Polypropylene Industry Briefing - HMC Polymers · 2000 2005 2010 2015 2020 ... cracker and refinery developments is forecast to remain ... larger than Vietnam (the smallest market

Polypropylene Industry Briefing

HMC’s Customer Seminar 2016

Chommanad Thammanayakatip

May 2016

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May 2016HMC's Customer Seminar

AgendaPetrochemicals recent performanceInvestment LandscapeSouth East Developments

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Chommanad ThammanayakatipManaging Consultant


0

25

50

75

100

125

150

Jan-2008 Jan-2010 Jan-2012 Jan-2014 Jan-2016

US$ p

er ba

rrel

What a difference a year makesBrent Crude Oil Price Decline, mth average

Source: Nexant

5HMC's Customer Seminar

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What does low oil mean for the petrochemicals sector?

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40

60

80

100

120

140Brent Crude Oil Prices – US$/bbl Issues for Global Chemicals:

Investment slowdown in Middle East and in other geographies. Partly associated with Middle East sponsors.

Shifts in industry competitiveness. Naphtha cracking has become more competitive.

Feedstock alternatives have become less attractive e.g. coal, bio etc.

Pricing correction across the value chain due to falling cost base. However margins have improved for some products

Demand upside for some geographies –increased disposable income?


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Shale gas advantage has been eroded as naphtha cracking competitiveness improves with lower oil prices

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20

40

60

80

100

120

140

-15

0

15

30

45

2007 2008 2009 2010 2011 2012 2013 2014 2015

Bre

nt o

il pr

ice

($/b

bl)

Index

(198

4 Q1=

100)

ROCE - Naphtha ROCE - US Shale Brent oil price

Petrochemicals Return on Capital Employed Index

Sharp decline in crude oil

Economic crisis

Shale gas advantage

Chemicals up-cycle


Demand growth for polyolefins has varied over time yet the trend remains link to economic growthGlobal Polyolefins Demand Growth and Economic Growth

8

-5

0

5

10

15

2000 2005 2010 2015 2020

perce

nt

Average Global GDP LDPE LLDPE HDPE Polypropylene

Polymer consumption growth is driven by economic growth, or in more developed countries, by industrial production indices and consumer trends

Estimated global PP demand CAGRs for 2000-2015 / 2015-2020are 4.6% and 4.4% percent respectively

Estimated global GDP growth for 2000-2015 / 2015-2020 is 2.9% / 3.2%

Short-term global GDP forecasts (through 2020) have recently been reduced by almost 0.5% due to on-going low oil prices, uncertainty about China, and other economic factors


China is by far the largest polyolefins market and the gap is continuing to widenPolyolefins per Capita Consumption, 2000-2020

20002010

20202010

2000

2020

2000

2010

2020

2000

2010

2020

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20

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0 10 20 30 40 50 60 70

Marke

t Size

(milli

on to

ns)

Consumption per Capita (kg)United States Western Europe China Asia (ex China)Consumption per capita

9May 2016

Note: Bubble size reflects size of population

Polymer demand is driven by industrial production and consumer trends, varying by country maturity

HMC's Customer Seminar 9

Investment Landscape

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A number of new petrochemical projects are expected to be delayed due to the impact of low oil prices Regional Petrochemical Feedstock Sources and Trends

11

Increase focus on coal to chemicals and PDH (via propane imports).

Investment in new refinery capacity with a focus on refinery/petchem integration.

Variable competitive position depending on feedstock. Access to markets is key.

China Coal Reserves Increased oil & gas production, resulting in lower energy prices.

Increased production of co-produced ethane and other NGLs.

Improved competitive position, resulting in reinvestment in commodity products.

US Shale Reserves

Further utilisation of ethane and other available NGLs.

Investment in new refinery with a focus on refinery/petchem integration.

Declining competitive position off-set by mixed feeds, integration/scale and higher value products.

Middle East Oil and Gas Reserves


New propylene supply trending towards on-purpose technologySteam Cracker Products: Naphtha vs. Ethane

May 2016 12

Global Propylene Capacity Profile

CTO/MTO and PDH processes are increasingly becoming important sources of incremental global propylene supply. This trend has been due to higher growth in propylene demand than refinery and cracker investments, and also prompted by trends towards using a lighter feedstock slate for global ethylene production.

Globally, incremental propylene capacity from cracker and refinery developments is forecast to remain insufficient to balance propylene demand growth

Firm CTO projects are limited to China and supported by the local availability of low-cost mine-mouth coal PDH investments are taking place in North America, Middle East and Asia. Propane exports from the US and the

Middle East are also supporting PDH projects in Asia.

