Convert Risks and Costs to new Opportunites

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1 Convert Risks and Costs to new Opportunites Henning Schussmüller Sumitomo Chemical Europe SA/NV 2nd Annual European Petrochemicals C onference Düsseldorf March 2015

2 Creation of value along the supply chain flow for all stake holders 2

3 17 bill Euro 751 miillion Euro SUMITOMO CHEMICAL EUROPE Regional HQ in Brussels for Europe, Turkey and Africa Marketing of products from Japan, Singapore, Saudi Arabia Health and Crop Science production and marketing PP compounding production and marketing Diesel Partical Filter production and marketing Corporate support function Headquarter Plant R&D Unit 3

4 Our Business Locations Around the World Cambridge London Hampshire Lyon Barcelona Arusha Pretoria Brussel Milan Torun Beijing Wroclaw Wuxi Istanbul Shanghai Hefei Rabigh Zhuhai Mumbai Bangkok Ho Cni Minh Dalian Seoul Pyeongtaek Iksan Taipei Kuala Lumpur Tainan Hong Kong Singapore Shenzhen Kaohsiung Walnut Creek Sydney Libertyville Phoenix Guadalajara Wellington Sao Paulo Fort Lee Marlborough New York Edison Wilmington Griffin 4 4

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6 European Chemical Industry remained its Competitiveness The EU doubled the sales in this period and yet: the EU market share halved in the same period on global scale The Japanese production index remained unchanged since

7 Japanese Chemical Industry profited from its Chinese Neighbour Growth Japanese chemical industry participated well at Chinese dynamic growth Sumitomo Chemical keeps a strong market position in China for many years now Yet this fact may have delayed necessity to restructure the domestic chemical industry 7

8 The global Ranking will effected by the GCC Countries Sales ( billion by country): 2013 Title % World ,199 1 China 1047,27 33,2% 2 USA 465,653 14,8% 3 Japan 151,606 4,8% 4 Germany 149,727 4,7% 5 South Korea 132,118 4,2% 6 France 78,448 2,5% 7 India 72,166 2,3% 8 Brazil 70,239 2,2% 9 Taiwan 62,935 2,0% 10 Russia 56,105 1,8% 11 Italy 50,812 1,6% 12 Netherlands 50,76 1,6% 13 Spain 39,21 1,2% 14 Belgium 36,172 1,1% 15 United Kingdom 35,583 1,1% 16 Mexico 35,418 1,1% 17 Saudi Arabia 32,657 1,0% 18 Singapore 27,683 0,9% Saudi Arabia now on position 17 of world sales ranking It will move up to close to top 10 of world ranking with new capacities coming on stream 8

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10 The Petrochemical Costs in the Regions is one Challenge Raw Material Costs USA Saudi Arabia Asia Asia Shale Gas Historical Natural Gas $/MMBTU 0, ,5 Crude Oil Cost $/BBL Equivalent $/MT Ration of 1 ton of Ethylene 1 2,98 2,98 1,29 1,29 Ethane Feedstock Costs $/MT Catalyst + other $/MT subtotal Saudi Ethylene cost remain competitive longer term Shale Gas has strong positive impact on US petrochems Asian Ethylene cost not competitive other costs By-product incomes $/MT Utility Costs $/MT Direct Costs $/MT Total Ethylene Cost $/MT

11 ... And the Age and Capacity of Japanese Crackers is another one Ethylene plants in Japan Ethylene plants in Saudi Arabia Company Location Capacity in MT/year Company Location Capacity in MT/year Sumitomo Chemical Co Ichihara Al Jubail Petrochemical Co Jubail Idemitsu Kosan Co Ltd Ichihara Al Jubail Petrochemical Co Jubail Idemitsu Kosan Co Ltd Tokuyama Al Jubail Petrochemical Co Jubail JX Nippon Oil & Energy Corp Kawasaki Al Jubail Petrochemical Co Jubail Keiyo Ethylene Co Ltd Ichihara Eastern Petrochemical Co Jubail Maruzen Petrochems Co Ichihara Jubail Chevron Philips Co Jubail Mitsubishi Chemical Corp Kashima Jubail United Petrochems Co Jubail Mitsubishi Chemical Corp Kashima Petro Rabigh Company* Rabigh Mitsubishi Chemical Corp Mizushima Saudi Ethylene and Polyethylene Jubail Mitsui Chemical Inc Ichihara Saudi Kayan Petrochems Co Jubail Osaka Petrochems Industries Tokaishi Saudi Petrochemical Co Jubail Sanyo Petrochemical Mizushima Saudi Yanbu Petrochems Co Yanbu Showa Denko KK Oita City Saudi Yanbu Petrochems Co Yanbu Tonen Chemical Corp Kawasaki Yanbu National Petrochems Co Yanbu Tosoh Corp Yokkaichi Sadara Petrochemical Co Jubail Average Capacity of Japanese Ethylene Plants Average Capacity of Saudi Ethylene Plants Total Ethylene Capacity Total Ethylene Capacity * including expansion of Announced additional Ethylene Capacities in Gulf/Iran by 2020: Mt/year Petro Rabigh Company Joint Venture of Sumitomo Chemical and Saudi Aramco Total Ethylene capacity in Japan exceeds more than 20 % of actual demand Average Saudi cracker has double the capacity of the Japanese cracker High production unit cost of old Japanese cracker force industry to adapt to market changes 11

