Polymers Quarterly Special Report

Transcription

1 TransGraph Research Consulting Technology Commodity Price Risk Management solutions Polymers Quarterly Special Report February 2015

2 Price Trends Upstream RM Date Brent Crude Naphtha Ethylene Propylene PTA MEG Jul' Aug' Sep' Oct Nov Dec Jan Increasing shale oil production and subdued demand amidst slowdown concerns in China and Europe had lead to oversupply resulting in sharp fall in crude oil prices during the past quarter. Impact of lower crude oil prices and higher supplies of naphtha from Europe kept prices of naphtha in check during the period. Lower operating rates and plant shutdowns from the end sector too led to higher supplies which added to the weakness in the prices. TransGraph Consulting Pvt Ltd Slide 2

3 Price Trends Polymers Date HDPE PP PET BOPP BOPET Jul' Aug' Sep' Oct Nov Dec Jan Weaker upstream raw material prices has resulted in the price fall in polymers Weaker demand post festive season has also augmented the weakness in the polymer prices during the period. Despite 35 45% fall in raw material prices, polymers fell by 20% in January 15 compared to July 14 to preserve their margins. TransGraph Consulting Pvt Ltd Slide

4 Price Trend Review FY 15 Benchmark crude oil prices declined by around 40% during October 14 to January 15, with consequent impact on petrochemical feedstock and product prices. At naphtha front, markets have been on a continuous decline over the past quarter with the buying sentiments waning in the wake of weak crude oil prices. Ethylene prices were down by 17% Q/Q and lagged the decline in feedstock naphtha prices which h was down 31% during the sameperiod. At domestic front, with the decline in upstream crude and feedstock prices producers have reduced their offers during OND quarter. Polymer prices were also lower during the quarter due to soft demand and falling upstream values. Further, despite a 6 10% Q/Q decline in polymer prices, margins increased by 50 60% with falling intermediate prices. 130 Brent Crude Prices vs Polymer Resin Prices Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 PP, RIL price (INR/Kg) HDPE, RIL price (INR/Kg) PET, RIL price, INR/Kg Brent Futures (USD/Barrel) 220 Brent Crude Prices vs Polymer Film Prices Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 BOPP, 12 micron, INR/Kg Brent Futures (USD/Barrel) BOPET, 12 micron, INR/Kg TransGraph Consulting Pvt Ltd Slide

5 Price trend review: Oct Jan 2015 Poor demand and ample supply including new capacity additions too weighed on polyethylene prices. Further, most of the construction activity has affected by the cold weather in winter which lead to weaker demand during the period. At supply front, Indefiniteclosure it of Hldi Haldia Pt Petrochemicals Ltd (HPL) in July 2014 prompted tdtightness of 670,000 tons per annum ethylene, 700,000 tons per annum of polyethylene (PE) and 340,000 tons per annum polypropylene (PP). Having a 12.8% share of the domestic polymers market, HPL's failure has also affected downstream plastics converters and around 150 plastic processor firms have shut down as a result. At consumption front, Indian polymer demand increased at 5.2% during Apr Dec 14 period. PP demand grew 5.3% Y/Y in the first 9 months since starting of the fiscal year with improved demand from raffia packaging, non woven, multi filament, automotive and appliances sector. PE demand was higher by 5.0% Y/Y due to a healthy demand from film packaging, molded products (i.e. FMCG, Pharma and Food packaging), g), and paper/woven pp sacks lamination packaging g sector. Demand for PET bottles remained stable amidst ongoing concerns about the ban on the usage of PET bottle in Pharma sector. Demand for BOPP and BOPET films remained robust during the quarter, while weakness in crude oil prices have led producers to reduce their offers during the past quarter. TransGraph Consulting Pvt Ltd Slide 5

