Welcome to the ICIS Asia Polyolefins Seminar 23 May 2019 | Chinaplas 2019
Zachary Moore Deputy Managing Editor
Veena PathareSenior Editor Manager
ICIS
The US shale boom and its ramifications for global PE and PP markets
Asian and Middle Eastern polymer markets brace for shifting trade winds
Agenda
The US shale boom and its ramifications for global PE and PP markets23 May 2019
Zachary MooreDeputy Managing Editor, Americas
ICIS Editorial Chinaplas 2019
Agenda
US shale oil boom and its impact on the ethylene marketUS cracker and PE projectsOverview of US exportsImpact of shale oil on the propylene chainUS propylene, PP projectsUS PP import/export dynamics
Shale oil drives US ethylene advantage
Shale Oil
Shale oil—Game changer for US energy
• Lower 48 crude oil production up around 155% over last ten years
• US surpasses Saudi Arabia as largest oil producing country
• US may transition from net importer to net exporter of energy
Associated gases—the petrochemical game changer
**Imported Ethane costs are representative of purchasing Ethane FOB Mt BV USG and shipped to Destination, includes Liquefaction & Handling Costs
Abundant NGL supplies give the US the world’s lowest cost ethylene production
The US ethylene advantage
Abundant US ethane—can be flared on sold as a cracker feedstock
US ethane crackers produce ethylene at a considerable cash cost advantage relative to naphtha crackers
Ethylene is difficult to export—US producers are moving to capture the advantage by exporting derivatives
US cracker feedslates
Ethane is consistently the cheapest available feed
Many new crackers are ethane only, older crackers have feedstock flexibility
Some new crackers lack infrastructure to store co-products and re-route them to the feed
Propane and butane are sometimes preferred when cracker operators seek to maximize co-product production
Expansions of USGC NGL fractionation
Company Capacity (bbl/day) Location Status/Start-Up
Phillips 66 150,000 Brazoria County, Texas Late 2020
Phillips 66 150,000 Brazoria County, Texas Late 2020
Enterprise 150,000 Mont Belvieu, Texas Q1 2020
ONEOK 125,000 Mont Belvieu, Texas Q1 2021
Targa 110,000 Mont Belvieu, Texas Q1 2020
Targa 110,000 Mont Belvieu, Texas Q2 2020
Energy Transfer (Lone Star) 150,000 Mont Belvieu, Texas Q1 2020
Expansions = 945,000 bbl/day
New US crackers complete, under construction through 2019
Company C2 capacity (kt/year) Downstream (kt/year) Location Start-Up
OxyChem/Mexichem 544 Feed existing VCM plant of 1,050 Ingleside, Texas Q1 2017
Dow Chemical 1,500 ELITE PE (400); LDPE (350) – Plaquemine, Louisiana; EPDM (200); elastomers (320) Freeport, Texas Q3 2017
Chevron Phillips Chemical 1,725 Bimodal HDPE (500), mLLDPE (500) both at Old Ocean Cedar Bayou, Texas Q1 2018
ExxonMobil Chemical 1,500 mLLDPE plus LLDPE (650 x2) at Mont Belvieu Baytown, Texas Q3 2018
Lotte/Westlake 1,000 MEG (760) by Lotte, feed into existing PVC for Westlake St Charles, Louisiana H1 2019
Shintech 500 VCM (400), PVC (290), caustic soda (270) Plaquemine, Louisiana H1 2019
Formosa Plastics 1,200 HDPE (400), LDPE (400), EG (800) Point Comfort, Texas H2 2019
Sasol 1,500 LLDPE (470), LDPE (420), EO/EG (300/250), ethoxylates, detergent alcohols (300) Lake Charles, Louisiana H2 2019