12 Consequential restructuring Programs underway Sumitomo Chemical Company: Ethylene Plant closure Caprolactam Liquid Phase Plant closure Propylene Oxide/Polystyrene Plant closure PMMA Plant closure PE and PP plant closure EPDM plant closure And other Japanese major chemical companies to follow: Acrylonitrile plant closure by Asahi Kasei Integration of cracker plant of Mitsubishi and Asahi Kasaei Integration of cracker plant of Mitsui and Idemitsu Restructuring of the entire Fibre Value Chain... whilst the Japanese Prime Minister, Mr Abe keeps pushing the industry to adopt plant capacities to market demands to regain competitiveness 12

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15 Geographical Overview of the chemical Sites in the Gulf and Saudi Arabia 15

16 Sumitomo Chemical Investment in low Cost Plants in Saudi Arabia The expansion of PetroRabigh in Phase 2 will add new products to existing site: PetroRabigh I Nameplate Capacity (k-tonnes/year) Ethylene 1300 Propylene 900 Linear Low PE 600 High Density PE 300 Polypropylene Homo 350 Polypropylene Copo 350 MEG 600 Propylene Oxide 200 PetroRabigh II Project Nameplate Capacity (k-tonnes/year) Ethylene 300 Propylene 250 Isobutylene 60 Paraxylene 1300 Benzene 400 Cumene 400 Phenol 250 Acetone 150 Methylmethacrylate 90 PMMA 50 LDPE 80 EVA 70 EPDM 70 TPO's 10 Caprolactam 120 Nylon 6 60 Polyols 50 16

17 Ethylene Derivatives Production well exceeds Regional (GCC) Demand Ethylene derivatives production... that leads to new strategical logistic challenges: Export GCC Derivatives of kt seek export business This equals some 8 million TEU containers It corresponds to ca. 2 million extra TEU s just for GCC region To put this into perspective: The two largest Chinese container producers have a joint capacity of 3.5 million containers /year Jebel Ali - the biggest port in UAE has a capacity of 9.8 million TEU Jeddah Islamic Port has a capacity of 3.9 million TEU New King Abdullah Port expanded to 2.7 million TEU 17

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19 Our overall business goals Customer service Operational excellence Value : cost optimisation Robust supply chain Cultural Diversity Our supply chain objective Realise competitive edge with the supply chain as the catalyst for innovative marketing of our products Our KPI s Safety, quality, reliability, efficiencies and productivity, reporting Challenge current supply chain to become more agile Allow learning organisation but ensure time efficient transition Increase reliability and cost to serve optimisation Our partner expectations Full understanding of our business Reliability High value at lowest cost Radical processes simplification Strong collaboration in supply chain 19

20 Strengths of the collaboration model: Fluent pick-up in port ICT: Transparency of stocks is realised immediately at quay site 360 planning On site repacking in adapted transport units Flexible container choice Consolidation at one port = a cost saver for us Vertical integration triggers the added values of horizontal integration: Customers PetroRabigh Onsite LSP Sea Carriers Customers Sumitomo Chemical Singapore Whs network Sea Carriers Customers Sumitomo Chemical Europe LSP Europe LSP Turkey Sea Carriers «Our supply chain has migrated into a value chain» 20

21 The Human Resource Factor is a Key Enabler in this Business Strategy Orchestre the diversity of Japanese, Saudi and European cultures and values Identify, employ, train and retain talented staff in increasing competitive environment There is no business globalisation without globalised culture: the learning organisation There is still too much of silo thinking around all parties Tackle the resistence to change in all hierarchies, not just on lower levels 21

22 Kaizen: Continuous Improvement Process: Let us help each other to climb to the next level Domo arigato Thank you Henning Schussmüller E: 22