POLYOLEFINS THE NEVER ENDING STORY

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5 MARCH 2016 POLYOLEFINS THE NEVER ENDING STORY Martin Wiesweg Senior Director Polymers EMEA

6 Western Europe stays on a slow growth path World Economic Outlook / March 2016 Growth will edge up, supported by easing credit conditions, a competitive euro, low oil prices, and reduced fiscal headwinds. In mid-march, the European Central Bank (ECB) expanded its quantitative easing and lowered its discount rate to -0.40%. With inflation picking up only gradually, the ECB is not expected to raise interest rates until September The euro is projected to bottom out near USD1.05 in mid-2016 and then gradually recover to USD1.30 by the end of Ireland, Spain, the United Kingdom, and Sweden will maintain relatively healthy economic growth, while Italy and France will struggle. Mass immigration from the Middle East and North Africa will boost growth through additional consumer and government expenditures. 6

7 Real GDP growth in Western Europe World Economic Outlook / March 2016 Real GDP Source: IHS 2016 IHS 7

8 Real GDP growth in Western Europe World Economic Outlook / March 2016 Real GDP Source: IHS 2016 IHS 8

9 With inflation below target, the European Central Bank will keep its policy rate near zero into 2018 Consumer price inflation and policy interest rate World Economic Outlook / March 2016 Source: IHS 2016 IHS 9

10 Excess supply has depressed crude oil prices World Economic Outlook / February 2016 Elevated OPEC production will lead to a further buildup of global oil stocks in the first half of 2016, keeping prices weak. As sanctions end, Iran s oil exports are assumed to increase by 400,000 barrels/day by mid-2016, but the amount is highly uncertain. Global oil demand growth will slow from 1.7 million barrels/day (MMb/d) in 2015 to 1.2 MMb/d in Low prices will drive down non-opec production (primarily US shale oil), leading to a roughly balanced global market in late US crude oil production is expected to reach a low of 8.3 MMb/d in summer 2016, down 1.4 MMb/d from its April 2015 peak. Reduced production costs and increased productivity continue to push break-even prices lower, limiting upside price risks. 10

11 Oil Price Forecast Moving Down in World Crude Oil Price Trends US$ / BBL WTI Brent Dubai Source: IHS 2016 IHS

12 PE and PP

13 Growth Opportunities in Emerging Economics PO Consumption vs. GDP PO Consumption Per Capita, kg 60 Bubble size represents population size 50 NAM NEA 40 WEP 30 CE ME 20 SEA 10 ISC SAM CIS 0 AF GDP Per Capita, k$ Source: IHS 2016 IHS 13

14 Global PO Growth Robust In The Long Run Global PO Demand 90 Thousand Metric Tons PP HDPE LDPE LLDPE Source: IHS 2016 IHS 14

15 MDE Expansions: Another Pause Ahead? MDE: Total PE PP Capacity Changes Million Metric Tons 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0, UAE Iran KSA Source: IHS 2016 IHS 15

16 North America PE Projects 16

17 PE Capacity Additions: Balanced Over Regions India important contributor 2016 Global PE Capacity Additions Million Metric Tons Source: IHS North America South America West Europe Central Europe / CIS Africa / Middle East Asia / Pacific Global Demand Change 2016 IHS 17

18 PE: Global Operating Rates Moderate Next Year Regional PE Domestic Demand % Million Metric Tons % 86% 84% 82% 80% Operating Rate 20 78% % Source: IHS North America South America West Europe Central Europe & CIS Middle East & Africa Indian Subcontinent Asia Total Capacity Operating Rate 2016 IHS 18

19 PP Capacity Additions: It s All About China Regional PP Capacity Additions 6 5 Million Metric Tons Source: IHS North America South America West Europe Africa/Middle East Indian Sub. China Southeast Asia Central Europe/CIS Global Demand Change 2016 IHS 19

20 Presentation Name / Month 2016 New Projects in China (2012 to 2017) From 2012 to 2017 China s PP Capacity is doubling From 13 MTA to 26 MTA! For comparison: WE PP capacity is 9.5 MTA

21 PP: Global Operating Rates: Temporary Dip in 2016 Regional PP Domestic Demand % Million Metric Tons % 90% 85% 80% Operating Rate % North America South America West Europe Central Europe/CIS Africa/Middle East Indian Sub. China Southeast Asia Total Capacity Operating Rate Source: IHS 2016 IHS 21

