SYNTHETIC RUBBER FEEDSTOCKS - (ALWAYS) MORE CHANGES …

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited

Remko Koster, Director, Olefins and Elastomers, IHS Markit

[email protected]

SYNTHETIC RUBBER FEEDSTOCKS -

(ALWAYS) MORE CHANGES TO COME

• 2018 WDK, Frankfurt, October 23, 2018

•

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.

Synthetic rubber prices have been volatile…

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SB Rubber Butadiene Styrene

SB Rubber and Feedstocks Price Volatility

Source: IHS Markit © 2018 IHS Markit

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… but margins have not been healthy

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Typical Operating Cost

SBR to BDE Price Spread


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Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited

Agenda

• Petrochemical Fundamentals

• Energy

• Feedstocks for Petrochemicals

• Feedstocks

• Ethylene

• Butadiene

• Styrene

• Carbon Black

• Prices and Conclusions


Petrochemical Fundamentals


Ethylene production central in petrochemical industry

Natural Gas

Syn gasCoal MTO/MTP

Ethylene

Propylene

MTO

CTO

Naphtha

Gas Oil Propylene

Pygas

Benzene

Toluene/Xylene

Heavy Aromatics

C5/C6 Non Aromatics

Crude C4

Butadiene

Mixed

Butylenes

Fuel oil

Crude oil Methane/Hydrogen

Gas extraction

plant

NGL fractionator

Refinery

Ethylene

Ethylene

unit

Propane

Butanes

Ethane


Brent crude oil prices compared to US natural gas

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120%

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120

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Ratio Crude Oil Pipeline Gas TX US

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iva

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erg

y R

ati

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Brent Crude Oil vs. US Natural Gas



Brent crude oil prices compared to European cracker feedstocks

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Crude Oil Naphtha/Brent Propane/Brent Butane/Brent

Steam Cracker Feedstocks

Oil

, D

oll

ars

pe

r B

arr

el

Fe

ed

sto

ck

, R

ati

oto

Oil

© 2018 IHS MarkitSource: IHS


Ethylene


World ethylene supply and demand profiles for 2018

Ethane40%

Propane8%

Butane5%

Naphtha41%

Gasoil3%MTO

1%

CTO1%

OTC0%

Other1%

Production = 160.5 million metric tons

© 2018 IHS MarkitSource: IHS Markit

HDPE29%

LDPE14%

LLDPE19%

Ethylene Oxide15%

Vinyls9%

Styrenics5%

Alpha Olefins3%VAM

1%

Other5%

Demand = 161.1 million metric tons

End-Uses of Ethylene


Sources of Ethylene


Ethylene capacity growth focused in Asia and US

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

World Asia North America Middle East West Europe

Wo

rld

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acit

y,

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etr

icT

on

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l C

ap

ac

ity,

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Ethylene Regional Capacity



Ethylene operating rates heading for a dip post-2021 (not now !)

84%

86%

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92%

94%

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Demand Capacity Operating Rate

World: Ethylene Supply & Demand

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World: Ethylene Demand



World ethylene supply growth dominated by ethane, but more naphtha later

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Naphtha+ LPG Ethane Methanol Coal Other

World Ethylene Supply Growth

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Butadiene


Butadiene Driven by Automotive Trends

• The vast majority of synthetic rubber is consumed in

the automotive market

• Other key end use markets:– Plastic modification

– Coated Paper

– Adhesives

• Only tires are big enough to influence balance

ABS Resins13%

Adiponitrile4%

Polychloroprene Rubber

1%

Nitrile Rubber8%

Polybutadiene29%

S.B. Latex9% SBR (emulsion & solution)

26%

Other10%

World: 2017 Butadiene Demand

Source: IHS Markit

Demand = 11.4 Million Metric Tons

© 2018 IHS Markit


Forecast crude C4 production increases depend on B/E assumptions

(Tons Per 100 Tons Ethylene Produced)

Ethane Propane Butane Naphtha Gas Oil

Butadiene 2.5 7.2 8.7 16.5 18.7

Isobutylene 0.0 0.4 0.5 10.0 8.0

Butene-1 0.4 2.5 2.3 4.8 7.5

Butene-2 0.2 1.5 0.8 3.6 4.0

Butanes 0.5 0.2 10.3 1.8 1.3

Total Crude C4 3.6 11.8 22.6 36.7 39.5

Crude C4, % BD 69% 61% 38% 45% 47%

Raffinate 1 1.1 4.6 13.9 20.2 20.8

Raffinate 2 1.1 4.2 13.4 10.2 12.8


Will there be enough Crude C4?

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CC4 BD eSBR sSBR PBR ABS

Average Annual Growth Rates 2017 - 2027


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NAM Asia Others


EU28 Butadiene Exports by Destination

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Butadiene Market Tight in Europe due to BD exports


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N. America S. America W. Europe CIS & Baltics Africa Indian Subc. NE Asia SE Asia Middle East C. Europe

Regional Butadiene Net Trade


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World butadiene net trade by region


Styrene


Ethylbenzene

Styrene production routes

PO/SM SBR

PS

ABS/SAN

EPS

Others

UPE

SBL

Propylene Oxide

StyreneEthylene

Benzene

Propylene


European styrene at the mercy of global disruptions

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West European styrene margins West European capacity outages Global Outages

West European styrene outages and margin


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North America South America West Europe CIS & Baltic States Middle East

Northeast Asia Southeast Asia Hypothetical Demand Growth

Styrene Monomer: Expansions/Closures


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Large new capacity additions are scheduled to startup in 2020


The good times for styrene won’t last forever

• Global growth will remain slow

• New capacity is coming en masse (timing is the

key)

• Trade will diminish amid China’s growing self-

sufficiency

• New trade routes will be established

• Profitability is lower going forward


Carbon Black – Availability Problematic in Asia

NAM13%

SAM4%

WEP5%

CEP9%

ME/AF4%

ISC6%

NEA56%

SEA3%

Global Carbon Black Capacity by Region


Decant oil71%

Ethylene tar

21%

Coal tar8%

Global Carbon Black Production by Feedstock


• Environmental closures in China and declining feedstocks in Europe and US

• In Asia, many new plants will be constructed


Price Forecast


Rubber feedstock prices less volatile in forecast… but ?

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2007 2009 2011 2013 2015 2017 2019 2021 2023

Brent Ethylene Butadiene Styrene

Select Commodity Price Trends


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0%


Conclusions

• Ethylene market dynamics in the US and China drive the world.

> Ethylene in good supply generally

> Coproduct yields trend higher eventually

• Butadiene supply should improve in Asia and North America

> Trade becomes a smaller market factor

• Good times for styrene cannot continue forever

> Currently experiencing longest period of positive margins in memory

> Capacity additions and trade action will eventually hurt market


Forecast risk

Short term

> Unplanned events

> Base energy volatility

> Cracker feedslate changes

> Asia market speculation

Longer term fundamentals

> Crude oil and natural gas price dynamics

> Mobility evolution

> Plastic waste measures

Documents

SYNTHETIC RUBBER FEEDSTOCKS - (ALWAYS) MORE CHANGES …