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August 30, 2016By James Ray
PE, PP & PS Market Update
www.icis.com 2
Over 9,200 price assessments in 1,200reports covering 180 commodities
More than 30 years of industry insight and data
Over 100,000 industry customers
Customers include virtually every major chemical company
Weekly contact with thousands of market participants
17,000+ annual news stories
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ICIS - Global Presence, Local Insight
www.icis.com 3www.icis.com 3
2015 Recap
Feedstocks
Polymer Markets
Supply & Demand
Price trends
Agenda
Copyright 2016 ICIS
www.icis.com 4
2015 Recap
www.icis.com 5
Shale oil production history
Source: EIA
www.icis.com 6
Production - 2010 vs. 2014
1.6 million bpd from most large producers, except...
With US added – difference is now 5.85 million bpd
Not 1.7% increase, but 6.3%!
This is what led to the low prices in 2015.
Source: EIA, ICIS Consulting
www.icis.com 7
• Gas cracking is solely focussed on the production of ethylene
• Heavier feedstocks produce significantly more co-products
Naphtha to Ethane:•95% reduction in propylene•96% reduction in butadiene•98% reduction in raffinate-1•98% reduction in pygas
Cracker yield patterns vary greatly across feedstock slates
Typical Yield Patterns of Different Steam Cracker
Feedstocks
0.0
0.5
1.0
1.5
2.0
2.5
3.0
ETHANE LPG NAPHTHA
Cum
ulai
ve y
ield
of p
rodu
cts,
tonn
e Ethylene Propylene Butadiene
Raffinate-1 Pygas Fuel oil
Source: ICIS Consulting
www.icis.com 8
Over supply crashes crude prices
www.icis.com 9
Oil price movement impact through the value chain
The Question at this point, is “Why doesn’t oil have more impact than this?”
The reason, is that the further down the value chain you travel, the more overhead, transportation, labor and profit there is.
Oil Content Theory
Operation Level Raw material Operating Cost Oil ContentRefinery 50% 50% 50%
2 50% 50% 25%
3 50% 50% 13%
4 50% 50% 6%
5 50% 50% 3%
6 50% 50% 2%
7 50% 50% 1%
8 50% 50% 0%
9 50% 50% 0%
Source: ICIS Advanced Purchasing Course
www.icis.com 10
Oil Content Estimated
Operation Level Raw material Operating Cost Oil ContentRefinery 80% 20% 80%
2 70% 30% 56%
3 60% 40% 34%
4 50% 50% 17%
5 50% 50% 8%
6 50% 50% 4%
7 50% 50% 2%
8 50% 50% 1%
9 50% 50% 1%
Oil price movement impact through the value chain
The global value chain for PP is: Refining -> Naphtha -> Propylene -> PP
Making it 4 levels down from crude oil.
Source: ICIS Advanced Purchasing Course
www.icis.com 11
PP Market – ICIS PP Sentiment Index Survey
US PP Market Price 2015 US PP Market Price 2016
The range of PP prices being paid is much wider today
www.icis.com 12
Polypropylene vs PGP
Producer margins peaked in Q3
before low cost Imports temporarily brought prices down.
www.icis.com 13
Update
www.icis.com 14
Tight Market Question
QUESTION:
Prices are increasing because the ethylene market is tight; how long is this condition expected to last?
ANSWER:
The US ethylene market is NOT tight.
In fact, the US is the second largest exporter in the world.
And the export prices are far below domestic prices to relieve the domestic over supply.
Source: ICIS Purchasing Advisory
www.icis.com 15
Tight Market Question
Knowing your product trade flow is essential for international trading.
To do so otherwise, can cost much more on a single shipment than the market intelligence costs!
Source: ICIS Purchasing Advisory
www.icis.com 16
Ethylene exports are up
Source: ICIS Dashboard - Copyright 2016 ICIS
Ethylene exports are up and will continue to rise
www.icis.com 17
HDPE vs ethylene
PE producer margins have remained high
www.icis.com 18
Propylene exports
Source: ICIS Dashboard - Copyright 2016 ICIS
Propylene Exports will increase as new supply comes on line
www.icis.com 19
PP vs propylene
Producer margins have remained stable
www.icis.com 20
Unexplained market price increases
QUESTION:
Why is one of my raw materials going up while oil is still low?
ANSWER:
The candid truth is that it is because most US buyers of this product lack market intelligence and strategic alternatives, so sellers can charge more without losing business volume.
