Prospects for the Basic Petrochemical Value Chains - Korea/CMAI APIC 2009... · Chinese capacity will limit growth in imports o Middle East resin will flow to ... Ethylene Glycol

Prospects for the Basic Petrochemical Value Chains

Singapore Shanghai Houston New York London Düsseldorf Dubai

Steve ZingerManaging Director, Asia

[email protected]

May 14, 2009

Seoul, South Korea

2009 APIC – CMAI Seminar

What Is This Light?

The light at the end of the tunnel?

An on-coming train?

•Short-term price

outlook

•All around Asia for

olefins & aromatics

•Long term price

outlook

•Trends for each key

olefin and aromatic

products


Prices & Margins Have Collapsed

Naphtha Ethylene Propylene PE PP Crude Oil

08 09

Dollar Per Barrel (Crude Oil)

0

25

50

75

100

125

150

175

200

225

250

275

J F M A M J J A S O N D J F M A 0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Dollar Per Metric Ton (Olefins Products)


The Drop in Aromatics Prices

Naphtha, C&F Japan

Benzene, FOB Korea

Toluene, FOB Korea

PX, CFR Taiwan Styrene, CFR China

Crude Oil, WTI

J08 F M A M J J A S O N D J09 F M A 0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

U.S Dollar Per Metric Ton (Products)

0

50

100

150

200

250

US Dollar Per Barrel (Crude Oil)


China Supportive Of Chemical

Demand & Supply

• Massive new integrated investments in 2008-2011o 6.3 MMT ethylene; +63%

o 5.3 MMT propylene; +57%

o 4.6 MMT benzene; +80%

o 4.4 MMT paraxylene; +109%

• Still not self-sufficient for most chemicals, but import needs are not growing as fast or reducing

• Economic stimulus package will support chemical investment and local consumer demand

• Coal chemistry is a viable option


India Still Will Grow, But…• Projects under construction will start

o Reliance (Early 2009) refinery

o Indian Oil (Early 2010) olefins &

aromatics

o ONGC aromatics complex (mid 2011)

• India will be large exporter until local

economy grows

• Others major projects being

considered: o Reliance

o ONGC

o IOC

o ESSAR

• Non-financed projects struggle until

economy improves

• Demographics support long-term

petrochemical demand growth


Southeast Asia Will Continue to Invest

• Projects under construction, only

slightly delayed: o Shell & Exxon in Singapore

o PTT & Siam/Dow in Thailand

• New projects either integrated or

have advantaged feedstock

• Others still being considered:

Singapore, Vietnam, Brunei,

Philippines, Indonesia, Malaysia

• Non-financed projects struggle

until economy improves


• Reducing operating rates in

short-term to meet demand

• Little expansion of olefins, some

small aromatics projects

associated with refineries in

Japan and Korea

• Integrating with upstream &

downstream facilities

• Adding feedstock flexibility

• Producing specialty products

• Consolidation and closures

likely and necessary

Japan, Korea and Taiwan

Focus On Competitiveness


Massive Investments In The Middle

East Will Compete in Asia & The World• Massive feedstock advantaged

investments in 2008-2011o 11.4 MMT ethylene; +60%

o 5.0 MMT propylene; +80%

o 0.9 MMT benzene; +30%

o 1.6 MMT paraxylene; +79%

• Refinery based aromatics complexes

starting up in Kuwait and Oman

• Feedstock advantage is greatest in gas

chemistry but liquid feeds being used to

diversify chemical base

• Exporting large volumes of derivatives

(PE, PP, MEG)

• With new capacity in China, China’s thirst

for imports no longer large enough to

consume Middle East excesses– This will impact the rest of the world!


Middle East Has

The Lowest Cost Ethylene

Cumulative Ethylene Capacity (Million Metric Tons)

Europe Avg.

Southeast

Asia Avg. Northeast Asia Avg.North America Avg.

Middle East Avg.50

450

850

1,250

1,650

2,050

0 20 40 60 80 100 120 140 160

Ethylene Production Cost, Dollars Per Metric Ton

2008

WTI Crude Oil: 2008 = $103/bbl


Benzene Curve is More Flat

Except for On-Purpose Supplies

0 10 20 30 40 50 60100

300

500

700

900

1,100

1,300

1,500

1,700

Benzene Production Cost, Dollars Per Metric Ton

Cumulative Capacity (Million Metric Tons)

Europe Avg.

Southeast

Asia Avg.

Northeast Asia Avg.

North America

Avg.

Middle East Avg.