0%

50%

100%

2005 2010 2015

Perce

nt of

total

capa

city

Steam Cracker Refinery PDH CTO/MTO Others

0

1

2

3

4

Naphtha Feedstock Ethane Feedstock

Ton p

er to

n ethy

lene

Ethylene Propylene Others


New refinery investments heavily concentrated in China and India

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Bubble size – scale of total capacity additionsBubble size – scale of total capacity additions

Global Refinery Capacity Changes 2014-2017


More than 20 CTO/MTO projects are under various stages of development in ChinaCTO/CTP Operating Plants in China

First phase CTO project concentrated in the western regions exploiting lower cost coal reserves. East coast developments are focused on methanol

imports for new MTO projects. Higher cost projects may not succeed.

Xinjiang

Qinghai

Tibet

Gansu

Sichuan

Yunnan

Hainan

Guangxi

FujianHunan

Hubei

Henan

Jiangxi

Guangdong

Ningxia

Inner Mongolia

Heilongjiang

Jilin

Liaoyang

Hebei Tianjin

Zhejiang

Anhui

Jiangsu

ShandongShanxi

Shaanxi

Beijing

Guizhou

CTO MTO

CTO/CTP Capacity

0

10

2012 2013 2014 2015 2016

Millio

n ton

s

Ethylene Propylene

14

15

PP additions highly concentrated in China, strong emphasis around new refinery and on-purpose propylene Regional Polypropylene Incremental Capacity Additions (million tons)

NA SAEU

ME/AF

China

Other

Incremental Changes 15-20

Over the next five years, polypropylene capacity will increase by almost 20 million tons


Global polypropylene demand was estimated at 60 million tons in 2015, following growth of 4.4% from 2014

Regional Polypropylene Demand, 2015-e(Global demand 60 million tons)

Source: Nexant Analysis May 2016

Film applications are expected to have the highest growth rate, but almost all applications are forecast to have good growth

North America

12% South America

5%

Western Europe

12%

CEE5%

Middle East7%

Africa3%

China33%

Asia (ex China)23%

Global Polypropylene Demand by End Use, 2015-e(Global demand 60 million tons)

Film19%

Fibre29%

Injection Moulding

39%

Other Extrusion

8%

Others5%


Polypropylene volume growth set to remain highly dependent on China

May 2016 17

Incremental PP Consumption Growth, million tons

0.0

2.5

5.0

Millio

n ton

s per

year

China ROW

Global Polypropylene Demand and capacity, million tons


0

25

50

75

100

Millio

n ton

s per

year

Demand Capacity

The Middle East will continue to be the dominant export region, while China will remain the largest importer

Global Polypropylene Net TradeMillion tons

With its low-cost production base, the Middle East is the dominant net export region, and this is not expected to change

North America, Western Europe, and Asia (ex China) are also net exporters- Despite its low-cost

propane position and large additions of PDH capacity, very little polypropylene capacity has been announced in North America

Despite large capacity additions, China continues to be the largest net importer, although this position will decline slightly

-6

0

6

Millio

n ton

s

2010 2015 2020

May 2016 18

South (East) Asia Developments

20<Insert job number using 'Insert - Header & Footer'> <Insert date using ‘Insert – Header & Footer’>

Economically, South East Asian is a major market with half a billion people registering U$2.4 trillion GDP in 2014

Population of six major countries, 2014(Total Population 560 million people)

Source: Nexant Analysis May 2016

Indonesia46%

Malaysia5%

Philippines18%

Singapore1%

Thailand13%

Vietnam17%

GDP of six major countries, 2014(Total GDP 2.4 trillion dollars)

Indonesia27%

Malaysia16%

Philippines7%

Singapore1%

Thailand29%

Vietnam20%


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Although in relative term, not as big as China – the GDP is 5 times smaller, half slower growth and half GDP per capita consumption

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11 8 5 4 4 3 20

10

20

30

40

50

60

Singapore

Korea &Taiwan

Malaysia

China

Thailand

SEA 6combined

Indonesia

Philippines

Vietnam

GDP per Capita (estimated US$ thousand, 2014)

The region’s fragmented market is illustrated by the highly varied GDP per capita Singapore is 5 times per capita larger than Malaysia (second largest per capita market) and

Malaysia is 5 times larger than Vietnam (the smallest market in the analysis).


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For the past decade, SEA PP markets have grown about as fast as GDPSEA Polypropylene Demand and Economic Growth

-4%

0%

4%

8%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

on

year

cha

nge

Actual GDP Actual polymer

Polypropylene growth ~ 1.1 – 1.2 times GDP growth on average


High growth opportunities still exist in specific marketsAsia Polypropylene Demand Growth

May 2016 24

Consumption growth in polymers is associated with the substitution of traditional materials, infrastructure development and population demographics (income, urbanisation etc.)

