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Plastics markets in transition – preparing for a new world

Malini Hariharan

Head of South Asia Markets

ICIS

March 2018

www.icis.com 4

China

Trade issues

Plant Inspections & closures

Ban on plastic waste

imports

Strong demand

New capacities

Rise in imports

India

Start up of new plants

Demand recovery

Investment activity up

Rising crude oil

prices

US

New capacities

Strong economy

Trade war?2nd

investment wave

www.icis.com 5

Global upswing underway

Global GDP growth projections revised upwards - expected to hit 3.9% in 2018 & 2019, up from 3.7% in 2017

Big boost from acceleration in economic activity in the US, Europe

PMI numbers from US, Europe and China support outlook

Faster economic expansion will boost demand for oil and other commodities and also support higher interest rates and tighter monetary policies

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Global PMI

US Eurozone China

US, Europe acceleration

EXPANSION

CONTRACTION

www.icis.com 6

Crude surges as supply and demand move closer to balance

www.icis.com 7

Petrochemical prices were up in 2017 and most markets have seen a strong start to 2018

Markets largely supported by demand and supply issues; Chinese buying and firmer crude oil prices

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US$/bbl Asia IPEX v Brent

Brent Crude Oil ($/bbl) Asia IPEX

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China crackdown on pollution – a game changer

April 2017 – China begins air pollution inspections in Beijing, Tianjin and 26 other cities in the Northeast (‘2+26 Plan’) – 25 rounds in 1 year, intensifying in the winter

Ban on imports of waste plastics announced July 2017, went into effect end of 2017

More stringent environmental regulations have shut down chemical plants – some permanently

Chemical markets have tightened. Only larger, well funded players can compete. China will export inflation vs deflation

www.icis.com 9

China imports show strong growth in 2017 even as the country adds new capacities

- 1 2 3 4 5 6 7

LDPE

LLDPE

HDPE

PP

ABS

PS

M tonnes

2017 2016 2015

5

2017 Vs2016

LDPE 16%

LLDPE 16%

HDPE 21%

PP 4%

ABS 6%

PC 5%

www.icis.com 10

Polymer markets

www.icis.com 11

A number of factors drive polymer prices

Costs

• Feedstock costs

• Freight rates

• Currency fluctuations

Demand

• Health of the economy

• Health of downstream sectors –packaging, auto and construction

• Seasonal factors and holidays

• Trade policies

• Product substitution

• SENTIMENT

Supply • Operating rates

• Shutdowns and outages

• New plant start-ups

www.icis.com 12www.icis.com 12

LLDPE - spread between India and China has widened

India has moved from net deficit to surplus

Commissioning of new capacities has pushed Indian prices below China

Spread has widened to ~US$70 this year

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LLDPE Film CFR China USD/tonne LLDPE Film CFR India USD/tonne

Average 2015USD 1180/cfr China USD 1230 cfr India

Average 2016USD 1110/cfr China USD 1150 cfr India

Average 2017USD 1130/cfr China USD 1150 cfr India

www.icis.com 13www.icis.com 13

Similar trend for HDPE but delta between India and China has narrowed

China-India spread widened to over US$80 end of last year but has since fallen

Tight supply especially for pipe, blow mouldingand film grades

Pipe grade prices have increased by 30% in last year largely supported by China’s shift from coal to gas policy shift

Prices currently at a 8-year high

Average 2016

USD 1070/cfr China

USD 1140 cfr India

Average 2017

USD 1120/cfr China

USD 1130 cfr India

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HDPE Blow CFR China USD/tonne HDPE Blow CFR India USD/tonne

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USD 1160/cfr China

USD 1230 cfr India

www.icis.com 14www.icis.com 14

PP capacity growth in China; India’s surpluses gradually getting absorbed

PDH/CTO/MTO led capacity growth in China over the last few years

India surplus gradually easing as the country turns to a net importer

With propylene prices also moving up, PP faces upward pressure

Average 2016

USD 950/cfr China

USD 995 cfr India

Average 2017

USD 1055 cfr China

USD 1125 cfr India

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USD 1070/cfr China

USD 1130 cfr India

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PP Injection CFR China USD/tonne PP Injection CFR India USD/tonne

www.icis.com 15

India PE growth outlook robust but surplus likely to take few years to digest

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2019

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Polyethylene (‘000 tonnes)