WTI Crude Oil: 2008 = $103/bbl


The Profit Cycle Is Still Alive

Cash Margin Ethylene, CFR SE Asia Propylene, CFR SE Asia

0

200

400

600

800

1,000

1,200

1,400

1,600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Olefins Profitability, Dollars Per Metric Ton

Forecast


The Profit Cycle Is Still Alive (Mostly)

BZ to Naphtha Spread PX to Naphtha Spread Benzene,FOB Korea

Naphtha, C&F Japan PX, C&F Taiwan

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 150

200

400

600

800

1,000

1,200

1,400

1,600Aromatics Profitability, Dollars Per Metric Ton

Forecast


Olefins & Derivatives

Ethylene

Propylene

Butadiene

Polyethylene

Ethylene Glycol

PVC


Ethylene Market Summary• Demand loss in Q4 was painful to the

industry; some recovery in Asia in late

Q1 and early Q2

• Middle East and China continues to

build large capacity volumes in 2009-

2011

• Some shutdowns of high cost crackers

in NAM, WEP, and NEA will likely occur

• Gas prices (ethane) in US will likely

stay disconnected with crude oil

(naphtha), giving US exporters an

advantage

• Economic and market crisis will likely

cancel or delay projects beyond 2012

• Low utilization rates and profit margins

expected to persist until 2012/2013.

Global Demand

Growth

Demand Capacity Utilization Rate

82

84

86

88

90

92

94

96

0

30

60

90

120

150

180

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

Operating Rates, %Global Ethylene Supply/Demand, MMT

Americas Europes/CIS/Baltics Middle East/Africa Asia

-6

-4

-2

0

2

4

6

8

10

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New Ethylene Capacity & Demand, MMT


Propylene Market Summary• Demand loss due to economic

meltdown a concern, but some

improvement in Asia recently

• Middle East investing heavily in

LPG cracking and on-purpose

capacity o PDH, DCC, OCT in Saudi

Arabia

o OCT in Abu Dhabi

• Heavy crackers being added in

China, Singapore, & Thailand

• Some on-purpose propylene

being added in Asia: PDH and

metathesis

• Lower cracker operating rates

not significantly impacting

supply availability

-3

-2

-1

0

1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New Propylene Capacity & Demand, MMT

Americas Europes/CIS/Baltics Middle East/Africa AsiaGlobal Demand

Growth

72

75

78

81

84

87

90

0

20

40

60

80

100

120

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

Operating Rates, %Global Propylene Supply/Demand, MMT



Butadiene Market Summary• Record high prices in early 2008

have collapsed with the economic

downturn. Producers and

consumers started looking at on-

purpose sources.

• Most butadiene goes into the

synthetic rubber / automotive

industry.

• Suffering auto industry causing

massive demand loss and limited

upward price movement in near

term

• Plenty of new butadiene extraction

capacity additions planned for

2009-2010.

• Crude C4 availability will become

short again as demand recovers

(in 2010) faster than cracker

utilization rates rise to high rates

(2012-2013).

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

50

55

60

65

70

75

80

85

90

95

100

0

2

4

6

8

10

12

14

16

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New Butadiene Capacity & Demand, MMT


Growth

Operating Rates, %Global Butadiene Supply/Demand, MMT



Polyethylene Market Summary• Most new ethylene plants tied to

PE downstream operations; Very

similar supply/demand situation as

ethylene:

o Demand loss in Q4, some

recovery in Asia

o Too much Middle East and

Asia capacity coming on-line

from 2009-2011

o Low utilization rates and profit

margins until 2012/2013

• Large Middle East export volumes

will go to China, new domestic

Chinese capacity will limit growth

in imports

o Middle East resin will flow to

other parts of Asia, Europe,

and even the Americas

-4

-2

0

2

4

6

8

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

75

77

79

81

83

85

87

89

91

93

95

0

20

40

60

80

100

120

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast


Growth

New PE Capacity & Demand, MMT

Operating Rates, %Global PE Supply/Demand, MMT



Ethylene Glycol Market Summary• Many large MEG facilities

coming on-line in Middle East

and Asia

• Middle East producers will

dominate trade flow of MEG

globally

• Low operating rates and

margins for the next 3 to 5

years.

• Higher cost producers in the

US, Europe, and part of NE Asia

will struggle – rationalizations

likely

• The temptation to invest in

ethoxylates, ethanolamines,

and other EOD’s will be strong,

but these are small markets.

3.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

65

70

75

80

85

90

95

100

0

5

10

15

20

25

30

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New MEG Capacity & Demand, MMT


Growth

Operating Rates, %Global MEG Supply/Demand, MMT



PVC Market Summary• Recent global demand loss

unprecedented even in

previous economic

downturns

• PVC greatly impacted by

economic outlook with many

durable end-uses (housing

and construction).