I would encourage you to read the World Class Purchasing Vision in the 8/15/2016 edition of the ICIS Chemical Business Magazine.
Source: ICIS Purchasing Advisory
www.icis.com 21
Import Models optimize savings
LogisticsCost
$0.13
10% 30%
20%
Import % of Monthly Purchase Volume
LogisticsCost
$0.13
LogisticsCost
$0.13
LogisticsCost
$0.13
LogisticsCost
$0.13
LogisticsCost
$0.13
LogisticsCost
$0.13
LogisticsCost
$0.13
LogisticsCost
$0.13 LogisticsCost
$0.13Logistics
Cost$0.13
LogisticsCost
$0.13
Source: ICIS Advanced Purchasing Course
www.icis.com 22
Import Models optimize savings
Gap will close over time
Source: ICIS Advanced Purchasing Course
LogisticsCost
$0.13
www.icis.com 23
Import Models optimize savings
Closing Gap with higher oil prices
Source: ICIS Advanced Purchasing Course
LogisticsCost
$0.13
www.icis.com 24
Polystyrene vs styrene
PS Producer margins have increased since January 2014
www.icis.com 25
Polymer spreads over monomer
PP Producer margins struggle to keep up with the others
www.icis.com 26
Forecast
www.icis.com 27
Supply & Demand drives crude prices
www.icis.com 28
WTI Price History vs Forecast
Investor Sentiment/OPEC may drive a spike in oil prices
www.icis.com 29
Strategic Sourcing to insure a reliable supply at the lowest cost
TIGHTLONG
BALANCED
MARKET
3 - 10 year cycle
TIGHTLONG
PE Market
PP Market
Market Cycle Right now, PP is tight and growing tighter with no new capacity until probably 2020
Most markets go through a cycle of:
1. tight,2. balanced and 3. long supply
over years which affects your purchasing strategy
BALANCED
Source: ICIS Advanced Purchasing Course
PE on the other hand is slightly long and growing longer
www.icis.com 30
Strategic Sourcing to insure the lowest cost
SellersMarket
BuyersMarket
www.icis.com 31
Polyethylene supply is long
Source: ICIS Dashboard -Copyright 2016 ICIS
PE Supply is long and will remain so for several years despite growing export
www.icis.com 32
US Polyethylene is long and should see lower prices ahead.
Source: ICIS Dashboard - Copyright 2016 ICIS
PE Price History vs Forecast
www.icis.com 33
Polypropylene supply
Source: ICIS Dashboard - Copyright 2016 ICIS
PP supply is tight and utilization is headed even higher
www.icis.com 34
PP Price History vs Forecast
PP prices are expected to be stable until late 2017
www.icis.com 35
Strategic PP Sourcing to insure the lowest cost
www.icis.com 36
PS Price History vs Forecast
PS prices are expected to be lower until late 2017
www.icis.com 37
ICIS Consulting – Market Prices
Marginal producers set pricing in tight markets
More efficient or Integrated Producers
Regional Capacity
Marginal producer driven pricing
Reg
ion
al D
eman
d
37
Advantaged Producers
Advantaged producers benefit from higher margins
and have no problem selling their lower cost product
www.icis.com 38
Summary1. Higher PP Prices/Margins were realized last year as predicted.
2. Short term, prices will be stable, but changing Supply & Demand pictures will affect Purchasing Strategies.
3. PP prices will be lower short term before seeing 30+ cent adders.
4. PE Prices will be lower long term.
5. PS Prices will remain high and go even higher as 3 US producers now control over 80% of the capacity.
6. Oil Prices are generally predicted to increase slowly, but when Supply & Demand rebalances and inventory is reduced, expect investors to drive prices higher. Followed by an OPEC announcement to cut production and $100/bbl is possible.