8 new crackers from 2017-2019 = 9.4m tonnes/year
Expansions of existing US crackers, plus 1 restart
Company Capacity (kt/year) Location Status/Start-Up
LyondellBasell 363 Corpus Christi, Texas Fully started up Q2 2017
Westlake Chemical 32 Calvert City, Kentucky Started up Apr 2017
Indorama (restart) 440 Lake Charles, Louisiana May 2019
Dow 91 Orange, Texas H1 2019
Dow 500 Freeport, Texas 2020
INEOS 270 Chocolate Bayou, Texas 2020
LyondellBasell 250 Channelview, Texas Evaluating for 2020s
Expansions about 1.4m tonnes/year + new crackers 9.4m = 10.8m, or over 35% of existing US capacity by 2019
North America PE expansionsCompany 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 2017ExxonMobil Chemical 1,300 mLLDPE plus LLDPE (2 x 650) Mont Belvieu, Texas Q4 2017
INEOS/Sasol 470 HDPE La Porte, Texas Q4 2017
Dow Chemical 125 Bimodal HDPE St Charles, Louisiana Q4 2018
Sasol 890 LLDPE (470), LDPE (420) Lake Charles, Louisiana Q1 2019 / Q3 2019
LyondellBasell 500 HDPE La Porte, Texas Q3 2019Formosa Plastics 800 HDPE (400), LDPE (400) Point Comfort, Texas H2 2019
ExxonMobil Chemical 650 LLDPE Beaumont, Texas 2019
Total/Borealis/NOVA 625 Borstar PE Bayport, Texas 2021Shell 1,600 HDPE/LLDPE (2x 550), HDPE (500) Monaca, Pennsylvania Early 2020sPTT Global Chemicals 700 HDPE (2x 350) Belmont County, Ohio NANOVA Chemicals 430 LLDPE Sarnia, Canada 2022SABIC/ExxonMobil* NA PE unspec (2 units) Corpus Christi, Texas H1 2022Dow Chemical 600 PE (unspec) US Gulf Coast 2021-2023Dow Chemical 350 PE (unspec) US, global debottlenecks 2021-2023
Through 2019 = 6.5m tonnes/year (+39% US capacity)Through 2022 = 12.1m tonnes/year** (+74% US capacity)
* Assuming 1,300kt PE for SABIC/ExxonMobil
2nd wave of new US cracker projects
Company Capacity (kt/year)Downstream
(kt/year) Location Start-up Status
Total/Borealis/NOVA 1,000
Borstar PE (625) + existing PE (400) Port Arthur, Texas End 2020
Underconstruction
Shell 1,500 HDPE/LLDPE (2x 550), HDPE (500)Monaca,
Pennsylvania Early 2020sUnder
construction
SABIC/ExxonMobil 1,800 PE (2 units), MEG
Corpus Christi, Texas H1 2022
Underconstruction
PTTGC/Daelim 1,000 HDPE (700), MEG (500), EO (100)Belmont County,
Ohio NA Evaluation
Formosa Petrochemicals 1,200
LLDPE (400), HDPE (400), EG (900)
St James Parish, Louisiana 2022 Evaluation
Chevron Phillips Chemical NA NA US Gulf Coast NA
FID late 2019,early 2020
US PE export markets
Increasing production, rising export focus
New PE capacity designed for exportUS PE market mature—growth
follows GDPDespite trade tensions, exports were
up by at least 19% for all PE productsLLDPE saw the strongest gain in
exports at around 46%, over half of US LLDPE production was exported in 2018 0
5
10
15
20
25
30
35
40
45
50
HDPE LLDPE LDPE
Increase in production and exports from 2017 to 2018
Production Exports
Source: ICIS Supply and Demand Database
Export PE—prices trending lower as supply lengthens
Export prices have faced downward pressure on a strong dollar and rising supply
International economies are seeing some slowdown in growth, adding to export price pressure
US producers are looking to raise their export allocations following capacity additions.
