Mark Fisler - APIC - Singapore/CMAI/MarkFislerAPIC2008the keys to...America West Europe Central Europe & CIS Middle East & Africa Indian Subcontinent Northeast Asia Southeast Asia

2008 APIC – CMAI Seminar2008 APIC – CMAI SeminarSingaporeSingapore ShanghaiShanghai HoustonHouston New YorkNew York LondonLondon DüsseldorfDüsseldorf DubaiDubaiSingaporeSingapore ShanghaiShanghai HoustonHouston New YorkNew York LondonLondon DüsseldorfDüsseldorf DubaiDubai

The Keys to Understanding the Global Aromatics Markets:Shifting Trade Patterns for BTX,

Rapid Demand Growth for Polyester, Consolidation in the Styrenics Industry

The Keys to Understanding the Global Aromatics Markets:The Keys to Understanding the Global Aromatics Markets:Shifting Trade Patterns for BTX, Shifting Trade Patterns for BTX,

Rapid Demand Growth for Polyester, Rapid Demand Growth for Polyester, Consolidation in the Consolidation in the StyrenicsStyrenics IndustryIndustry

Mark FislerMark FislerExecutive Vice PresidentExecutive Vice President

Aromatics, Fibers & Methanol StudiesAromatics, Fibers & Methanol [email protected]@cmaiglobal.com

APIC Marketing Seminar by CMAIAPIC Marketing Seminar by CMAISingapore, May 27, 2008Singapore, May 27, 2008

There are myriad influences on the global aromatics markets ranging, for example, from gasoline related legislation in the United States to refining capacity expansions, rapid polyester demand growth, Asian derivative demand development, through to forecast imbalances in the pace of supply growth between ethylene and propylene. This presentation will focus on the three major pillars of the world aromatics markets, benzene, styrene and paraxylene. Their common theme is weakening supply/demand balances and depressed margins, though each is at a different stage of the process. The rate of benzene capacity addition based on known plans is already well above realistic forecast demand growth, but there is potential for huge additional benzene capacity growth after 2011 that would be very detrimental to operating rates and industry fortunes. The road ahead looks increasingly challenging and complex.Benzene’s biggest derivative, styrene, is going through a transitional phase. Dogged by subdued demand growth in recent years, the styrene industry has reached a degree of maturity and structural overcapacity that has already forced painful consolidation. It has been in a prolonged down cycle while most other petrochemicals have been enjoying top-of-the-cycle earnings, despite record energy costs. Further reconstructive surgery is likely to be required in “traditional” industries as new highly competitive capacity is still being added in the Middle East and Asia. Different parts of the polyester chain are at different stages of their cycle. PX is on the brink of a capacity expansion explosion that will pressure margins, while the worst may already be over for polyester fiber and PTA. However, high crude oil prices have squeezed almost all the margin from the polyester chain, and will cap how much polyester fiber margins can improve. PTA is right at the bottom of the trough. Fewer planned expansions due to miserable margins will help PTA move toward recovery.

2008 APIC – CMAI Seminar2008 APIC – CMAI Seminar

Presentation OutlinePresentation OutlinePresentation Outline• Benzene

– Demand and Capacity Additions– Potential Supply Storms– Perfect Landing?

• Styrene– Capacity Fat Continues– Industry Options– Fitter competition coming

• Paraxylene/PTA– Capacity vs Demand– Trade Changes– What will Happen to Margins?

•• BenzeneBenzene–– Demand and Capacity AdditionsDemand and Capacity Additions–– Potential Supply StormsPotential Supply Storms–– Perfect Landing?Perfect Landing?

•• StyreneStyrene–– Capacity Fat ContinuesCapacity Fat Continues–– Industry OptionsIndustry Options–– Fitter competition comingFitter competition coming

•• ParaxyleneParaxylene/PTA/PTA–– Capacity Capacity vsvs DemandDemand–– Trade ChangesTrade Changes–– What will Happen to Margins? What will Happen to Margins?