7. Beyond that, the marginal oil producers will set the floor market price.
8. Crude oil will drive most prices higher in late 2017 and 2018.
Copyright 2016 ICIS
James Ray
Senior Consultant
ICIS Consulting, Americas
Direct: +1 713-525-2633
Cell: 1 903 245 [email protected]
http://www.linkedin.com/company/30337?trk=tyah&trkInfo=tas%3AICIS%20%2Cidx%3A3-1-5
www.linkedin.com/pub/james-ray/5/356/20b
Thank you
www.icis.com 40www.icis.com 40
APPENDIX
www.icis.com 41
Market Price Dynamics
www.icis.com 42
Ethylene Economic Model Ethylene yield model from
Linde Engineering and pricing data from ICIS pricing
Simple cost and margin measures are highly representative of typical manufacturing facilities
Models Europe, US, NEA and SEA crackers
Models naphtha and LPG feedstocks (Europe and Asia) and ethane and light naphtha feedstocks (US)
Methodology/guide:
www.icis.com/marginsFor a full methodology, click here
www.icis.com 43
Ethylene, C2=
Source: ICIS Advanced Purchasing Course
www.icis.com 44
PP Regional Trade Flow
When considering importing or exporting, go with the flow
Trade flows exist in certain directions for economic regions
Source: ICIS Global Supply & Demand Database
www.icis.com 45
ICIS Consulting – Market Prices
Marginal producers set pricing in tight markets
More efficient or Integrated Producers
Regional Capacity
Marginal producer driven pricing
Reg
ion
al D
eman
d
45
Advantaged Producers
Advantaged producers benefit from higher margins
and have no problem selling their lower cost productSource: ICIS Advanced Purchasing Course
www.icis.com 46
PRICE COST MARGIN= +
Prices Consist of Cost and Margin
Margin will typically represent 15 to 60% of your market price
A function of feedstocks, variable and fixed costs
A function of Competition, i.e. supply & demand.
46Source: ICIS Advanced Purchasing Course
www.icis.com 47
Costs Correlates to Crude, but Margin does not
Margins correlate more to supply & demand
0
200
400
600
800
1000
1200
1400
1600
0 10 20 30 40 50 60 70 80
US
Do
llars
/ t
on
Crude Oil US$ per Bbl
Ethylene Variable Cost vs. Crude Oil
(Historical US$/Ton)
0
200
400
600
800
1000
1200
1400
1600
0 10 20 30 40 50 60 70 80
US
Do
llars
/ t
on
Crude Oil US$ per Bbl
Ethylene Variable Margins vs. Crude Oil
(Historical US$/Ton)
47Source: ICIS Advanced Purchasing Course
www.icis.com 48
Aromatic Derivatives
48Source: ICIS Advanced Purchasing Course
www.icis.com 49
Ethylene supply
Source: ICIS Dashboard - Copyright 2016 ICIS
Ethylene supply is up and utilization is headed downward
www.icis.com 50
Using High and Low Risk
50Source: ICIS Advanced Purchasing Course
www.icis.com 51
Ethylene margins via ethane cracking
Ethane cracking margins are very attractive investments because of
low cost ethane feedstocks
Source: ICIS Pricing
www.icis.com 52
Ethylene margins via naphtha cracking
Naphtha based ethylene is much less attractive and is the marginal
producer that sets the market price
Source: ICIS Pricing
www.icis.com 53
LDPE margins on February 27, 2015
1. Sell LDPE at: 80.00 cpp2. Purchase Ethylene at: -35.25 cpp3. Operating cost is:-9.59 cpp
===========Margin is:35.16 cpp
Source: ICIS Advanced Purchasing Course
www.icis.com 54
LDPE Margins on February 12, 2016
1. Sell LDPE at: 73.00 cpp2. Purchase Ethylene at: -24.75 cpp3. Operating cost is:
-10.02 cpp===========
Margin is:38.23 cpp
Source: ICIS Advanced Purchasing Course
www.icis.com 55
Oil price movement impact through the value chain
Using some analysis tools from the ICIS Advanced Purchasing Class, we compare the actual EO price against a theoretical one, which suggests there are savings opportunities that have been missed.
Good market intelligence like this helps buyers and sellers realize the full potential that they can capitalize on.