6 Margins movements 95.0% Polymer RM margins (%) Polymers raw material margins increased Q/Q amidst the 30% fall 75.0% in crude and naphtha prices has not 55.0% totally turned into the fall of 35.0% 38% 40% 36% polymer RM prices which had fallen 15.0% 10% by 15 25%. 48% 50% 62% 92% Despite 15 20% fall in intermediate feedstock prices, polymer prices fell by only 8 10% Polymer margins increased from a level of 6 10% during JFM quarter 2014 to 20 30% in OND quarter % 35.0% 30.0% 25.0% 20.0% 0% 15.0% 10.0% 61% 20% 1%% 2% 7% 29% 1% 2% Mar 14 Jun 14 Sep 14 Dec 14 Ethylene Propylene PTA MEG HDPE PP PET 17% Polymer margins (%) 16% 14% 31% 50% 5.0% 0.0% 6% 7% 7% 10% 10% 15% 22% 32% Mar 14 Jun 14 Sep 14 Dec 14 TransGraph Consulting Pvt Ltd Slide

7 Macroeconomic update US Euro zone Japan China India

8 US Economy slow growth expectations 6% 3% -1% US GDP growth (Q-o-Q annualized) 4.50% 4.60% 5.00% 3.50% 2.60% US Nonfarm Payrolls and Unemployment Rate % -2.10% Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Final estimate Advance Estimate Second Estimate Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 US Nonfarm Payroll Change ('000) US Unemployment rate (%) 82.5 UoM Consumer Sentiment t US Build permits (000 Units) Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 TransGraph Consulting Pvt Ltd Slide 8

9 Weak currency and higher exports remained favorable German GDP % Change (YoY) German Trade Balance (Bln EUR) 2.50% % 1.30% 1.10% 1.20% 1.00% 21.8 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 German Factory Orders m/m 4.9% 4.2% 2.9% 1.1% -2.4% -4.2% 42% Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 German GDP improved compared to an expectation by 1.60% in OND 14. Weak euro exchange rate supported higher export realizations and further strengthened IP and factory orders. Going ahead, we expect the fast recovery in Germany should contribute to improving EU GDP numbers in medium term. TransGraph Consulting Pvt Ltd Slide

10 Euro zone gradual recovery to unfold EU GDP % Change (YoY) 1.10% 0.80% 0.80% 0.40% 0.90% 21.6 EU Current Account Balance (Bln EUR) % Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec % EU Industrial Production (Y/Y) 0.2% 0.7% -0.2% -0.8% -0.8% Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Monthly purchase of EUR 60 billion QE is likely to support gradual economic revival in the long run. Additionally, diminishing Grexit fears is likely to support bullish sentiments. Going ahead, dovish policy stance by the ECB and improving PMI activity is likely to support the recovery in the euro currency. TransGraph Consulting Pvt Ltd Slide

11 China Economy scant activity during Lunar holidays China GDP (YoY) 7.80% 7.70% 7.50% 7.40% 7.30% 7.30% China Manufacturing PMI Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan China Trade Balance (USD bn) % China Industrial Production (Y/Y) 8.0% 7.7% 7.9% 6.9% 7.2% 31.0 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 TransGraph Consulting Pvt Ltd Slide 11

12 PBOC s money market intervention to mitigate liquidity 17.0% China Fixed Asset Investment (Y/Y) 12.2% China Retail Sales (Y/Y) 16.5% 16.1% 11.9% 11.9% 15.9% 15.8% 15.7% 11.6% 11.5% 11.7% Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 China has entered into a slow but sustainable growth phase over the past couple of quarters. Credit availability in China has remained a concern due to low shadow banking activity. Going ahead, scant activity during the week long New Year holidays islikely to remain a non event. However, increasing withdrawals ahead of the holidays may force the PBOC to intervene. We expect the weakness in fixed asset investment and slowing manufacturing PMI is likely to weigh on first quarter GDP in 2015 which is likely to lead to higher risk aversion in the near term. TransGraph Consulting Pvt Ltd Slide

