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Future Development in “Additivation” for the Polyolefin Industry

INDIAN PETROCHEM - 2007

November 19th & 20th 2007Hotel The Leela Kempinski, Mumbai

Stefan Barot

Information is property of Ciba AG in Basel2

1. Thoughts on the global future in Polyolefins’s

2. Productivity and Quality

3. CSB’s and their advantage

4. Cost benefits at an example

5. Short outlook into the future and summary

Agenda

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The world economy experienced a long and steady growth, the Polyolefin Industry grew with it.

The Polyolefin Industry – tremendous growth

Source: International Monetary Fund, World Economics and Financial Surveys April 2007CMAI Global Capacity, Prices and Demand

100.0

150.0

200.0

250.0

300.0

1990 1992 1994 1996 1998 2000 2002 2004 2006

%

(19

90 =

100

%)

GDP Growth: Constant pricesGDP Growth: Purchasing Power ParityPOLYOLEFIN CAPACITY GROWTHPO Consuption Growth

100.0

150.0

200.0

250.0

300.0

1990 1992 1994 1996 1998 2000 2002 2004 2006

%

(19

90 =

100

%)

-100

-50

0

50

100

150

200

Prof

it pe

r t in

US

$

GDP Growth: Constant pricesGDP Growth: Purchasing Power ParityPOLYOLEFIN CAPACITY GROWTHGlobal PO Consumption GrowthGLOBAL AVERAGE MARGIN PO

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Middle East cost advantage at least 3:1 to 4:1 in PE.

Some what smaller in PP.

The Middle East will produce and export – with a focus on MASS production.

The Middle East produces the cheapest !

Source: Asia Polyolefin Forum, Dr Mitchell Killeen, Basell Asia Pacific Ltd, Hong Kong 16-17 2007

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Global Capacity surplus

-3,000

-1,000

1,000

3,000

5,000

2006 2010 2006 2010

PE PP

Europe

-3,000

-1,000

1,000

3,000

5,000

2006 2010 2006 2010

PE PP

Asia

-3,000

-1,000

1,000

3,000

5,000

2006 2010 2006 2010

PE PP

NAFTA

LATAM

-3,000-1,0001,000

3,0005,0007,0009,000

11,00013,000

15,00017,00019,000

2006 2010 2006 2010

PE PP

AFME

?

13%10%10%-8%

Source: PEPP Business report; Dr. K. Scheidl, MAACK Business Services, Zuerich Mar 6th – 8th 2007

6%

65%

-1%-4%-19%

81%

40%67%

6%12%-2%17%

PE 2010: Capacity Utilization: ~77%(72% with ME at 100%)PP 2010:Capacity Utilization: ~85%

-3,000

-1,000

1,000

3,000

5,000

2006 2010 2006 2010

PE PP

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1. Players in EU, USA & JP differentiate = Specialize

2. Regulations in mainly in EU* and JP will make the import of Resin or semi-finished product more difficult.

Some of the volume in high cost countries might not be accessible for the Middle East and the Export will be directed towards Asia.

Reaction of the Western World

Consequence for all producers:

Productivity and Quality will become more important; Off-Spec product will be difficult and costly to sell.

* REACH: New European Community Regulation on chemicals and their safe use (EC 1907/2006) –Effective as of 1 June 07.GMP: European legislation, (EC 2023/2006, Art 3) effective as of 1 Aug 2008, Joana Antunes, BfR, Berlin, April 25 2007

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Maximize productivity - the goal of any enterprise:

Productivity

Productivity =

Maximal output of the correct products with the required quality at the right time

Total cost of operations (Incl. legal & social costs)

Production isSequential: Start

upsteadystate

transition

Product A Product B

steadystate

More productive means to control the quality:Accuracy during steady state production, with minimal transition and controlled cross contamination.

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QUALITYMass-Production:

Specialties:(different products)

Reduce transition:

Regulations and price pressure from the Middle East will make the transition grades a difficult to sell…

Ensure accuracy:Product to be in specifications

Higher importance for Mass production

Higher importance for Specialties

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AdditivationSome neat Additives are sticky and difficult to feed accurately.

Ciba as the world leader in Anti-Oxidants and UV stabilizers has for decades developed solutions to make Additives easy to feed.

Ciba is the worlds largest producer of Customer Specific Blends (CSB): the customers formulation as a total Additive Package in a granular free flowing form.

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Advantages of a CSBAdvantages: Accuracy during steady state production, with

minimal transition and controlled cross contamination.

Steady state: Value is when Percent “On Prime” is improved

Reduce dosing

Increase “ON-Spec”

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Advantages of a CSBAdvantages: Accuracy during steady state production, with

minimal transition and controlled cross contamination.

Transition: Value is when transition is short

Mixing

transition

Resin

Additives

Conventional System (schematic)

Extrusion

MixingResin

CSB

CSB system (widely used)

Extrusiontransition

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Productivity includes costProductivity: Output divided by cost….