2007 World Benzene Demand2007 World Benzene Demand2007 World Benzene Demand

CumeneCumene 19%19%

CyclohexaneCyclohexane 12%12%

Nitrobenzene 8%Nitrobenzene 8%

Others 2%Others 2%AlkylbenzeneAlkylbenzene 3%3%

MaleicMaleic Anhydride 2%Anhydride 2%

ChlorobenzeneChlorobenzene 1%1%EthylbenzeneEthylbenzene53%53%

Total Domestic Demand = 39.9 Million TonsTotal Domestic Demand = 39.9 Million Tons


Benzene Derivative Demand GrowthBenzene Derivative Demand Growth

World Northeast Asia China0 5 10 15 20

Alkylbenzene

Chlorobenzene

Cumene

Cyclohexane

Ethylbenzene

Maleic Anhydride

Nitrobenzene Global Average Benzene Global Average Benzene Demand Growth = 3.1%Demand Growth = 3.1%

Percent Increase, Demand Growth 2007-2012


World New Benzene CapacityWorld New Benzene CapacityWorld New Benzene Capacity

AmericaAmerica West EuropeWest Europe Central Europe & CISCentral Europe & CISMiddle East & AfricaMiddle East & Africa Indian SubcontinentIndian Subcontinent Northeast AsiaNortheast AsiaSoutheast AsiaSoutheast Asia Incremental DemandIncremental Demand

--0.50.5

0.00.0

0.50.5

1.01.0

1.51.5

2.02.0

2.52.5

3.03.0

3.53.5

20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20122012

Million TonsMillion Tons


MSAT2

Cracker Expansionsand Liquid Feeds

Refining in Asia

Co-product Fall-out

U.S. Energy Bill

The Chinese Wave

The Supply StormsThe Supply StormsThe Supply Storms


United States Legislation ReviewUnited States Legislation ReviewUnited States Legislation Review• February 2007 MSAT

– Impact – Evolutionary– Reduces benzene across entire pool to 0.62 volume

percent in 2011– Expected to increase benzene supply

• December 2007 EISA– Impact – Transformational– Dramatically elevates biofuels – ethanol from all sources– Expected gasoline surplus, octane value reduced– RFS for 2008 increased from 5.4 billion to 9.0 billion!

•• February 2007 MSATFebruary 2007 MSAT–– Impact Impact –– EvolutionaryEvolutionary–– Reduces benzene across entire pool to 0.62 volume Reduces benzene across entire pool to 0.62 volume

percent in 2011percent in 2011–– Expected to increase benzene supplyExpected to increase benzene supply

•• December 2007 EISADecember 2007 EISA–– Impact Impact –– TransformationalTransformational–– Dramatically elevates Dramatically elevates biofuelsbiofuels –– ethanol from all sourcesethanol from all sources–– Expected gasoline surplus, octane value reducedExpected gasoline surplus, octane value reduced–– RFS for 2008 increased from 5.4 billion to 9.0 billion!RFS for 2008 increased from 5.4 billion to 9.0 billion!


Energy Independence & Security Act 2007 Incremental Octane Index

Energy Independence & Security Act 2007 Incremental Octane Index

00

100100

200200

300300

400400

500500

600600

9494 9696 9898 0000 0202 0404 0606 0808 1010 1212 1414 1616 1818 2020 2222

Ethanol/Ethanol/BioFuelsBioFuels MTBEMTBE

IndexIndex

Assumed Max "Corn" LimitAssumed Max "Corn" Limit

Advanced/Advanced/CellulosicCellulosicTargetsTargets

2000 = 1002000 = 100


The Middle East: A More Liquid Evolution?

The Middle East: A More Liquid The Middle East: A More Liquid Evolution?Evolution?