LLDPE in focus
US producers are building out large volumes of LLDPE and MLLDPE capacity
Additional supply has caused premiums for hexene and metallocene grades over butene to narrow
Export markets account for over half of total US LLDPE demand
Shifts in LLDPE trade patterns
MEXICO23%
CANADA14%
CHINA10%BRAZIL
10%BELGIUM9%
COLOMBIA4%
SINGAPORE4%
ARGENTINA2%
CHILE2%
GUATEMALA1%
All Others21%
2017 LLDPE EXPORTS
BELGIUM16%
MEXICO15%
BRAZIL9%
CANADA8%CHINA
7%
SINGAPORE5%
TURKEY4%
COLOMBIA4%
MALAYSIA3%
VIETNAM3%
All Others26%
2018 LLDPE EXPORTS
Source: ICIS Supply and Demand Database
Shifts in LDPE trade patterns
Source: ICIS Supply and Demand Database
CANADA22%
MEXICO13%
CHINA11%
BRAZIL7%
COLOMBIA5%
SINGAPORE4%
CHILE4%
INDIA3%
ARGENTINA3%
VIETNAM2%
All Others26%
2018 LDPE EXPORTS
CANADA24%
CHINA15%
MEXICO13%
BRAZIL4%
COLOMBIA4%
CHILE3%
HONG KONG 3%
ARGENTINA3%
PERU3%
GUATEMALA3%
All others25%
2017 LDPE EXPORTS
Shifts in HDPE trade patterns
Source: ICIS Supply and Demand Database
MEXICO26%
CANADA18%
CHINA12%
BRAZIL5%
COLOMBIA5%
CHILE3%
PERU3%
ISRAEL3%
BELGIUM2%
GUATEMALA2%
All Others21%
2017 HDPE EXPORTS
MEXICO24%
CANADA15%
CHINA13%
COLOMBIA5%
BRAZIL4%
BELGIUM4%
PERU3%
CHILE2%
VIETNAM2%
ISRAEL2%
All Others26%
2018 HDPE EXPORTS
Concluding thoughts on the impact of trade tensions
Mexico and Canada are the largest export markets and have limited realistic alternatives
Retaliatory tariffs a risk as US exporters increase presence in Europe, SE Asia
US likely to take greater share of the Latin American trade, may push out Asian competitors
US producers still able to sell to Chinese re-export converters
Ships in the Houston ship channel. Photo by Al Greenwood
Shale oil’s impact on the US propylene chain
• 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
Ethane cracking greatly reduces co-product production
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
ulaiv
e yie
ld of
prod
ucts,
tonn
e Ethylene Propylene ButadieneRaffinate-1 Pygas Fuel oil
Source: ICIS Consulting
Refineries a key source of US propylene
Refineries account for more than half of US propylene production
Refinery-grade propylene (RGP) can be used in gasoline blending or upgraded to chemical-grade (CGP) or polymer-grade (PGP) propylene
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
US propylene production by source
Chemically-sourced propylene Refinery-sourced propylene
Source: AFPM
No lasting US advantage in propylene costs
Propane has alternate demand outlets, unlike ethylene
US relying on PDH and other on-purpose technology to make up lost propylene production from crackers
US propylene cash costs similar to those of Asian and European producers
North America on-purpose propylene projects (PDH)
Company Capacity, kt/year Location Start-up Status
Enterprise Products 750 Mont Belvieu, Texas Nov 2017 Running
Formosa Plastics 600 Point Comfort, Texas 2020-2021 Under construction
Inter Pipeline 525 Alberta, Canada Late 2021 FID made Dec 2017
Pembina Pipeline/PIC(Kuwait) 544 Alberta, Canada --- FID March 2019
Formosa Plastics 600 Louisiana --- Evaluating
LyondellBasell 500 US --- FID pending
BASF (MTP) 475 Freeport, Texas --- On hold
NOTE: Others by Ascend Performance Materials, Sunoco, Dow, Enterprise, REXtac cancelled
PP projects—fewer in number and smaller in capacity
