North America Energy Price Trends

Transcription

1 PE / PP / PET Market Review Nick Vafiadis Director Polyolefins and PVC North America Flexible Packaging Assn. Singapore Shanghai Houston September New York 2010 London Düsseldorf Dubai

2 7 Game Changers Energy costs shift (nat gas / crude): now greatly favoring light feedstocks utilized in the US (ethane) US resin producers invest, and shift-light New capacity: plagued by start-up problems China: Economic stimulus Export market became attractive and viable Unplanned outages for monomer and polymer producers. Discipline

3 Current $ $/MMBtu North America Energy Price Trends Crude (WTI) Natural Gas Gas as % of Crude Gas as % of Crude BTU Basis 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

4 Cents Per Pound U.S. Daily Ethylene Cash Costs Data Through 23 Sep Dollars Per Metric Ton 1102 Jul 30 Aug 06 Aug 13 Aug 20 Aug 27 Sep 03 Sep 13 Sep 20 Purity Ethane Weighted Average Propane Gas Oil Light Naphtha Coprod. Int. Lt. Naphtha Butane

5 Cents Per Pound U.S. Ethylene Cash Cost Trends Forecast Wt. Average Purity Ethane Lt. Naphtha Propane Butane

6 Global Ethylene Production Costs Dollars Per Ton SAM U.S. SEA Light Feeds MDE Canada NEA WEP Heavy Feeds Cumulative Ethylene Capacity (Million Tons)

7 Global Monthly Ethylene Prices Dollars Per Metric Ton 2,100 1,900 1,700 1,500 1,300 1, Forecast 08 A J O 09 A J O 10 A J O 11 A J O U.S. Large Buyer Contract Price WEP Contract Price SEA CFR Spot Price

8 Ethylene Capacity & Demand Changes Million Metric Tons North America Middle East Southeast Asia West Europe Northeast ta Asia Others Annual Demand Change

9 US Operating Rates Increasing! U.S. Ethylene, Million Metric Tons 35.0 % Operating Rate Demand -27/13* Capacity 05/ * 0.7 % Operating Rate

10 Cents Per Pound U.S. Ethylene Margins Dollars Per Ton U.S. Wtd. Avg Contract Cash Margin 0

11 Polyethylene

12 PE Demand Year Over Year U.S./Canada Polyethylene Demand Percent Change, Year over Year %AAGR %AAGR End Use ' '15 Film & Sheet Injection Molding Pipe & Profile Extrusion Coating Blow Molding Wire & Cable Rotomolding Domestic Demand

13 HDPE Film Resin Demand YTD August HDPE Percent Change Film 12 Mils and Below 12.0 Packaging Film 17.8 Food Packaging Film 0.6 Non-Food Packaging Film 34.9 Non-Packaging Film Retail Bags 13.7 Trash and Can Liners Other Non-Packaging Film 18.8 Source: ACC,, Plastics Division; Gov t Trade Data

14 LLDPE Film Resin Demand YTD August LLDPE Film (12 Mils and Below) Packaging Film Food Packaging Film Non-Food Packaging Film Non-Packaging Film Percent Change Source: ACC,, Plastics Division; Gov t Trade Data

15 LDPE Film Resin Demand YTD August LDPE Percent Change Film (12 Mils and Below) Packaging Film Food Packaging Film -4.8 Non-Food Packaging g Film 17.4 Non-Packaging Film Source: ACC,, Plastics Division; Gov t Trade Data

16 Billion Pounds U.S./Canada PE Film Resin Quarterly Demand Forecast Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 Source: ACC,, Plastics Division; Gov t Trade Data Film Resin Demand

17 Billion Units U.S. Bag Imports Percent Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 China Share of Total World China 0

18 Cents Per Pound 110 U.S. Exports Remain Viable Forecast Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 NAM HDPE WEP HDPE CHINA HDPE (Spot) NAM Spot export

19 PE Capacity Being Built In The Middle East & Asia Must be Absorbed Million Metric Tons Avg. Demand Growth: 3.7 Million Metric Tons Per Year North America West Europe Africa/M. East South America Central Europe/CIS & Baltic States Asia/Pacific