• 20 million tons of new ethylene capacity by 2012

• Ethylene goes long, global propylene balances remain snug

• Over half of new Saudi capacity is now capable of cracking propane, butane or light naphtha

• Greater use of liquids will create more available benzene extraction feed

•• 20 million tons of new ethylene 20 million tons of new ethylene capacity by 2012capacity by 2012

•• Ethylene goes long, global propylene Ethylene goes long, global propylene balances remain snugbalances remain snug

•• Over half of new Saudi capacity is Over half of new Saudi capacity is now capable of cracking propane, now capable of cracking propane, butane or light naphthabutane or light naphtha

•• Greater use of liquids will create Greater use of liquids will create more available benzene extraction more available benzene extraction feedfeed


The Middle East: A Liquid EvolutionThe Middle East: A Liquid EvolutionThe Middle East: A Liquid Evolution

0.00.0

0.20.2

0.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4

1.61.6

20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20122012 20132013 20142014 20152015

2003 Forecast2003 Forecast2007 Forecast2007 Forecast

Million Metric TonsMillion Metric Tons

Actual ForecastActual Forecast

Middle East Benzene Capacity From Middle East Benzene Capacity From PygasPygas


New Middle East Benzene ProjectsNew Middle East Benzene ProjectsNew Middle East Benzene Projects

KARO, Q1 2009KARO, Q1 2009Shuaiba, KuwaitShuaiba, Kuwait

Kayan, Q1 2010Kayan, Q1 2010Al Jubail, Saudi Arabia Al Jubail, Saudi Arabia

Yansab, Mid-2008Yansab, Mid-2008

Mesaieed, QatarMesaieed, Qatar

Saudi ChevPhill, Q1 2008Saudi ChevPhill, Q1 2008Al Jubail, Saudi ArabiaAl Jubail, Saudi Arabia

Oman Oil, Q4 2009Oman Oil, Q4 2009Sohar, OmanSohar, Oman

Borzuyeh PC,2008Borzuyeh PC,2008Bandar Assaluyeh, IranBandar Assaluyeh, Iran

QP/Honamb, 2012QP/Honamb, 2012

Saudi Aramco/Dow, 2012Saudi Aramco/Dow, 2012Ras Tanura,, Saudi ArabiaRas Tanura,, Saudi Arabia


China: Is This The Real Storm? China: Is This The Real Storm? China: Is This The Real Storm?

• China adds 6 million tons in 6 years

• Most new capacity driven by backward integration from polyester

• Produces a more balanced trade position

• The current rate of capacity expansion slows after 2012, but will it really?

•• China adds 6 million tons in China adds 6 million tons in 6 years6 years

•• Most new capacity driven Most new capacity driven by backward integration by backward integration from polyesterfrom polyester

•• Produces a more balanced Produces a more balanced trade positiontrade position

•• The current rate of capacity The current rate of capacity expansion slows after expansion slows after 2012, but will it really?2012, but will it really?


The Great Wave Of ChinaThe Great Wave Of ChinaThe Great Wave Of ChinaChina Benzene Production CapacityChina Benzene Production Capacity

44

55

66

77

88

99

1010

1111

1212

1313

20072007 20082008 20092009 20102010 20112011 20122012 20132013 20142014 20152015

ForecastForecast Current HypotheticalCurrent Hypothetical


Upside HypotheticalUpside Hypothetical RefineryRefinery--InducedInduced


The Supply StormsThe Supply StormsThe Supply Storms

0.00.0

0.50.5

1.01.0

1.51.5

2.02.0

2.52.5

3.03.0

3.53.5

4.04.0

20082008 20092009 20102010 20112011 20122012 20132013 20142014 20152015

China UpsideChina Upside

US Refinery US Refinery

MSAT2 UpsideMSAT2 Upside

PygasPygas UpsideUpside

RefineryRefinery--push Expansionpush Expansion

Additional Million Metric TonsAdditional Million Metric Tons

Global Benzene Production CapacityGlobal Benzene Production Capacity


The Impact On Global Operating Rates

The Impact On Global Operating The Impact On Global Operating RatesRates

Global Benzene Operating Rate, PercentGlobal Benzene Operating Rate, Percent

Existing ForecastExisting Forecast

7070

7575

8080

8585

20072007 20102010 20132013 20162016 20192019Upside Capacity: Steady DemandUpside Capacity: Steady DemandUpside Capacity: Stagnation DemandUpside Capacity: Stagnation Demand