Company Capacity, kt/year Location Start-up Status
Braskem 450 La Porte, Texas Q1 2020 Under construction
Inter Pipeline 525 Alberta, Canada Late 2021 FID made Dec 2017
Formosa Plastics 250 Point Comfort, Texas --- FID made, detailed design phase
Pembina/PIC (Kuwait) 544 Alberta, Canada --- FID March 2019
LyondellBasell 500 US --- FID pending
Formosa Plastics 600 Louisiana --- Permitting
ExxonMobil 400 Louisiana, US 2022 FID made
PP exports—overwhelming majority to Mexico and Canada
Source: ICIS Supply and Demand Database
MEXICO49%
CANADA28%
CHINA7%
PERU2%
VIETNAM1%
All Others13%
PP EXPORTS 2017
MEXICO52%
CANADA31%
CHINA2%
BELGIUM2%
VIETNAM2% All Others
11%
PP EXPORTS 2018
Deepwater arbitrage for PP to/from the US
US PP prices fluctuate directly with propylene
Deepwater trade flows may result in more imports or more exports according to arbitrage
US PP prices have moved from globally uncompetitive to globally competitive over the past year
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Asian and Middle Eastern polymer markets brace for shifting trade winds23 May 2019
Veena PathareSenior Editor Manager
ICIS Editorial Chinaplas 2019
www.icis.com 36
Agenda
US-China trade war & impact on Asian polyolefin markets
Impact of new capacities on future trade flows
H2 2019 outlook
US-China trade war & impact on Asian polyolefin markets
A look back on escalating US-China trade tensions
$110bn
Product Initial Tariffs Final tariffs after 25% hike implemented on 28 Aug 2018
Total China imports in 2017 (million tonnes)
Estimated share of US materialin China imports in 2017
LDPE 6.5% Not included; remains at 6.5% 2.4 7%
HDPE 6.5% 31.5% 6.4 5%
LLDPE 6.5% 31.5% 3.3 5%
PP 6.5% 31.5% 4.7 3%
Total US Tariffs: $250bn
Total Chinese Tariffs: $110bn
Source: ICIS Supply and Demand database
Source: ICIS Supply and Demand database
2,025,6302,224,395
791,675
1,852,458
12%
10%
15%
6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
HDPE LLDPE LDPE PP
2017 US Export Volumes
2017 US exports (tonnes) Exports (tonnes) 2017 US exports (tonnes) % exports to China
Asia LLDPE prices decline on weaker sentiment after tariff announcement;stabilises in early 2019
2%
-2%
2%
-2%
-3%
-4%
2%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019
Asia LLDPE price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)
Q1 off to a bullish start, buoyed by pre-Lunar New Year buying
US tariffs on Chinese exports announced in mid-June
With the tariffs imposed, US cargoes are directed to other regions outside of China. Chinese prices find some stability in Q3, while SE Asia prices come under continued pressure.
Sharp depreciation of Chinese yuan weighs heavily on import market
Prices stabilise as yuan strengthens and trade talks begin
Source: ICIS
Asia HDPE prices largely supported; fell in Q4 2018 on longer supply
2%
-2%
2%
-3%-2%
-5%
2%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
900
1,000
1,100
1,200
1,300
1,400
1,500
05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019
Asia HDPE price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)
Q1 largely supported by tight supply amid strong PE pipe market
US tariffs on Chinese exports announced in mid-June
Prices rebound amid plant maintenance season in China
