rate (LHS)

Production YoY Change (%)Real GDP Growth Rate (%)

Source: UN National Accounts Statistics, Barclays Capital. Note: Data end at 2009.

GDP Growth after 2000 Fueled by “Others” and the Sha re of G3 Contracting

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1970 1975 1980 1985 1990 1995 2000 2005

GDP (USDbn)

United States Japan Germany Other OECD Countries China India Brazil Other Non-OECD Countries

17


Fixed Capital Formation by Region:Descending in the US, Japan & Germany

Source: UN National Accounts Statistics, Barclays Capital. Note: Data end at 2009.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1970 1975 1980 1985 1990 1995 2000 2005United States Japan Germany Other OECD Countries China India Brazil Other Non-OECD Countries

Fixed Capital Formation (USD bn)

Appliances Have Prevailed in Major Chinese Cities

90.9%

87.0%

86.1%

85.9%

84.3%

80.6%

79.5%

76.9%

73.3%

72.3%

68.9%

66.4%

61.2%

60.1%

59.5%

54.9%

51.9%

40.6%

39.3%

35.5%

35.2%

32.9%

26.3%

26.3%

22.9%

18.0%

17.5%

15.6%

13.9%

12.3%

11.0%

10.6%

6.5%

0% 25% 50% 75% 100%

Refrigerator

Washing machine

Mobile phone

Air conditioner

Microw ave

Desktop PC

Range hood

Digital camera

Fan

MP3/MP4

Notebook PC

DVD/VCD/CD player

Vacuum cleaner

Audio player

Color TV (LCD)

Water purif ier

Digital video camera

Dish sanitizer

Camera

Color TV (CRT)

Home game machine

Dishw asher

Video camera

Portable game player

Facsimile

Color TV (PDP)

Dryer

Piano

Portable information device

Motorcycle

Golf equipment

Moped

Ski equipment

Source: JMAR, Barclays Capital

43.1%

41.0%

32.2%

27.1%

26.0%

24.2%

18.6%

18.0%

17.5%

17.3%

15.1%

13.0%

12.7%

10.1%

9.7%

9.7%

9.3%

9.0%

8.9%

8.5%

8.1%

7.6%

7.2%

6.5%

5.7%

5.2%

5.0%

5.0%

4.1%

3.7%

3.3%

3.3%

3.1%

2.2%

1.1%

0% 10% 20% 30% 40% 50%

Mobile phone

Notebook PC

Digital camera

Color TV (LCD)

Refrigerator

Air conditioner

Desktop PC

MP3/MP4

Microw ave

Digital video camera

Washing machine

Fan

Water purif ier

Color TV (PDP)

Range hood

Vacuum cleaner

Dish sanitizer

DVD/VCD/CD player

Portable game player

Dishw asher

Camera

Audio player

Home game machine

Piano

Facsimile

Dryer

Golf equipment

Nothing

Portable information device

Color TV (CRT)

Video camera

Ski equipment

Motorcycle

Moped

Others

Survey Overview

Durable Consumer Goods Ownership

Durable Consumer Goods Purchases over the Past Year

Survey region Three major cities - Beijing, Shanghai, and GuangzhouSurvey coverage

① RMB30,000+ in annual household income

Valid responses 1,621 individualsSurvey method Internet Survey entity CIIC&COMRSurvey period 1-11 August, 2009

Residents of two years or longer aged 20-59 andmeeting the following two criteria

② Respondent accounts for 50%+ of annual householdincome (male or female)

Samples were distributed roughly evenly by region and age groups

20-29 30-39 40-49 50-59 TotalBeijing 135 136 136 135 542Shanghai 135 134 136 135 540Guangzhou 135 135 135 134 539Total 405 405 407 404 1,621

18


Cumulative Distribution of World Population by Per- capita GDP

Source: UN National Accounts Statistics, Barclays Capital

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

0 1 2 3 4 5 6 7Cumulative Population (bn people)

Per Capita GDP（USD）

US

Japan

Germany

UK

South Korea

Russia

Saudi Arabia

Mexico

BrazilChina

Indonesia

India

Shift to High-volume, Low-variety: Cumulative Shipments of Major Game Consoles

Source: NPD, Barclays Capital

0

50

100

150

200

250

83/3 86/3 89/3 92/3 95/3 98/3 01/3 04/3 07/3 10/3

Famicom Super Famicom PlayStation

PlayStation2 PlayStation3 Wii

Game Boy Advance PSP DS

(million units)

19


1,0002,0003,0004,0005,0006,0007,0008,0009,000

0 1,000 2,000 3,000 4,000 5,000 6,000

(Lbs.)