13 Japan weak GDP and low inflation may support dovish policy Japan GDP % Change (YoY) Japan CPI Inflation (Y/Y) % 0.2% % % -0.2% 7.3 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec % Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Japanese GDP increased at a slower pace of 2.2% 2% compared to an expectation of 2.5% in OND 14 quarter. Weak economic activity, falling inflation and low export demand resulted in slower growth. Going ahead, Japanese economy is expected tdto growby 0.10% in 2014 and strengthen th towards 0.6% in the coming year. Weakness in the yen might be capped supported by improving economy and higher safe haven demand. d TransGraph Consulting Pvt Ltd Slide 13

14 Summary of key drivers for Indian Rupee Foreign capital inflows have increased (nearly USD 42.5 billion in 2014) limiting the weakness of the Indian rupee compared to other Emerging Market (EM) currencies. In January, inflows have recorded USD 5.45 billion. Additionally, i forex reserves have also stabilized and remained supportive for the Indian rupee. Currently, forex reserves touched a record USD 322 billion, surpassing the previous high of USD 321 billion in September At present, reserves are sufficient to cover imports for more than eight months FII inflows in USD billion in Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan Optimism over pick up in Indian business cycle 290 coupled with expectations of higher inflows after the European Central Bank s USD trillion stimulus should remain favorable Forex Reserve (billion $) Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 TransGraph Consulting Pvt Ltd Slide 14

15 Summary of key drivers for Indian Rupee cont. Inflation expectations have remained subdued at only 5% in Dec 14. Going ahead, inflation projections remains lower owing to falling import prices and low energy prices in the last quarter of FY 15. The Reserve Bank of India has lowered interest rate to the tune of 0.25% and is likely to remain dovish which should fuel risk appetite and improve economic activity. Additionally, the Indian GDP growth 53 outlook has been marginally revised higher by 0.10% to 6.40% by the World 52 Bank in FY 16 while the FY 15 growth 51 range is likely to remain between % Consumer Price Index % Change y/y Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec India PMI Manufacturing TransGraph Consulting Pvt Ltd Slide Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15

16 Polymer market analytics

17 Demand Drivers Consumer durables and Soft Drinks 5500 Indian consumer durable production (000 units) Fuelled by rising incomes and 4000 growing affordability, the consumer durables market is 2500 expected to expand at a 2000 compound annual growth rate (CAGR) of 14.8% 1400 Indian quarterly mineral water and softdrinks production Going ahead, mineral water and soft drink production is expected 800 increase in the JFM quarter 600 ahead of summer season Aerated Waters & Soft Drinks (KL) Mineral water (KL) TransGraph Consulting Pvt Ltd Slide 17

18 Demand Drivers Biscuit and Beer 200 Indian biscuit production index Total production of Biscuits in FY is expected to be = metric tons in which Around 60% of total production 900 Indian quarterly beer production (KL) 850 of biscuitit is contributed tib t by organized sector while remaining 40% is contributed by 600 unorganized bakeries TransGraph Consulting Pvt Ltd Slide 18

19 Supply and Demand Balance PE Indian ethylene and PE supply demand balance Ethylene Capacity Production Imports Exports Apparent Consumption Capacity utilization (%) 95.86% 91.63% 77.76% 78.79% PE Source: CPMAI, All units in million tons Capacity addition by GAIL shall increase the total capacity to million tons in Startup of new unit by OPAL to push up polyethylene and ethylene capacity in domestic market. India PE demand is expected grow at 9.3% in 2015 Rise in packaging industry growth by 15% could lead to robust rise in demand TransGraph Consulting Pvt Ltd Slide 19

20 Supply and Demand Balance PP Indian propylene and PP supply demand balance Propylene PP Capacity Production Imports Exports Apparent Consumption Capacity utilization (%) 93.96% 96% 93.63% 85.65% 92.37% Source: CPMAI, All units in million tons OPAL and BCPL are likely to add 340 KTPA and 60 KTPA of propylene capacities respectively in MRPL was estimated to start its new plant with 440 KTPA of Polypropylene in but likely to deferred to due to low margins and tighter propylene availability in the first half of current fiscal Rise in exports of PP addition of capacities by major players Increase in demand rise in demand from major sectors like automobiles and agriculture etc TransGraph Consulting Pvt Ltd Slide