Fears of US-China trade war and local currencies depreciation add to bearish sentiment
Prices plunged in late 2018 on increased supply and availability of competitively priced cargoes
Source: ICIS
Prices remain under pressure amid weak downstream demand
Reduced PE exports from the US to China; others fill the gap
Source: ICIS Supply and demand database
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
LLDPE imports to China 2016-2018 (tonnes)
SINGAPORE SAUDI ARABIA THAILAND UNITED ARAB EMIRATESSOUTH KOREA UNITED STATES IRAN QATARINDIA OTHERS
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
HDPE imports to China 2016-2018 (tonnes)
SAUDI ARABIA IRAN UNITED ARAB EMIRATESSOUTH KOREA THAILAND TAIWAN, PROVINCE OF CHINAUNITED STATES KUWAIT QATAROTHERS
India remains unattractive for both Middle Eastern, US PE sellers
900
950
1000
1050
1100
1150
1200
02-Apr-2018 04-Jun-2018 06-Aug-2018 08-Oct-2018 10-Dec-2018 18-Feb-2019
LLDPE netback Mideast to China=CFR China-freight
LLDPE netback Mideast to India = CFR India-freight
LLDPE netback Mideast to SEA=CFR SEA(dut)-freight
LLDPE netback Mideast to Turkey=CFR Turkey-freightSource: ICIS
India to see 11% growth in LLDPE demand, HDPE to remain flat* in FY 2018-2019
India remains an unattractive market for LLDPE, HDPE importsAmple domestic availabilityImport prices influenced by domestic product
Indian PP import prices capped by domestic price parity
*According to market estimates
Netbacks to FOB Middle East - LLDPE film
950
1000
1050
1100
1150
1200
1250
1300
1350
1400
02-Apr-2018 04-Jun-2018 06-Aug-2018 08-Oct-2018 10-Dec-2018 18-Feb-2019
HDPE netback Mideast to China = CFR China-freight
HDPE netback Mideast to India=CFR India-freight
HDPE netback Mideast to SEA=CFR SEA (dut)-freight
HDPE netback Mideast to Turkey =CFR Turkey-freight
Netbacks to FOB Middle East - HDPE film
Indian PE exports surge, bulk of it to China
China, 63%Indonesia, 9%
Vietnam, 6%
Bangladesh, 4%
Pakistan, 4%
Turkey, 4%Nepal, 2%Kenya, 1%
Malaysia, 1%
Others, 7%
Indian LLDPE exportsFY 2018-2019 (Apr-Feb)
LLDPE exports = 473.19 KT
050000
100000150000200000250000300000350000400000450000500000
2014-15 2015-16 2016-17 2017-18 2018-19 (Apr-Feb)
India PE exportsFY 2018-2019 (Apr-Feb)
HDPE LLDPE LDPE
Tonn
es
Source: ICIS Supply and Demand database
US cargoes emerge in Indonesia, LLDPE price spread widens
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
Indonesian LLDPE imports2016-2018 (tonnes)
INDIA JAPAN KUWAIT
MALAYSIA QATAR SAUDI ARABIA
SINGAPORE SOUTH KOREA THAILAND
UNITED ARAB EMIRATES UNITED STATES OTHERS
950
1000
1050
1100
1150
1200
1250
1300
1350
LLDPE import prices in Indonesia (USD/tonne)
PE LLDPE Film CFR Indonesia - Low end
PE LLDPE Film CFR Indonesia - High end
Source: ICIS Supply and Demand database Source: ICIS
Vietnam: Another major destination for US cargoes
VietnamZero duty; level playing ground for all Little or no duty advantage for ASEAN cargoes
Malaysia Big converters and re-exporters benefit from
import duty exemptionLocal converters prefer ASEAN or local cargoes -
higher import duty for dutiable cargoes (10%)
ThailandNet exporter; less reliance on importsPreference for local cargoes; relatively low import
duty (3%)
1000.0
1050.0
1100.0
1150.0
1200.0
1250.0
1300.0
Dutiable and non-dutiable LLDPE prices in SE Asia ($/tonne)