Benzene Conclusions Benzene Conclusions Benzene Conclusions

• Probability of a “Perfect Landing”diminishing

• Supply storms are brewing • Down cycle will likely prolong beyond

2012 • Lower prices are unlikely to regain

share lost since 2003• Global demand remains

extraordinarily sensitive to China’s economic fortunes

• Road ahead unlikely “business as usual”

•• Probability of a Probability of a ““Perfect LandingPerfect Landing””diminishingdiminishing

•• Supply storms are brewing Supply storms are brewing •• Down cycle will likely prolong beyond Down cycle will likely prolong beyond

2012 2012 •• Lower prices are unlikely to regain Lower prices are unlikely to regain

share lost since 2003share lost since 2003•• Global demand remains Global demand remains

extraordinarily sensitive to Chinaextraordinarily sensitive to China’’s s economic fortuneseconomic fortunes

•• Road ahead unlikely Road ahead unlikely ““business as business as usualusual””










Styrene Process FlowStyrene Process FlowStyrene Process Flow

EthyleneEthylene

BenzeneBenzene EPSEPS

PolystyrenePolystyrene

ABSABS

EB/SMEB/SM

PropylenePropylene PO/SMPO/SM

POPO


Capacity Fat Continues GrowCapacity Fat Continues GrowCapacity Fat Continues Grow

AmericasAmericas EuropeEuropeMiddle EastMiddle East AsiaAsia

--1.01.0

--0.50.5

0.00.0

0.50.5

1.01.0

1.51.5

2.02.0

2.52.5

0000 0101 0202 0303 0404 0505 0606 0707 0808 0909 1010 1111 1212


WorldWorldAverage Demand GrowthAverage Demand Growth


Excess Capacity Fat Is Unhealthy

Excess Capacity Fat Is Excess Capacity Fat Is UnhealthyUnhealthy

Excess CapacityExcess Capacity Cumulative Excess CapacityCumulative Excess Capacity

--22

--11

00

11

22

33

44

55

66

0000 0101 0202 0303 0404 0505 0606 0707 0808 0909 1010 1111 1212

Styrene, Million Metric TonsStyrene, Million Metric Tons


Regionally North America Has The Most To Lose

Regionally North America Has The Regionally North America Has The Most To LoseMost To Lose

-2.0-1.5-1.0-0.50.00.51.01.52.02.5

2004 2005 2006 2007 2008 2009 2010 2011 2012

North AmericaEurope Asia

Million Metric Tons


--600600--400400--200200

00200200400400600600800800

1,0001,0001,2001,2001,4001,4001,6001,600

20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20122012

Rest Of WorldRest Of WorldChinaChina

Styrene, Thousand Metric TonsStyrene, Thousand Metric Tons

Demand Growth Is Very Asian


What Are The Industry’s Options?What Are The IndustryWhat Are The Industry’’s Options?s Options?

• Wait for demand growth

• Radical capacity reduction surgery

• The industry has elected – “Capacity liposuction”

•• Wait for demand Wait for demand growthgrowth

•• Radical capacity Radical capacity reduction surgeryreduction surgery

•• The industry has The industry has elected elected –– ““Capacity Capacity liposuctionliposuction””


20012001 20022002 20032003 20042004 20052005 20062006

Styrene Capacity LiposuctionStyrene Capacity LiposuctionStyrene Capacity Liposuction

--12001200

--10001000

--800800

--600600

--400400

--200200

00

AmericasAmericas EuropeEurope AsiaAsia

Thousand Metric TonsThousand Metric Tons

20072007


Stronger Athletes Have Come To Play

Stronger Athletes Have Come Stronger Athletes Have Come To PlayTo Play

• Middle East SM capacity comes on-stream from 2008-2012

• Adds 1850 to 3050 thousand metric tons of styrene in the market

•• Middle East SM Middle East SM capacity comes oncapacity comes on--stream from 2008stream from 2008--20122012