21 Supply and Demand Balance PET Indian PET and RM supply demand balance PTA MEG PET Capacity Production Imports Exports Apparent Consumption Capacity utilization (%) 76.16% 73.65% 80.00% 87.54% 90.13% 96.93% Source: CPMAI, All units in million tons Addition of PTA plant capacities in Asia lead to lower operating rates owing to the increasing supply situation Indian PET demand to witness robust CAGR of around 12 13% between 2014 to 2016 period Rise in demand from CSD and water bottles 38% share in total PET demand TransGraph Consulting Pvt Ltd Slide

22 Supply and Demand Balance BOPP and BOPET Indian BOPP and BOPET supply demand balance BOPP BOPET 2014e 2015p 2014e 2015p Capacity Production Import Export Apparent Consumption Capacity Utilization (%) Consumption growth (%) 7.59% 8.92% 9.41% 7.71% Source: Industry reports, All units in KTPA No major capacity additions in between 2014 and 2015 BOPET consumption in India may rise by CAGR 12 15% As the Government is increasing its spending in the rural economy, increased demand for FMCG products which could result in rise in demand for BOPP and BOPET is experienced in the hinter lands of India. TransGraph Consulting Pvt Ltd Slide

23 Supply Demand Analysis Polymer RM Region Demand Supply Global Accommodative policy measures from ECB, PBOC while US rate hike may possibly delayed could support the demand for crude oil and other polymer intermediates during the period Pick up in production of polymer products post seasonal maintenance period would increase the demand for raw materials during the current quarter Existing plant shutdowns of PE and ethylene plant restarts post shutdown period could add to the supply of ethylene leading to a supply glut Lower operating rates of several MEG plants during the current quarter would lead to supply tightness Weather related disruptions during winter season in the northern hemisphere could lead to tightness in supply India Recovery in demand ahead of summer season would boost market sentiments LowerdemandfromAgricultureandpower sectors for naphtha Expectation of improving demand from the end sectors post Union budget amidst possible boost to infrastructure Increase in import duty is expected for major products including PTA and MEG from 5 to 7.5% Oversupply situation of PTA could continue in KTPA capacity of propylene is added by OPAL during JFM quarter TransGraph Consulting Pvt Ltd Slide 23

24 Supply Demand Analysis HDPE Region Demand Supply Global Increasing use of packaged goods along with improvement in economic activity during the first half of 2015 to boost demand sentiments However, slowdown Chinese and Japanese economic growth rate to remain a concern keeping growth rate subdued in the medium term Old Plant shutdowns of PE in western Europe would lead to supply tightness New capacity additions in US, Europe and Russia could be seen due to lower production costs India Improvingi demandd from film and Resume of operations by Hldi Haldia lamination packaging at a growth rate of Petrochemicals Ltd in February 15 could 5.5% increase supply of PE Expectation of rise in Industrial production could lead to rise in demand post Union budget Shift towards PE bags from Jute bags Production of HDPE and LDPE bags rose by 239% Y/Y in Dec 14 TransGraph Consulting Pvt Ltd Slide 24

25 Supply Demand Analysis PP Region Demand Supply Global Increasing use of packaged goods along with improvement in economic activity during 2015 to boost demand sentiments Chinese demand growth at a steady pace Recovery in global automobile production and rising demand from agriculture industry could drive PP consumption Plant shutdowns and lower operating rates during the current quarter would lead to supply tightness New capacity additions by China and Middle East countries during the late 2014 would likely to offset some of the tightness Recovery in demand ahead of summer Resumption of operations by Haldia in season would boost market sentiments February 15 could offset any supply tightness Improving agriculture sector growth should support polymer demand India Abolition of excise duty cut on automobiles and consumer durable goods would weigh on consumer sentiments Expectation of boost in demand from upcoming budget Nearly 400 KTPA Capacity addition by MRPL and ONGC in AMJ quarter TransGraph Consulting Pvt Ltd Slide 25