(CC)

Japanese Car American Car European Car

1,0002,0003,0004,0005,0006,0007,0008,0009,000

0 1,000 2,000 3,000 4,000 5,000 6,000

(Lbs.)

(CC)

Japanese Car American Car European Car

CY2000CY1975

Automotive Vehicle Spec.: Curb Weight vs. Displacem ent

Source: Ward’s Automotive Yearbook, Barclays Capital

Source: Seibido, Barclays Capital

KSF is “Inexpensive, Massive & Stable Workforce”for Standardized Product Assembly

Digital Camera Automobile

2000: 15.28mn units 2007: 125.11mn units 1998: 56.26mn units 2007: 73.15mn units

South Korea57,500(13.6%)

China41,000(9.7%)

Europe183,400(43.3%)

SouthAmerica18,700(4.4%)North

America52,000(12.3%)

Japan55,350(13.1%)

Rest ofAs ia

15,220(3.5%)

CountryThousand Units

(%)


India109,550(9.8%)

Japan48,650(4.3%)

China541,650(48.2%)

SouthAmerica42,100(3.7%)

NorthAmerica37,250(3.3%)Europe

105,800(9.4%)

Rest of Asia72.90(6.6%)


(%)

China24,670(19.2%)

Japan9,890(7.7%)

Korea7,370(5.7%)

Rest of Asia4,990(3.9%)

Europe17,180(13.4%)

NorthAmerica30,130(23.5%)

SouthAmerica

1,320(1.0%)

Taiwan32,660(25.5%)


(%)

China226,380(91.5%)

Taiwan8,850(3.6%)

Europe710

(0.3%)

Korea5,740(2.3%)

Japan5,650(2.3%)


(%)

Mobile Phone Personal Computer

2000: 423.15mn units 2007: 1,123.20mn units 2000: 128.21n units 2007: 247.33mn units

Japan11,170(73.1%)

South Korea790

(5.2%)

Indonesia470

(3.1%)

Malaysia500

(3.3%)

China450

(2.9%)

Taiwan1,900

(12.4%)


(%)

China73,960(59.1%)

Japan31,900(25.5%)

Indonesia5,900(4.7%)

Malaysia3,900(3.1%)

Vietnam3,600(2.9%)

Thailand2,500(2.0%)

Philippine1,000(0.8%)



(%)

America17,660(34.0%)

China1,630(3.1%)

Brazil1,570(3.0%)

Others10,380(20.0%)

South Korea1,950(3.8%) France

2,950(5.7%)

Germany5,730

(11.0%)

Japan10,050(19.4%)


(%)

Others25,610

(35.2%)

UnitedStates10,780

(14.8%)

China8,880

(12.2%)SouthKorea4,090

(5.6%)

Germany6,210(8.5%)

Japan11,160

(15.3%)

France3,020(4.2%)

Brazil2,970

(4.1%)


(%)

20


Analyst Certification:

I, Mikiya Yamada, hereby certify that (1) the views expressed in this research report accurately reflect my personal views about

any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will

be directly or indirectly related to the specific recommendations or views expressed in this research report.

Analyst Certification, Related Stocks

Related Stocks Ticker Price (3/11/2011) Stock Rating / Sector RatingTeijin 3401 JPY 374 2-Equal Weight / 2-NeutralToray 3402 JPY 595 3-Underweight / 2-NeutralKuraray 3405 JPY 1,089 2-Equal Weight / 2-NeutralAsahi Kasei 3407 JPY 560 1-Overweight / 2-NeutralShowa Denko 4004 JPY 172 2-Equal Weight / 2-NeutralSumitomo Chemical 4005 JPY 416 2-Equal Weight / 2-NeutralMitsubishi Chemical HD 4188 JPY 559 2-Equal Weight / 2-NeutralTosoh 4042 JPY 276 1-Overweight / 2-NeutralMitsui Chemicals 4183 JPY 278 1-Overweight / 2-NeutralUbe Industries 4208 JPY 247 2-Equal Weight / 2-NeutralShin-Etsu Chemical 4063 JPY 4,280 2-Equal Weight / 2-NeutralJSR 4185 JPY 1,696 2-Equal Weight / 2-NeutralHitachi Chemical 4217 JPY 1,750 2-Equal Weight / 2-NeutralNitto Denko 6988 JPY 4,410 2-Equal Weight / 2-NeutralAIR WATER 4088 JPY 1,047 1-Overweight / 2-NeutralTaiyo Nippon Sanso 4091 JPY 693 1-Overweight / 2-NeutralMitsubishi Gas Chemical 4182 JPY 622 1-Overweight / 2-NeutralDaicel Chemical 4202 JPY 512 2-Equal Weight / 2-NeutralZeon 4205 JPY 777 2-Equal Weight / 2-Neutral

Thank You!Thank You!

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