•• Adds 1850 to 3050 Adds 1850 to 3050 thousand metric thousand metric tons of styrene in tons of styrene in the marketthe market


Middle East Styrene PlantsMiddle East Styrene PlantsMiddle East Styrene Plants

Kuwait TKSC 475 2009

Saudi Arabia Jubail CPChem 777 2008

SADAF 3 700 Pending QatarQP/Honam 600 2012

(Thousand Metric Tons)(Thousand Metric Tons)

Iran Pars PC 600 Pending

IndiaIndian Oil 600 2012


Changing Styrene Trade Flows

'03'03 '07'07 '11'11


World Styrene Supply and Demand

DemandDemand CapacityCapacity Operating RateOperating Rate

00

55

1010

1515

2020

2525

3030

3535

4040

20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20122012


7676

7979

8282

8585

8888

9191

9494

9797

100100Operating Rate, PercentOperating Rate, Percent


How Fit Are You?How Fit Are You?How Fit Are You?

Cumulative Capacity (Million Tons)Cumulative Capacity (Million Tons)

MDE Avg.MDE Avg.

NAM Avg.NAM Avg. NEA Avg.NEA Avg.WEP Avg.WEP Avg.

100100

300300

500500

700700

900900

1,1001,100

1,3001,300

1,5001,500

1,7001,700

00 55 1010 1515 2020 2525 3030 3535

Dollars Per Metric Ton Dollars Per Metric Ton

MDE Avg.

NAM Avg. NEA Avg.WEP Avg.

20082008 20112011

Cumulative Capacity (Million Tons)Cumulative Capacity (Million Tons)

GlobalGlobalStyreneStyreneDemandDemand


A Bit Better, But More Is NeededA Bit Better, But More Is Needed

Styrene DemandStyrene Demand Old Operating RateOld Operating Rate

20202121222223232424252526262727282829293030

20062006 20072007 20082008 20092009 20102010 20112011 2012201280808181828283838484858586868787888889899090

Million Metric TonsMillion Metric Tons PercentPercent

New Operating RateNew Operating Rate


Styrene ConclusionsStyrene ConclusionsStyrene Conclusions• Styrene is in the midst of a

transition, more capacity surgery is expected

• Demand has slowed, but styrene supply continues to come online

• The Middle East will continue to competitively place styrene in major markets

• Existing producers will have to choose – more surgery is necessary

•• Styrene is in the midst of a Styrene is in the midst of a transition, more capacity transition, more capacity surgery is expectedsurgery is expected

•• Demand has slowed, but Demand has slowed, but styrene supply continues to styrene supply continues to come onlinecome online

•• The Middle East will continue to The Middle East will continue to competitively place styrene in competitively place styrene in major marketsmajor markets

•• Existing producers will have to Existing producers will have to choose choose –– more surgery is more surgery is necessarynecessary










The Paraxylene Unit Is Integrated Into The Refinery

The Paraxylene Unit Is Integrated Into The Refinery

Naphtha ReformerBTX

ExtractionParaxylene

Unit PX to PTA

TDP

Hydrogen

Benzene

MixedXylenes

MixedXylenesToluene

BenzeneLight and Heavy

Aromaticsto the Gasoline pool


Paraxylene Capacity Grows Faster Than Demand

ParaxyleneParaxylene Capacity Grows Capacity Grows Faster Than Demand Faster Than Demand

--1.01.0

0.00.0

1.01.0

2.02.0

3.03.0

4.04.0

5.05.0

0202 0303 0404 0505 0606 0707 0808 0909 1010 1111 12124040

5050

6060

7070

8080

9090

100100

ChinaChina Middle EastMiddle East

EuropeEuropeNonNon--China AsiaChina Asia AmericasAmericas

Demand GrowthDemand GrowthOperating Rate Operating Rate

Operating Rate, PercentOperating Rate, PercentParaxyleneParaxylene, Million Metric Tons , Million Metric Tons


Are Paraxylene And PTA In The Same Marriage?