26 Supply Demand Analysis PET Region Demand Supply Global India Growing competition from PP and HDPE in rigid packaging g leading to slower pace of demand growth. Slowdown Chinese and Japanese economic growth rate to remain a concern keeping growthrate subdued Revival in industrial production across the world and increase in global trade stands crucial for incremental demand. Recovery in demand for soft drinks and mineral water bottles production ahead of summer season would boost market sentiments Prevailing concerns over the ban on PET bottle usage in Pharma sector Plant shutdowns and lower operating rates during the current quarter would lead to supply tightness Tight raw material supply due to lower operating rates could affect PET production Increase in import duty is expected from Union Budget for PET, PTA and MEG from 5 to 7.5% could improve domestic price sentiments TransGraph Consulting Pvt Ltd Slide 26

27 Supply Demand Analysis Films Region Demand Supply Global India Increase in purchasing power in the developing countries has resulted in a significant rise in per capita consumption of flexible packaging materials. Penetration of thick BOPET films used in LDC films and photo voltaic plans in emerging markets like China and India Rise in organized retail and small serve packs could lead to higher demand Rise in BOPP demand from tape and textile packaging in FY 15 and FY 16 Increased consumption of BOPP in food packaging Increasing usage of thin BOPET films (10 36 microns in thickness) in flexible packaging metallic yarn, cables, transformers, capacitors New capacities added in the low cost developing countries, primarily Asia. Capacity Utilization is likely to improve from 70% due to improving demand and increasing input costs No new capacity additions Over supply situation to continue in 2015, which would lead to lower operating rates TransGraph Consulting Pvt Ltd Slide 27

28 Polypropylene INR/Kg The sharp fall in price approaching the clustered Fib s support region of INR 74 levels where price expected to hold with subsequent gradual recovery towards INR 95 in the coming months. After topped out at INR 111, price deeply corrected 50% of bull market which expected to consolidate towards INR 95 levels before further fall. TransGraph Consulting Pvt Ltd Slide 28

29 HDPE INR/Kg The current sharp fall in price likely to find support around INR levels and witness a bounce back towards INR 105 levels before further fall. Market has ended the 6 years of bull market and correcting half of the rise with steep fall which expected to recover with gradual momentum TransGraph Consulting Pvt Ltd Slide 29

30 PET INR/Kg Price correcting 50% of cyclical bull rally around INR 87 levels where price expecting to bounce towards INR levels in the coming year. The impulsive 5 leg rising momentum has corrected by corrective 3 leg down which could possibly reverse from the support region of INR levels implicated by 2008 high and Fib s support. TransGraph Consulting Pvt Ltd Slide 30

31 Price outlook summary Region Last Closing (as on More than months Feb 17, 2015) months HDPE, RIL base price, INR/Kg PP, RIL base price, INR/Kg PET, RIL base price, INR/Kg BOPP, 12 micron, INR/Kg BOPET, 12 micron, INR/Kg Expectation of higher demand growth from packaging g industry coupled with seasonal higher consumer durable goods production during JFM and AMJ quarter is expected to support polymer prices in the medium term. Given the volatile trend in crude oil and demand for polymers for competing applications the pressure on input costs can be expected to fluctuate. Flexible packaging film makers have thus far been able to pass on these costs to end consumers and are expected to do so in the foreseeable future. However, extended ddweakness in crude oil prices and internationali polymer prices would restrict gains in polymer prices. TransGraph Consulting Pvt Ltd Slide 31

32 Thanking you for your attention WWW net TransGraph Consulting Private Limited / 2 / 1, A.P. Civil Supplies Bhavan Lane, Somajiguda, Hyderabad , India.

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