22 PE and PP Europe

23 Ethylene, HDPE and Crude Oil Prices Ethylene, HDPE and Crude Oil Prices jan/14 mrt/14 mei/14 jul/14 sep/14 nov/14 jan/15 mrt/15 mei/15 jul/15 sep/15 nov/15 jan/16 mrt/16 mei/16 jul/16 sep/16 nov/16 Euros per Metric Ton US$ per Barrel Ethylene, Contract HDPE Contr. Blow Molding Crude Oi, Spot Avg.l Source: IHS 2016 IHS

24 GPPR Webinar / Nov 2016 EU28 PE Imports in 2014 on weak and higher duty EU28 PE Imports Imports 2014 (vs 2013): LLDPE -28% LDPE -22 % HDPE -12 % Imports 2015 YTD: LLDPE +16.5% LDPE +9.3 % HDPE % 0 Jan-13 Jan-14 Jan-15 Feb-13 Feb-14 Feb-15 Mar-13 Mar-14 Mar-15 Apr-13 Apr-14 Apr-15 May-13 May-14 May-15 Jun-13 Jun-14 Jun-15 Jul-13 Jul-14 Jul-15 Aug-13 Aug-14 Aug-15 Sep-13 Sep-14 Sep-15 Oct-13 Oct-14 Oct-15 Nov-13 Nov-14 Nov-15 Dec-13 Dec-14 Dec-15 Thousand Metric Tons HDPE LDPE LLDPE Source: IHS 2016 IHS 24

25 PE Margins Reached Record Levels On Critical Tightness in Q European HDPE Margins Euros Per Metric Ton US$ Oil 109 US$ US$ Oil 58 US$ US$ Oil 57 US$ US$ Oil 31 US$ US$ Oil 45 US$ US$ Oil 50 US$ jan/14 jun/14 nov/14 apr/15 sep/15 feb/16 jul/16 dec/16 mei/17 okt/17 HDPE Contract Price Europe Ethylene Contract Price Europe Source: IHS 2015 IHS 25

26 West Europe PE H It Was A Perfect Storm 8% of PE capacity in Europe closed down in last 2 years Destocking during collapse of oil prices H Restocking in February led to high operating rates Technical outages on top of planned maintenance led to price spikes ME netback to Europe attractive again since May/June Inventories held by producers at normal levels again since August Prices dropping in September/October, rebound in Q4 ME netbacks to Europe and Asia on par again in October No repeat of H scenario with European pricing level attracting imports in H

27 Presentation Name / Month 2015 Middle East exports to EU28 increased in 2015 EU28 PP MDE Imports by Grade 2015 vs 2014 Thousand Metric Ton YTD ,000 mt YTD 2015: 670,000 mt 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec PP Ho 2014 PP Co 2014 PP Ho 2015 PP Co 2015 Source: IHS 2015 IHS 27

28 Middle East Netbacks to Asia/Europe Middle East Polypropylene Netbacks jan/14 mrt/14 mei/14 jul/14 sep/14 nov/14 jan/15 mrt/15 mei/15 jul/15 sep/15 nov/15 jan/16 mrt/16 mei/16 jul/16 sep/16 nov/16 jan/17 mrt/17 mei/17 jul/17 sep/17 nov/17 Netbacks, US Dollars per metric ton Netback Delta, US Dollars per metric ton MDE Netback Delta WEP PP Netback Northeast Asia PP Netback Source: IHS 2015 IHS

29 PP Homopolymer Monthly Price Forecast European PP Margins Euros Per Metric Ton jan/14 jun/14 nov/14 apr/15 sep/15 feb/16 jul/16 dec/16 mei/17 okt/17 PP Homo. Contract Price Propylene Contract Price Source: IHS 2016 IHS 29

30 PP The year ahead in numbers China will increase PP capacity by 2.4 million mt in Demand will increase 1.4 million mt. China imports will decline by 300,000 mt in Borouge 3 plant will add 960,000 mt in Middle East from Q onwards. Netbacks from Middle East to Europe will remain favourable in the H PP Homo price averaged 1,325 per mt in 2015 and forecast to average 1,115 per mt in PP Homo to C3 Spread to average 462 in 2015 and 340 in

31 Presentation Name / Month 2014 PET Prices in Europe follow raw material costs West Europe PET Economics (Discount applied) Forecast Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Dollars per Metric Ton Conv Costs and Other Raw MEG Component PTA Component PX Component Contract price Source: IHS 201 IHS

32 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Dec-15 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 PS Price Outlook Europe Contract Price, Euros per Metric Ton Forecast

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