20 NAM Polyethylene Capacity Changes WEP MDE Company kta Company kta Company kta Company Sinopec/SABIC BorealisBELBEL HD (200)Yansab KSAHD 400 Tianjin PC NEA / SEA / ISC kta CHI HD/LL 600 Net Increase Q-10 BorealisSWE HD/LL (90) Sharq SABIC UK LD 400 Qatofin KSAHD 400 PTT Chem QAT LL 450 Bangkok PE THA LD 300 THA HD Panjin Eth. CHI HD 300 Haldia IND HD/LL x LBI GFR HD 250 Zhenghai Ref. CC CHI HD/LL 450 2Q-10 3Q Q-10 BorealisSWE LD 350 MOC SABIC NET LD (120) TPE Borouge Indian Oil Indian Oil UAEHD/LL 540 CNOOC & Shell Amir Kabir IRN LD 300 CNOOC & Shell Gail LG Chem THA LL 300 THA HD 400 IND HD 300 IND HD/LL CHI HD/LL 300 CHI LD 75 IND LL 50 KOS HD Q Q-10 Nova CAN LD x 60 Q-Chem II QAT HD 350 Kayan SARHD

21 Polyethylene Capacity Changes NAM Company kta Company WEP kta Company MDE kta Company NEA / SEA / ISC kta Net Increase 3Q Q Q-11 1Q ExxonMobil ExxonMobil SIN HD/LL 650 SIN LL Q-11 Zhongyuan PC CHI LL 60 60

22 Indication of Things To Come In Asia? China Spot, Cents Per Pound 90 Middle East Plants Start 80 Up On HDPE Dollars Per Metric Ton 1,984 1,764 1,543 1,323 1, Jan-07 Jan-08 Jan-09 Jan-10 Jan LLDPE C4 HDPE BM LDPE GP

23 Cents Per Pound NAM LLDPE Butene Film Resin Price Vs. Integrated Cash Cost Forecast 0 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Integrated t Cash Margin LLDPE Discounted Price Integrated t Cash Costs

24 NAM: LDPE ISSUES Numerous ytd outages created shortage Most units are old and running at capacity Price delta has developed (sustainable)? Metallocene now cheaper / Converters blending more LLDPE Recent constraints ( ExxonMobil, Nova ) Nova + 60 Ktons: October start (tubular) Autoclave premium? Supply / Demand remains tight through 2010

25 Cents Per Pound 100 Price Differentiation (NAM Discounted Prices) Dollars Per Metric Ton 2, Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 1,984 1,764 1,543 1,323 1, LDPE GP HDPE BM LLDPE C4

26 U.S. Polyethylene Chain Margins Cents Per Pound Polyethylene l Dollars Per Metric Ton Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs PE Margin - Contract HDPE Blow Molding Non-Int. Including Discounts Eh Ethane Margin - Ethane Price Minus Shrinkage & cpg Extraction Costs 0

27 PE Take-Aways Energy shift, export options, and unplanned outages transform would-be trough to record profits for US resin producers US producers sitting on cash expansions possible Reduced near-term resin price volatility expected New capacity in MDE and China will pressure resin producer prices and margins in Domestic packaging and film market recovering modest growth expected post 2010 Export market remains viable for US resin producers resin imports minimized

28 Propylene / Polypropylene

29 North America 2009 PG/CG Propylene Supply/Demand Others 2% Supply Stm. Crackers 38% Demand Propylene Acrylic Acid Oxide Oxo Alc. 6% 10% Others 8% 7% Acrylonitrile 8% Cumene 1% FCC/ Splitters 60% Total Production = 13.7 Million Metric Tons PP 60% Domestic Demand = 13.1 Million Metric Tons

30 Billion Pounds Propylene Production Based on NPRA Statistics Lowest production since before Co-Product Propylene Refinery Sourced Propylene

31 Ratio Propylene to Ethylene Price Ratios Forecast Ratio Southeast Asia West Europe North America 0.5

32 Cents Per Pound 90 Regional Propylene Prices Dollars Per Metric Ton 1, Forecast 1,760 1,540 1,320 1, Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 0 WE Contract Net Transaction CFR SEA Spot US Contract Net Transaction