Source: ICIS Advanced Purchasing Course
www.icis.com 56
Sample Value Chain (detailed)
www.icis.com 57Source: ICIS Advanced Purchasing Course
Polyester Chain
catalytic reforming of naphtha
www.icis.com 58
Polyester Chain
Source: ICIS Advanced Purchasing Course
www.icis.com 59
Polyester Chain
Source: ExxonMobil Chemical
www.icis.com 60
Polyester Chain
Source: ICIS Consulting
2.62.42.22.01.81.61.41.21.0
3.0
2.5
2.0
1.5
1.0
Crude Midland WTI FIP Midland,
Na
ph
tha
Pa
raff
inic
DEL U
SG
Asse
S 0.155004
R-Sq 86.5%
R-Sq(adj) 86.0%
Regression
95% PI
Polyester Value Chain RelationshipsNaphtha Paraffinic DEL USG Asse = 0.3391 + 0.9223 Crude Midland WTI FIP Midland,
www.icis.com 61
Xylene Chain
Source: ICIS Consulting
2.82.62.42.22.01.81.61.41.21.0
5
4
3
2
1
Naphtha Paraffinic DEL USG Asse
Xy
len
es F
OB
US
G A
sse
ssm
en
t B
arg
S 0.259449
R-Sq 85.8%
R-Sq(adj) 85.3%
Regression
95% PI
Polyester Value Chain RelationshipsXylenes FOB USG Assessment Barg = 0.1913 + 1.512 Naphtha Paraffinic DEL USG Asse
www.icis.com 62
54321
7
6
5
4
3
2
1
Xylenes FOB USG Assessment Barg
Pa
raxy
len
e D
EL U
S C
on
tra
ct
Pri
c
S 0.352718
R-Sq 89.4%
R-Sq(adj) 89.3%
Regression
95% PI
Polyester Value Chain RelationshipsParaxylene DEL US Contract Pric = 0.5783 + 1.222 Xylenes FOB USG Assessment Barg
Xylene Chain
Source: ICIS Consulting
www.icis.com 63
Xylene Chain
Source: ICIS Consulting
4.54.03.53.02.52.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
Xylenes FOB USG Assessment Barg
PTA
DEL U
S C
on
tra
ct
Pri
ce
Asse
s
S 0.128722
R-Sq 96.4%
R-Sq(adj) 96.3%
Regression
95% PI
Polyester Value Chain RelationshipsPTA DEL US Contract Price Asses = 1.522 + 0.9673 Xylenes FOB USG Assessment Barg
www.icis.com 64
Xylene Chain
Source: ICIS Consulting
6.56.05.55.04.54.03.53.0
6.0
5.5
5.0
4.5
4.0
3.5
Paraxylene DEL US Contract Pric
PTA
DEL U
S C
on
tra
ct
Pri
ce
Asse
s
S 0.0046717
R-Sq 100.0%
R-Sq(adj) 100.0%
Regression
95% PI
Polyester Value Chain RelationshipsPTA DEL US Contract Price Asses = 1.152 + 0.7850 Paraxylene DEL US Contract Pric
Thank youJames Ray
Senior Consultant
ICIS Consulting, Americas
Direct: +1 713-525-2633
Cell: 1 903 245 [email protected]
http://www.linkedin.com/company/30337?trk=tyah&trkInfo=tas%3AICIS%20%2Cidx%3A3-1-5
www.linkedin.com/pub/james-ray/5/356/20b
www.icis.com 66
ICIS Advanced Purchasing Class
1. Understand cost structures and price drivers in petrochemicals
markets
2. Improve your comprehension of costs, margins and the value
chain
3. Learn how to effectively measure your performance
4. Explore contract mechanisms and how to improve supplier
relationships
5. Gain expert insights into strategy planning and risk
management
6. Develop your own cost model, to reduce exposure and
maximize margins
• http://www.icis.com/training/specialist-training-courses1/advanced-purchasing-skills-training-course/
ICIS PP Forecast Report
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The ICIS Sentiment Index is sent to hundreds of market participants. If you would like to participate and get a free report register here:
http://forms.icis.com/icis-sentiment-index
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Access to powerful tools, data and industry experts providing:
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ICIS, providing an alternative view of the global chemical and energy markets
Clients considering multi-
million dollar co-located
investment
An ICIS market study revealed
previously unseen issues for
both buyers & sellers and
offered client alternatives for
saving over $70,000,000
Will the site and
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pricing be competitive
for 20 - 30 years?
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Clients planning a new chemical
plant need take-off agreements
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Growing converter clients
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Through weekly consultations, ICIS guided clients through regional
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Developing a global strategy along with working smarter, client was
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Multi-national clients seeking JV for a
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How sustainable is the shale
advantage?
Several feasibility studies were conducted by ICIS
Consulting for olefins/derivatives and refinery
feedstock complexes with the outcome pending
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How should we manage the business to
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Calling on our wealth of global market and
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ICIS Consulting recently carried
out a review of the Asian
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benzene markets for an Indian
petrochemical producer who was
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We can provide merger and acquisitions,
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A feasibility study was conducted
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and refinery feedstock complex.
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Market entry studies and feasibility
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Contact us
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Vice President, [email protected]
Purchasing Advisory Services available for feedstock and take-off agreements as well as market studies.