Do the increased cost justify the CSB?

Example: Polyolefin production based on the following assumptions:

Plant output: 300’000 t/a (~35 t/hr)Polymer Selling price: 1000 US$/tRevenue: 300 Mio US$/a

Additives for simple grades: 4000 ppm at 5 US$/kg 70%Additives for complex grades: 6000 ppm at 10 US$/kg 30%

Simple grades: PO: 210’000 t/a; Additives 840 t/a; 4.2 Mio US$/aComplex grades: PO: 90’000 t/a; Additives 540 t/a; 5.4 Mio US$/a

Average: 4600 ppm or 1380 t/a of additives at 9.6 Mio US$

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Costs of the CSBFirst - the costs of the CSB:

Example: Following assumptions:

Production cost for simple blends: 800 US$/tcomplex blends: 2000 US$/t

Calculation:simple blends: 840 t/a at 800 US$/t 0.67 Mio US$complex blends: 540 t/a at 2000 US$/t 1.08 Mio US$

Total cost for CSB production: 1.75 Mio US$

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CSB Increases productivityThe benefits of CSB’s in steady state

Example: Following assumptions:

Reduce dosing by 5% compared to powder

Increase “ON-Spec” by 2%Off-Spec at 20% lower price or 800 US$/t vs 1000 US$/t

Calculation:

Overdosing with powder by 5%: 5% of 9.6 Mio US$ 0.48 Mio US$

Increase on Spec by 2%: 6’000 t/a at 200 US$/t 1.20 Mio US$

Powder-Loss in ventilation of 1%: 1% of 9.6 Mio US$ 0.10 Mio US$

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CSB Increases productivityThe benefits of CSB’s in transition

Example: Following assumptions:

120 changes/a (10/month)Reduce 10 min per change

To be sold as Off-Spec at 20% lower price or 800 US$/t vs 1000 US$/t transition transition

Calculation:

Reduce 10 min per change: 1200 min or 20 hrs is ~700 t/a

700 t/a at 200 US$/t 0.14 Mio US$

With a continuous mixer of 5 t and this throughput it would take~ 1 hr for a concentration of 1000 ppm to drop to 10 ppm.

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BenefitsSteady-State: Reduce overdosing: 0.48 Mio US$/a

Increase on Spec product: 1.20 Mio US$/aReduce Powder-Loss: 0.10 Mio US$/a

Change-Over: Reduce time per change: 0.14 Mio US$/aNew Plant: Lower capital cost: 0.45 Mio US$/a

Costs Cost CSB production: 1.75 Mio US$

Increased productivity: Old plant 0.16 Mio US$/a (+ 9%)New plant 0.61 Mio US$/a (+ 50%)

CSB Increases productivityIncreased benefits in steady-state and in transition

1.92 Mio US$/a

2.37 Mio US$/a

And there are additional benefits.

Sensitivity:PO producer with simple grades only: 0.48 Mio US$/a (+ 50%)

0.80 Mio US$/a (+ 83%)

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- Fewer operators required; lower cost and possibility for errors.- Fewer running feeders resulting in lower electricity usage- New plants designed for CSB’s: Less equipment ~0.5 Mio US$/a- Less dust, a cleaner additive room, lower potential of a dust explosion.

Less future health liabilities. - Fewer Product Order’s and additive administration.- The additive loading in the polymer is more consistent- Overall inventory of additives can be reduced- QC is simplified as the components of the CSB are in the correct ratio:

measuring only one component gives the QC results for all components- CSB’s simplify the handling of difficult to handle additives

(E.g. low melting point additives)

Additional CSB benefitsThese benefits are substantial but difficult the quantify:

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Value of the CSBOverdosing: 0.48 Mio US$/a Additive prices stableOn Spec product: 1.20 Mio US$/a Penalized Off Spec ProductsPowder-Loss: 0.10 Mio US$/a Additive prices stableTime per change: 0.14 Mio US$/a Regulations will increaseCapital costs: 0.45 Mio US$/a Capital more expensive

With the increased competition from the ME and the regulations in EU, USA & JP the benefits from the CSB will increase.

Specialties - more stringent regulations: increase in CSB benefit.

CSB Increases productivityFuture development and predictions

CSB Costs: Ciba works on systems and forms to offer CSB’s at clearly lower cost - for large volume grades.

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SUMMARYCustomer Specific Blends increase productivity (top & bottom line).

There is value for resin producers who target simple resins and value for producers with complex more differentiated resins.

There is value to use CSB’s for new and existing plants.

The value is created in the steady state of production and in the reduction of the transition grades.

The pressure on Productivity and Quality will increase; this will increase the value of the CSB’s .

There are many additional benefits of the CSB.

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AcknowledgementsI would like to thank:

Ciba Specialty Chemicals

The Seminar Organizers

And You for Your Attendance and Attention