© 2014 Platts, McGraw Hill Financial. All rights reserved.

Will China’s and India’s PE deficit widen?

Heng Hui, Senior editor, Petrochemicals, Platts23 June 2015

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Agenda

Time

Demand-imports, consumption per capita

Macro economic drivers (GDP, effect of low crude, interest rates, Dalian futures)

Outlook- future and challenges

Supply- expansions, shutdown schedules

Current market- prices, arbitrage

China-India similarities and differences

• Common factors:

1)Middle east major supplier

2)Mainly integrated naphtha feedstock

3)Macroeconomics such as low crude

• Disparities

1) CTO/MTO only in China

2) Dalian futures

3)Higher growth rates in India

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Similarities and Differences

Macroeconomic factors

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Bad news: China’s annual GDP % growth seen slowing in the coming years

00-10 (a) 2011 2012 2013 2014e 2015f 2016f 2017f0

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GDP % growth, annual

Source: World Bank Notes: a-average-estimate, f-forecast

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India to benefit from low crude prices

Source: PPAC

8% economic growth seen in fiscal 2015-2016

Growth expected to receive boost from lower oil prices, likely monetary easing amid lower inflation.

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So how are polymers affected?

Source: Various official stats, Platts

• Some decision on projects may be delayed• Short term gains for Asia producers • Slowing of the China economy could have repercussions on

Asian polymers markets• Dalian futures getting active

Product Volume Last Year % Change Turnover Last Year % Change End of Month OI

End-of-Month OI Last Year % Change

LLDPE(Jun) 11,047,306 10,866,512 1.66% 52,458.36 63,230.61 -17.04% 579,400 870,406 -33.43%

LLDPE (May) 18,103,868 9,203,138 96.71% 87,234.42 51,260.69 70.18% 572,222 860,198 -33.48%

LLDPE (April) 22,500,030 8,460,976 165.93% 110,146.40 46,310.39 137.84% 447,276 556,626 -19.65%

LLDPE (Mar) 28,946,694 10,966,776 163.95% 135,932.48 57,220.71 137.56% 719,778 410,460 75.36%

LLDPE (Feb) 16,049,216 6,750,206 137.76% 71,022.41 36,069.89 96.90% 723,450 574,966 25.82

LLDPE (Jan) 22,132,640 8,729,748 153.53% 91,191.56 47,915.15 90.32% 812,366 356,540 127.85%

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Correlation factors

Correlation factor

Naphtha-LLDPE 52%Naphtha-HDPE 60%Naphtha-LDPE 49%Ethylene-PE 86%PE-LIBOR 1 mth 52%LDPE-Brent 36%HDPE-Brent 47%

Supply

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Turnaround season to lead to snug supply Plants PE Capacity (‘000 mt/year) Location Timing

LG Chem 145 LDPE; 155 HDPE; 300 LLDPE

Daesan , Korea March/April 2015, 30 days

PTT Polyethylene 300 LDPE500 HDPE400 LLDPE

Map Ta Phut, Thailand 15 days in March 201530 days in April/MayMid May 2015, 3 wks

BASF YPC Co 400 LDPE/EVA Nanjing, China 5 April 2015, 50days

IndianOil 350 HDPE/LLDPE Panipat, India April, 7 days; 18 June 2015, 2 wks

Sinopec 360 LDPE, 250 LLDPE, 350 HDPE

Maoming, China 250kt/year LDPE and LLDPE shut till end Apr 2015

Hanwha (Samsung) Total 125 LLDPE; 175 HDPE Daesan, Korea 30-40days, April 2015

PetroChina 300 LLDPE Dushanzi, China 10 Apr 2015, 50 days

LG 300 LDPE Yeochon, Korea 3 weeks, May 2015

Shaanxi Yanchang Yulin 300 LLDPE; 300 HDPE Shaanxi, China 16-26 June 2015

PetroChina 200 HDPE/LLDPE; 310 HDPE/LLDPE

Daqing, China 20 June 2015, 1 mth

Lotte Chem 630 HDPE Daesan, Korea Oct-Nov 2015

Hanwha Chemical 447 LDPE/EVA, 385 LLDPE Korea Oct (LD) ;Nov 2015 (LL), 5-10 days

Petro Rabigh 300 HDPE; 600 LLDPE Rabith, Saudi Arabia Oct-Nov 2015, 50 days

Source: Platts

Expansions

11Source: Platts Source: Platts

Demand

• Asia is expected to be in growing deficit driven by China and India, the majority by China

• Price differentials between China domestic and US imports getting narrower from $100/mt to currently around $30/mt

• The majority of capacity additions will be via coal in China, capping deficits in the short to medium term

China and India PE deficit to grow

Source: Platts Analytics

Imports China Jan-Apr 2015

Accumulative Total (‘000 mt)

% change

Total PE 3,409 5.17

LDPE 723 (3.02)

HDPE 1,773 13.59

LLDPE 913 (1.44)

Source: China customs

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India current deficit but might swing to short term surplus once new plants start

Source: Platts Analytics

Consumption per capita

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Source: Platts

Current market situation

Redirection of Middle east material to Europe keeps Asia supply snug

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Source: Platts 17 June 2015 Current spreads= Turkey-China $184/mt (HDPE film), $230/mt (LLDPE film)

PE integrated margins still very good

18Source: Platts

Integrated margins = $367.68/mt (18 June) assuming conversion costs $150/mt

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India versus China

Source: Platts

The future of PE and challenges

• HDPE/ LDPE supply snug for rest of H2 2015

• Golden year for cracker margins will end by end 2015

• Growth rates for India close to 9% versus 6-7% China

• India's HDPE may have slight surplus in 2015 if new plants run well

• China net long in LLDPE ,Southeast Asian LLDPE may be displaced

• China’s deficit will widen to 10.7 million (HDPE), around 6 million mt/year (LDPE); India’s PE deficit around 5 mil mt/year by 2025

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India versus China outlook

© 2014 Platts, McGraw Hill Financial. All rights reserved.

Thank you!

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Heng Hui, Senior editor, PetrochemicalsTel: +65 65306461

Hui.heng@platts.com

With contributions from Platts Analytics, Hetain Mistry