Dutiable LLDPE Non-Dutiable LLDPE
For LLDPE, price gap widened from late 2017 up to more than $100/tonne
Source: ICIS
MLLDPE: Wide spread over C4 LLDPE hampers demand
1050.000
1100.000
1150.000
1200.000
1250.000
1300.000
1350.000
1400.000
Asian C6 MLLDPE prices
PE LLDPE C6 Metallocene CFR SE Asia PE LLDPE C6 Metallocene CFR China
PE LLDPE C6 Metallocene CFR India
0
50
100
150
200
250
C6 MLLDPE - LLDPE film price spread
Source: ICIS
Trade war no impact on PP; lengthened availability of Indian exports in Q3 weighs on spot prices
3%
-2%
-1%
-10%
4%
1%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019
Asia PP flat yarn price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)
Chinese import prices plummet in Q3 due to a sudden spike in exports from India, as suppliers there seek to clear on-hand cargoes
Start up of new PP plant in Vietnam lengthens regional supply Build-up of domestic
inventory levels in China after the Lunar New Year holiday
US tariffs on Chinese exports announced
Prices supported by tight supply – unexpected turnarounds in Q1 2019
Source: ICIS
Middle Eastern PP exports affected by outages
Slew of scheduled and unexpected outages in the Middle East have capped PP export availability since August 2018
Source: ICIS
China’s PP imports – South Korea, GCC dominant sources
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
Total PP imports to China 2016-2018 (tonnes)
SOUTH KOREA SINGAPORE SAUDI ARABIA
TAIWAN, PROVINCE OF CHINA UNITED ARAB EMIRATES THAILAND
JAPAN INDIA VIETNAM
MALAYSIA UNITED STATES OTHERS
GCC – 22% of total Chinese imports
China moves closer to self-sufficiency, imports continue
China to provide price direction for global markets despite rise in self-sufficiency
Source: ICIS Supply and Demand database
Indian Q1 2019 netbacks increase on tight Middle Eastern supply
Netbacks to FOB Middle East from India on an uptrend since January
2019 but trades remain limited
0
50,000
100,000
150,000
200,000
250,000
300,000
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019(Jan-Feb)
Total PP imports to India2016-2019 (tonnes)
UNITED ARAB EMIRATES SAUDI ARABIA SINGAPORE
THAILAND SOUTH KOREA KUWAIT
OMAN UNITED STATES OTHERS
Source: ICIS Supply and demand database
Tight Middle East supply narrows spread in SE Asia
1000.0
1050.0
1100.0
1150.0
1200.0
1250.0
1300.0
1350.0
Dutiable and non-dutiable PP Flat Yarn prices ($/tonne)
Dutiable PP Yarn Non-dutiable PP Yarn
For PP flat yarn, price gap narrowed in 2018 to consistently below $50/tonne
on tight Middle East supply
Source: ICIS
Price difference reduced to an all-time low of $5/tonne in late-April 2019
Spread between the two expected to remain narrow
Availability of non-dutiable cargoes to lengthen with several start-ups in SE AsiaStatic expansions in the Middle East in
contrast
Tariff impact on US and China Trade
0
5,000
10,000
15,000
Round 2 (Aug 2018) Round 3 (Sep 2018)
Exports under tariff based on 2017 trade flows
US exports to China impacted China exports to US impacted
$ millions
$2.0bn $2.2bn
$8.8bn
$13.2bn
Source: American Chemistry Council, US International Trade Commission
Impact on China’s finished plastic exports to US
0
2,000
4,000
6,000
$ millions
Round 2 Round 3
The US imported $39bn of finished plastics products from global sources in 2017.