China

Korea

Indonesia

Malaysia

Thailand

India Vietnam

0%

4%

8%

0 20 40

Dema

nd C

AGR

in 20

15-2

025 (

%)

Consumption per Capita in 2015 (kg)

High growth potential

Indonesia32%

Malaysia10%

Philippines7%Singapore

1%

Thailand29%

Vietnam21%

Polypropylene consumption by major countries(total demand 4.4 million tons)


Major Projects are progressing in India, however elsewhere project delays are occurring

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Jamnagar, Gujarat Reliance Industries C2/C3: 1400/200 kta, no new PP only expansion Status: Under Construction, Start-up 2016

Reliance Refinery & Cracker

Dahej, Gujarat ONGC, Gail, GSPC C2/C3: 1100/400 kta, PP 340 kta Status: Under Construction, Start-up 2016

ONGC Petro Additions Limited (OPaL)

Balongan Pertamina/ Partners C3: 500-2000 kta, derivatives not announced yet Status: Under Evaluation

Indonesia integrated Refinery/petchem Projects

Pengerang, Malaysia Petronas/Partners C2/C3: 1300/1300 kta, PP 900 kta (Spheripol) Status: Planning: Start-up >2021

PETRONAS RAPID Refinery & Cracker


IRPC, Thailand 140 + 160 kta (late 2017)

South Korea• Hyosung 200 kta, 2017• S-Oil 400 kta, 2018

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Overview of major refinery/petrochemical investments in Vietnam

Located at Thanh Hoa Province PetroVietnam/Idemitsu/Mitsui/Kuwait Petroleum C3/PP: 370/370 kta Status: Start-up 2017/Q4

Nghi Son Refining & Petrochemical

Located at Dung Quat economic zone PetroVietnam C3/PP: 150/150 kta Status: Operational since 2010

Binh Son Refining & Petrochemical

Located at Ba Ria - Vung Tau PetroVietnam/SCG – (QP exit 2015) C2/C3: 1000/500 kta Status: Start-up 2020-21

Long Son Petrochemical

Located at Phu Yen Province PetroVietnam/Technostar/Telloil C3/PP: 900/900 kta Status: Not Firm

Vung Ro Refining & Petrochemical


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Despite regional expansions many markets are expected to rely on imports

0.0

0.5

1.0

1.5

2.0

2.5

Indonesia Vietnam Other Asia Philippines Oceania

Demand in 2025 Capacity in 2020

1.2 mta

0.6 mta

1.3 mta

0

10

20

30

40

China India

Demand in 2025 Capacity in 2020

2.7 mta

1 mta

Polypropylene Potential Market Deficits (million tons)


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Olefin pricing dynamics show a reversal of previous trends

152319

29

0

25

50

10-15 15-20Demand Capacity

2030

17

41

0

25

50

10-15 15-20Demand Capacity

Ethylene

Propylene

Incremental Supply & Demand Changes, million tons Ethylene and Propylene Pricing Ratio Dynamics

Initial price premiums on propylene reversed due to market oversupply

Increase in merchant propylene sales reflected in quoted pricing – more liquidity versus ethylene market

Future pricing corrections expected longer-term due a combination of C3 cost structure, value chain integration and polymer substitution.

0.4

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1.4

1.6

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Parity SEA Propylene/Ethylene

First PDH(NPC Thailand)

First Asian Metathesis(Mitsui Chems)

First MTP(Shenhua Ningxia)


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Olefin price trends are reflected in downstream polymer marketsHDPE & PP Pricing Trends (US$/ton, CFR SEA) HDPE & PP Price Spreads (US$/ton, CFR SEA)


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1

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1.2

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800

1000

1200

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1800

2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 2015Q4

US$ p

er to

n

HDPE PP HDPE/PP

Ratio HDPE/PP

-300

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-100

0

100

200

300

2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 2015Q4US

$ per

ton

HDPE - PP spread

Summary of Polypropylene Market Developments

May 2016

Demand Outlook:Demand fundamentals are expected to remain strong in the outlook Global polypropylene demand was estimated at 60 million tons in 2015, an increase of 4.4% compared with 2014 Global growth driver is Asia – China is forecast to account for 65% of Asia’s incremental demand over the next five

years On-going low oil prices, uncertainty about China, and other economic factors have reduced short-term global

GDP forecasts and polymer demand growth forecasts

Supply Developments and Net Trade:New capacity additions slowed in recent years, but will reach unprecedented levels in the next few years Total polypropylene production increased from 44 million tons to 73 million tons per year from 2005 to 2015 Developments in the Middle East and Asia will contribute to capacity expansions up to 2020 Global capacity additions planned for 2016 and 2017 will exceed the amount of demand growth Low oil prices have caused some longer term projects to be delayed or cancelled


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Polypropylene Industry Briefing - HMC Polymers · 2000 2005 2010 2015 2020 ... cracker and refinery developments is forecast to remain ... larger than Vietnam (the smallest market