Are Are ParaxyleneParaxylene And PTA In The And PTA In The Same Marriage?Same Marriage?

00

55

1010

1515

2020

2525

3030

0202 0303 0404 0505 0606 0707 0808 0909 1010 1111 1212

Surplus Capacity, PercentSurplus Capacity, Percent

Surplus PX CapacitySurplus PX Capacity Surplus PTA CapacitySurplus PTA Capacity


Asia Produces Most ParaxyleneAsia Produces Most Asia Produces Most ParaxyleneParaxylene

00

1010

2020

3030

4040

0202 0707 1212


AmericasAmericas EuropeEuropeMiddle East & AfricaMiddle East & AfricaAsia Pacific Asia Pacific -- ChinaChinaChinaChina

•• Between 2007 and 2012 Between 2007 and 2012 paraxyleneparaxylene production will production will increase by 10 million tonsincrease by 10 million tons

•• Asia will produce 71% of Asia will produce 71% of the Worldthe World’’s s paraxyleneparaxylene by by 20122012

•• The Middle East will The Middle East will become a significant become a significant suppliersupplier


And Consumes Most Of It As WellAnd Consumes Most Of It As WellAnd Consumes Most Of It As Well

•• China will produce 40% of China will produce 40% of the Worldthe World’’s PTA by 2012s PTA by 2012

•• High growth is occurring in High growth is occurring in the developing regions of the developing regions of Europe and the AmericasEurope and the Americas

•• In the Middle East & Africa In the Middle East & Africa available capacity is limiting available capacity is limiting production growthproduction growth

00

2020

4040

6060

0202 0707 1212


AmericasAmericas EuropeEurope

Middle East & AfricaMiddle East & AfricaNonNon--China AsiaChina AsiaChinaChina


Paraxylene Net TradeParaxyleneParaxylene Net TradeNet Trade

0606 0808 1010 1212

9494

--3131

3838

244244

--1818

250250

--250250

--668668

16451645

978978

--19561956--328328


Paraxylene Operating Rates And Margins

ParaxyleneParaxylene Operating Rates Operating Rates And MarginsAnd Margins

--150150

--100100

--5050

00

5050100100

150150

200200

250250

300300

0202 0303 0404 0505 0606 0707 0808 0909 1010 1111 1212

ParaxyleneParaxylene, $/MT, $/MT

5555

6060

6565

7070

75758080

8585

9090

9595

100100Operating Rate, %Operating Rate, %

NAM MarginNAM Margin WEP MarginWEP MarginNEA MarginNEA MarginNEA Op RateNEA Op Rate WEP Op RateWEP Op RateNAM Op RateNAM Op Rate


• The worst may be over for polyester fiber. Operating rates and margins should begin to recover during the next few years

• PET resin markets continue to adding excess capacity in the face of slower demand growth

• PTA markets beginning to recover, but still have a way to go to return to profitability

• Paraxylene on the precipice of significant oversupply

• Entire PX-PTA-Polyester chain will suffer from weak margins during next few years

•• The worst may be over for polyester fiber. The worst may be over for polyester fiber. Operating rates and margins should begin to Operating rates and margins should begin to recover during the next few yearsrecover during the next few years

•• PET resin markets continue to adding excess PET resin markets continue to adding excess capacity in the face of slower demand growthcapacity in the face of slower demand growth

•• PTA markets beginning to recover, but still have PTA markets beginning to recover, but still have a way to go to return to profitabilitya way to go to return to profitability

•• ParaxyleneParaxylene on the precipice of significant on the precipice of significant oversupplyoversupply

•• Entire PXEntire PX--PTAPTA--Polyester chain will suffer from Polyester chain will suffer from weak margins during next few yearsweak margins during next few years

Paraxylene/PTA ConclusionsParaxyleneParaxylene/PTA Conclusions/PTA Conclusions

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Mark Fisler - APIC - Singapore/CMAI/MarkFislerAPIC2008the keys to...America West Europe Central Europe & CIS Middle East & Africa Indian Subcontinent Northeast Asia Southeast Asia