China’s exports to the US worth $7bn made up around 30% of total US imports in terms of volume but merely 18% of total imports in
terms of value
$1.4bn
$5.6bn
An estimated 2.6m tonnes of annual Chinese plastic products demand might be lost as a result of these tariffs
67% of the demand is for products made from polyolefins
Impact of new capacities on future trade flows
Evolving PE trade flows as US producers redirect cargoes
Source: ICIS
PE estimated global trade flow 2020 (’000 tonnes)
US PE diverted away from China to SE Asia
190,300184,442
158,294
179,768
93,060
103,655
10,956
27,869
69,74928,424
60,496147,989
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jul 2018 * Oct 2018 *
US PE sales Jul vs Oct 2018 (%)
NORTH AMERICA SOUTH & CENTRAL AMERICA EUROPEEASTERN EUROPE AFRICA MIDDLE EASTCHINA REST OF ASIA
(41,325)
38,035
16,160
14,757
10,299
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Changes in US PE exports to Asia* –Jul vs Oct 2018
CHINA VIETNAM MALAYSIA SINGAPORE INDONESIA
Source: ICIS Supply and Demand database(*) Volumes in tonnes
Source: ICIS
Middle East to remain major PP global supplier; northeast Asia emerges as net exporter PP estimated global trade flow 2020 (’000 tonnes)
China PE, PP expansions – inching towards PP self-sufficiency
Source:ICIS
Producer Capacity ('000 tonnes/year) Estimated start upLLDPE HDPE LDPE PP
Jiutai energy 250 350 H2 2019
Zhongan union chemical 350 350 H2 2019
Qinghai Damei 300 400 H2 2019
Zhejiang Petrochemical 300 HD/LLD 450 900PP H2 2019PE 2020
Baofeng energy 300 300 H2 2019Juzhengyuan 600 H2 2019Hengli Petrochemical 400 880 2019-2020
Daqing lianyi chemical 400 500 2020
Bora chemical 450 HD/LLD 350 600 2020
Zhanjiang zhongke 350 550 2020Yantaiwanhua 450 350 300 2020Ningbo futai 400 2020Satellite Petrochemical 500 400 end 2020
Source:ICIS
Asia leads the way for PP expansions
Iran sanctions – Effect on China imports likely limited
0.00
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
Jan-
17
Feb-
17
Mar
-17
Apr-
17
May
-17
Jun-
17
Jul-1
7
Aug-
17
Sep-
17
Oct
-17
Nov
-17
Dec-
17
Jan-
18
Feb-
18
Mar
-18
Apr-
18
May
-18
Jun-
18
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov
-18
Dec-
18
Iranian PE imports in China
LDPE LLDPE HDPE
Grade 2017 2018 Growth (%)LDPE 604,802 584,880 -3.3LLDPE 165,429 214,876 29.9HDPE 1,197,220 1,085,344 -9.3Total 1,967,451 1,885,100 -4.2
US sanctions on Iran’s oil and petrochemical products were re-imposed on 5 November but China will likely continue to
import a significant PE volume from IranUnit: Tonnes
Iranian export (by origin)
The Chinese government’s response so far Increase in export tax refund rates for plastics and plastic products to 16% on 1 November 2018 but tied to VAT rate so rolled back to 13% as of 1 April 2019
Increase competitiveness of Chinese polyolefin exports
Reduce the value-added tax (VAT) for the manufacturing sector effective 1 April 2019Increase margin for local plastic manufacturers
Product Export Rebate
LDPE 16 13% (as of April)
HDPE 16 13% (as of April)
LLDPE 16 13% (as of April)
Product Export Rebate
PP homopolymers 16% 13% (as of April)
PP copolymers 9% (no change)
Other PP grades 13% (no change)
Import price ($/tonne)
Import cost* on 16% VAT (CNY/tonne)
Import cost* on 13% VAT (CNY/tonne)
Selling price in yuan-based import market (CNY/tonne)
Margin* on 16% VAT (CNY/tonne)
Margin* on 13% VAT (CNY/tonne)
$1,000 CNY8,489 CNY8,273 CNY8,600 CNY111 CNY327
* The yuan-denominated import cost takes into account an exchange rate of CNY6.75 to $1; a 6.5% import duty and assumed port fees of CNY150/tonne; while margin is computed as selling price less import cost.