• When economic stimulus

packages develop, this

should be very positive for

PVC demand recovery

• Significant Chinese coal-

based PVC capacity added in

2005-2009, causing excess

supply and changing market

structure

-3

-2

-1

0

1

2

3

4

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

0

10

20

30

40

50

60

70

75

80

85

90

95

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New PVC Capacity & Demand, MMT


Growth

Operating Rates, %Global PVC Supply/Demand, MMT



Aromatics & Derivatives

• Benzene

• Toluene

• Paraxylene

• Styrene

• Phenol


Benzene Market Summary

• Benzene Supply Storm

o New capacity justified based

on strong market in 2004-

2007.

o Continued by-product

capacity additions due to

growth in ethylene and PX

o More benzene being removed

from motor gasoline pools

• Combined with demand loss at

end-2008: train wreck – benzene

trades below naphtha

• Benzene surplus to stay for many

years

• By-product problem: source (from

ethylene and PX) growing faster

than main demand (styrene)

-3

-2

-1

0

1

2

3

4

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

50

55

60

65

70

75

80

85

90

95

100

0

10

20

30

40

50

60

70

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New Benzene Capacity & Demand, MMT


Growth

Operating Rates, %Global Benzene Supply/Demand, MMT



Toluene Market Summary• Similar to benzene, by-product

supply continues to grow.

• Chemical demand is mainly for

making on-purpose Benzene or

PX

o HDA units (on-purpose

benzene) rarely needed to

meet benzene demand

o STDP/TDP units run

opportunistically based on

economics

o TA units still growing to

support PX growth.

• Toluene will trade closer to its

floor value of motor gasoline

blending for the foreseeable

future

-0.5

-1.5

-1.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

50

55

60

65

70

75

80

85

90

95

100

0

5

10

15

20

25

30

35

40

45

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast


Growth

New Toluene Capacity & Demand, MMT

Operating Rates, %Global Toluene Supply/Demand, MMT



Paraxylene Market Summary• Continues to rapidly grow 6-7%

o Polyester – preferred fiber

o PET – rapid growth into bottles

• Short-term recovery in PX

market is not sustainable

• Cyclical downturn expected due

to capacity build-up in 2009-11

• Demand hurt in many ways

o Economic downturn at year-end

o 2007/8 inventory build of fiber

o 2007/8 PET light-weighting

o Increased recycle of PET

bottles to staple fiber (more

economic at high oil, but “being

green” long-term)

• Capacity additions will slow, and

long-term recovery expected in

2014-2015

-2

-1

0

1

2

3

4

5

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

50

55

60

65

70

75

80

85

90

95

100

0

5

10

15

20

25

30

35

40

45

50

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New Paraxylene Capacity & Demand, MMT


Growth

Operating Rates, %Global Paraxylene Supply/Demand, MMT



Styrene Market Summary• Demand has suffered in the short-

term due to economic downturn

• Longer-term demand prospects are

weak because of mature

polystyrene industry:

o Loss of demand to non-

plastics or to PP/PET in

packaging applications

o Changing consumer product

trends (CRT to flat TV,

video/audio cassette to CD to

MP3)

• New styrene capacity in Middle

East and Asia in 2009-2010

• Capacity rationalizations in US,

Europe, and Japan already

occurring

• More industry consolidation and

restructuring needed to sustain a

long-term recovery

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

70

75

80

85

90

95

100

0

5

10

15

20

25

30

35

40

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

New Styrene Capacity & Demand, MMT


Growth

Operating Rates, %Global Styrene Supply/Demand, MMT



Phenol Market Summary• Like other commodities, phenol

demand hurt in economic downturn.

o Particularly influenced by

weakness in the construction

and automobile sectors

o Optical media (polycarbonate)

is also showing long-term

demand maturity trends

• Middle East and Asia adding

significant capacity

• Additional rationalization needed to

recover operating rates to strong

level

• Acetone by-product continues to be

a disposal problem

o Solvent applications grow

slowly

o Trading near propylene recently

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast

50

55

60

65

70

75

80

85

90

95

100

0

2

4

6

8

10

12

14

90 92 94 96 98 00 02 04 06 08 10 12 14

Forecast


Growth

New Phenol Capacity & Demand, MMT

Operating Rates, %Global Phenol Supply/Demand, MMT



What Is This Light?


Train Wreck or New Light?

Make The Right Choices

To Survive the Downturn


CMAI’s Key Visions:

Significant Change Is Underway You can leverage the resulting opportunities…

• Demand loss is largest concern of current market; demand will recover with

economy by 2010, returning to trend-line patterns

• Over-capacity still looms despite demand recovery, causing margins to

underperform expectations until next up cycle.

• Industry restructuring likely & necessary Low margins expose marginal performers with high debt loads

Capacity closures of old/inefficient facilities will occur

Financing difficulties for marginal projects will delay start-ups for 2012+

Cost reduction becomes critical for competitiveness

Innovation needed: technical, application development, operational efficiency, etc

• “Asia” investments chasing local demand recovery

• “Middle East” investments mitigating margin risk with low-cost feedstocks

• Petrochemical cycle is alive and well: good times will return again; survival is key!

Documents

Prospects for the Basic Petrochemical Value Chains - Korea/CMAI APIC 2009... · Chinese capacity will limit growth in imports o Middle East resin will flow to ... Ethylene Glycol