Addition to Demand Addition to Capacity

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Polypropylene (‘000 tonnes)

Addition to Demand Addition to Capacity

PE capacity additions at GAIL, BCPL, OPaL

and Reliance

PP capacity additions at MRPL, OPaL, BCPL

during 2016-2017

Due 2018-19: Indian Oil’s 700kta plant at

Paradeep

www.icis.com 16

Polycarbonate at historic highs

Healthy global demand

Multiple production issues (hurricane Harvey etc) tightened global supply

Strong push from feedstock costs – bisphenol A prices also rose by 40% last year; but spread between PC and BPA widened to well above the typical US$900 level

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Polycarbonate (USD/tonne)

GP Moulding CIF China GP Extrusion CIF Taiwan/China

www.icis.com 17

ABS has broadly followed styrene

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Styrene Monomer and ABS price trend

Styrene Monomer CFR China USD/tonne ABS CFR India USD/tonne

Source: ICIS

Robust ABS demand (China imports up 6% to 1.789m tonnes)

Environmental controls in China/restriction on imports of waste plastics - impact on local industry

China imposes ADD on South Korea, Taiwan and the US

543%

627%

524%

Styrene 2016 average: US$1055 Styrene 2017 average: US$1243

ABS 2016 average: US$1336 ABS 2017average: US$1800

540% 615%

517%

www.icis.com 18

ABS-styrene spreads widen

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD

ABS - Styrene spreads (US$/tonne)ABS-Styrene spread has moved up

sharply in 2017

Butadiene prices have been running below the high of US$2800 seen in early 2017; but volatile

Supply constraints have pushed acrylonitrile higher

www.icis.com 19

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Nylon price trend (USD/tonne)

Nylon 6 Inj Mould Unfilled (industrial Grade) FD NWE Nylon 6,6 Virgin Polymer FD NWE

Supply issues in Europe and US spell trouble for nylon buyers

Global markets experiencing shortages amid plant shutdowns and force majeures across the value chain

Demand has been good; tightness expected to persist in 2018

But threat of lower priced competitng materials for certain applications

www.icis.com 20

US capacity wave

www.icis.com 21

New US crackers complete, under construction, FID made

CompanyC2 capacity

(kt/year)Downstream (kt/year) Location Start-Up

OxyChem/Mexichem 544 Feed existing VCM plant of 1,050 Ingleside, Texas Q1 2017 (done)

Dow Chemical 1,500ELITE PE (400); LDPE (350) – Plaquemine, Louisiana; EPDM (200); elastomers (320)

Freeport, TexasQ3 2017, LDPE Q4 2017, EPDM

early 2018, elastomers late 2018

ExxonMobil Chemical 1,500mLLDPE plus LLDPE (650 x2) at Mont Belvieu

Baytown, Texas Q2 2018

Chevron Phillips Chemical 1,500Bimodal HDPE (500), mLLDPE (500) both at Old Ocean

Cedar Bayou, Texas Q1 2018

Formosa Plastics 1,200 HDPE (400), LDPE (400), EG (800) Point Comfort, Texas Q4 2018

Sasol 1,500LDPE (450), LLDPE (450), EO/EG (300), ethoxylates, detergent alcohols (300)