Source: China Finance Department
Outlook for 2019
2019 outlook for the polyolefins market
• Additional capacities in China and SE Asia expected to come on stream in H2 2019• US PE start-ups threaten oversupply in H2 2019, more US PE could flow to SE Asia should
US-China trade war persist • Steady increase in China’s PP export volumes to SE Asia
• Sustainability and plastic waste are key issues in 2019 and beyond – global efforts needed• Upstream crude and monomer cost prices; their effects on regional operating rates• Volatile exchange rates against a backdrop of uncertain global macroeconomic outlook
Demand
Supply
Other factors
• Demand seasonally peaks in April; buying to slow as Eid holiday approaches • Some uptick expected in Q3, ahead of the year-end close• Indian imports dictated by domestic supplier prices
• Pro-consumption government policies, reduction in VAT and increased export tax rebate could support Chinese demand
• Slower growth: 5-6% growth expected for PE; 6-7% for PP • Uncertainty dampens sentiment
Rest of Asia & Mideast
China
Copyright © 2019 ICIS – Private & Confidential
China has been importing 45-70% of the world’s total waste, around 7.5m tonnes in 2016Easier for developed countries to sell their recycled plastic scrap to Asia than process it at home
From January 2018, China refused to buy any recycled plastic scrap, reducing imports volume to an estimated 1.5m tonnes in 2018
Stricter environmental control
Hundreds of small-operation Chinese plastics recyclers relocated to other southeast Asian countriesSome countries are overwhelmed by the sheer volume and are refusing to take any more waste imports
Demand for virgin resin to see boost by the ban in waste plastic imports
China's ban on scrap imports shifts waste crisis to southeast Asia
Copyright © 2019 ICIS – Private & Confidential
What lies ahead
Supply chain, logistics management to assume greater role
Increase in number of trans-shipment, warehousing hubs
A more even playing field for PE producers worldwide
Wider choice of sellers and buyers
US suppliers need to find buyers for surplus volumes due to unavailability of China market
Profitability of warehousing/trans-shipment hubs
ChallengesOpportunities
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Welcome to the ICIS Asia Polyolefins Seminar AgendaThe US shale boom and its ramifications for global PE and PP marketsAgendaShale oil drives US ethylene advantageShale OilShale oil—Game changer for US energyAssociated gases—the petrochemical game changerSlide Number 9The US ethylene advantageUS cracker feedslatesExpansions of USGC NGL fractionation New US crackers complete, under construction through 2019Expansions of existing US crackers, plus 1 restartNorth America PE expansions2nd wave of new US cracker projectsUS PE export marketsIncreasing production, rising export focusExport PE—prices trending lower as supply lengthensLLDPE in focusShifts in LLDPE trade patternsShifts in LDPE trade patternsShifts in HDPE trade patternsConcluding thoughts on the impact of trade tensionsShale oil’s impact on the US propylene chainEthane cracking greatly reduces co-product productionRefineries a key source of US propyleneNo lasting US advantage in propylene costsNorth America on-purpose propylene projects (PDH)PP projects—fewer in number and smaller in capacityPP exports—overwhelming majority to Mexico and CanadaDeepwater arbitrage for PP to/from the USICIS PE/PP editorial teamThank you for your timeAsian and Middle Eastern polymer markets brace for shifting trade windsAgenda US-China trade war & impact on Asian polyolefin marketsA look back on escalating US-China trade tensionsAsia LLDPE prices decline on weaker sentiment after tariff announcement;�stabilises in early 2019Asia HDPE prices largely supported; fell in Q4 2018 on longer supply Reduced PE exports from the US to China; others fill the gap India remains unattractive for both Middle Eastern, US PE sellersIndian PE exports surge, bulk of it to ChinaUS cargoes emerge in Indonesia, LLDPE price spread widensVietnam: Another major destination for US cargoesMLLDPE: Wide spread over C4 LLDPE hampers demandTrade war no impact on PP; lengthened availability of Indian exports in Q3 weighs on spot pricesMiddle Eastern PP exports affected by outagesChina’s PP imports – South Korea, GCC dominant sourcesIndian Q1 2019 netbacks increase on tight Middle Eastern supply Tight Middle East supply narrows spread in SE AsiaTariff impact on US and China TradeImpact of new capacities on future trade flowsSlide Number 54US PE diverted away from China to SE AsiaMiddle East to remain major PP global supplier; northeast Asia emerges as net exporter China PE, PP expansions – inching towards PP self-sufficiencyAsia leads the way for PP expansionsIran sanctions – Effect on China imports likely limited The Chinese government’s response so far Outlook for 20192019 outlook for the polyolefins marketChina's ban on scrap imports shifts waste crisis to southeast Asia�What lies aheadSlide Number 67ICIS PE/PP editorial teamThank you for your time