Lake Charles, LouisianaH2 2018, LDPE early 2019,

alcohols H2 2019

Shintech 500 VCM (300), PVC (300), caustic soda (200) Plaquemine, Louisiana 2018

Westlake/Lotte 1,000MEG (700) by Lotte, feed into existing PVC for Westlake

St Charles, Louisiana 2019

Shell 1,500 HDPE/LLDPE (550 x2), HDPE (500) Monaca, Pennsylvania Early 2020s

9 new crackers = 10.7m tonnes/yearThrough 2019 = 9.2m tonnes/year

www.icis.com 22

North America PE expansions

Company Capacity (kt/year) Grade, breakdown Location Start-Up

Dow Chemical 400 ELITE PE Freeport, Texas Q3 2017

Dow Chemical 350 LDPE Plaquemine, Lousiana Q4 2017

Chevron Phillips Chemical 1,000 Bimodal HDPE (500), mLLDPE (500) Old Ocean, Texas Q3 2017

ExxonMobil Chemical 1,300 mLLDPE plus LLDPE (2 x 650) Mont Belvieu, Texas End 2017

INEOS/Sasol 470 HDPE La Porte, Texas Q4 2017

Formosa Plastics 800 HDPE (400), LDPE (400) Point Comfort, Texas H2 2018

Dow Chemical 125 Bimodal HDPE/MDPESeadrift, Texas; St Charles,

Louisiana 2018

Sasol 890 LLDPE (470), LDPE (420) Lake Charles, Louisiana H2 2018 (LLDPE), 2019 (LDPE)

LyondellBasell 500 HDPE La Porte, Texas Mid-2019

ExxonMobil Chemical* 650 PE (unspecified) Beaumont, Texas 2019

Total/Borealis/NOVA* 625 Borstar PE Bayport, Texas End 2020

Shell 1,600 HDPE/LLDPE (2x 550), HDPE (500) Monaca, Pennsylvania Early 2020s

PTT Global Chemicals* 700 HDPE (2x 350) Belmont County, Ohio 2021 (FID Q4 2017)

NOVA Chemicals* 430 LLDPE Sarnia, Canada Late 2021

SABIC/ExxonMobil* NA PE unspec (2 units) Corpus Christi, Texas NA

Dow Chemical* 600 PE (unspec) US Gulf Coast 2020s

Dow Chemical* 350 PE (unspec) Various debottlenecks 2020s

Through 2019 = 6.5m tonnes/year (+42% US capacity)Through 2022 = 12.1m tonnes/year** (+77% US capacity)

*No FID yet** Assuming 1,300kt PE for SABIC/ExxonMobil,start-up by 2022

www.icis.com 23

+940+450

*Volumes in ‘000 tonnes

Asia PE market competition set to intensify

Source: ICIS Supply and Demand Database

+1350

To NE Asia

+800

+700

North America

South & Central America

Africa

Europe

Former USSR

NE Asia(China)

South & Southeast Asia

To South & SE Asia

+600From N America

+500

Middle East

+400

+350

Global Polyethylene Trade Flow Key Development (2016 vs 2020)

Note: potential to challenge positions of SEA Producers

US PE coming to Asia

www.icis.com 24

2nd wave of US cracker projects

CompanyCapacity (kt/year)

Downstream (kt/year)

Location Start-up Status

Total/Borealis/NOVA

1,000Borstar PE (625) + existing PE (400)

Port Arthur, Texas End 2020 FID pending

Shell 1,500HDPE/LLDPE (2x 550), HDPE (500)

Monaca, Pennsylvania

Early 2020sUnder

construction

SABIC/ExxonMobil

1,800 PE (2 units), MEGCorpus Christi,

Texas--- FID 2018

PTT GlobalChemicals

1,000HDPE (700), MEG

(500), EO (100)Belmont County,

Ohio2021 FID Q1 2018

Formosa Plastics

1,200LDPE (400), HDPE

(400), EG (800)Louisiana ---

Evaluating, permitting

www.icis.com 25

China

Trade issues

Plant Inspections & closures

Ban on plastic waste

imports

Strong demand

New capacities

Rise in imports

India

Start up of new plants

Demand recovery

Investment activity up

Rising crude oil

prices

US

New capacities

Strong economy

Trade war?2nd

investment wave

www.icis.com 26

THANK YOU

Malini Hariharan

Head of South Asia Markets

ICIS

Mobile: +91 98206 29926

Email: Malini.Hariharan@icis.com