33 Polypropylene North America, Percent Change YTD August 2010 vs. August 2009 Production Imports Total Supply Domestic Sales Exports (est.) Total Sales Avg. Op. Rate- YTD 09 Inventory change MM LBS. YTD 2009 Sources: ACC, Plastics Division; Govt Trade Data PP

34 PP Demand YTD August PP Percent Change Film 10 Mils and Below 5.2 Oriented Film 6.0 Non-Oriented Film 2.1 Sheet (Over 10 Mils) 15.3 Packaging 10.6 Non-Packaging 31.2 Source: ACC,, Plastics Division; Gov t Trade Data

35 Million Pounds U.S./Canada PP Film Resin Quarterly Demand Forecast Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 Source: ACC,, Plastics Division; Gov t Trade Data Film Demand

36 Integration - North American PP Producers Million Metric Tons % back integrated 40 % back to refineries 37 % back to crackers 120% 100% 80% 60% 40% 20% 0% -20% -40% Total PGP/CG Need PGP/CG Capacity Propylene Excess/Deficit it Integration ti

37 Not All Producers Are Created Equal Cents Per Pound Forecast Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 C3 Contract Benchmark Propylene Spot Ref Grade

38 Change in PP C3 to PP Correlation Increasing R² = Change in Propylene

39 NAM Moved to Top of PP Price Chain Dollars Per Metric Ton 2,200 2,000 1,800 Forecast 1,600 1,400 1,200 1, Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 NAM PP Disc. Price NEA PP Spot WEP PP Disc. Price NAM PP Spot Export

40 8 Capacity: How Much is too Much? PP, Million Metric Tons MM tons Forecast North America Asia/Pacific South America West Europe C. Europe/CIS Africa/Middle East

41 12 Investment Excess PP, Million Metric Tons Demand + = Oversupply! Drop Operating Rate, Percent 100 Forecast Capacity Increase - Demand Increase Operating Rate Cummulative Delta Caps-Delta Dem

42 Trade Patterns Changing Polypropylene Trade Thousand Metric Tons

43 Million Metric Tons Finished Goods Imports U.S. Imports, Film & Sheet 01/ / / / / / / /2010

44 Breaking the Isolation Propylene Tight Costs and Prices High Overseas prices lower increased competition Tactical purchasing & imports possible key to success

45 PET

46 PET Snapshot PET film tight US imposed new anit-dumping duties on foreign manufacturers Domestic film prices up substantially

47 PET continued Current tightness really only applies to PET film not to PET resin (not tight at all) Oriented PET film only represents about 4 % of PET resin demand PET demand d driven by fiber, bottles, and sheet for thermoforming

48 Polyethylene Terephthalate End Uses Oriented PET Film 4% Other 3% PET Resin (Rigid Packaging) 31% Fiber 62%

49 Within OPET Film Segment 4% of ft Total Packaging has highest demand 40% followed by 33% and electronic at 20% Current tightness has less to do with anti- dumping duties and more to do with the economy and market dynamics.

50 Why the tight supply. Weak economics and economy have kept inventories low through the chain Some N. American OPET film assets closed and consolidated US converters increasingly relied on lower cost imported OPET film low margin for exporters Flat panel (LCD) display production picking up in Asia- not just tv s utilize 3 to 5 mil layer of OPET film which is 6 10 x thickness of standard packaging film and more profitable for producers

51 Why the tight supply cont Current supply situation is exacerbated by the fact LCD production is gearing up (Tgiving Super Bowl): producers have switched production away from packaging film to higher margin electronics market Those relying on imports are challenged and domestic producers focusing more on long term packaging customers

52 What now? Anti dumping and countervailing duties have reduced profits for OPET film exporters making LCD biz that much more attractive Dropping duties may not close gap enough to attract them to packaging mkt. Tightness may ease following Super Bowl and when new overseas capacity comes on stream (based on packaging demand growth) Current tightness may by February / March 2011

53 Global PET Capacity Growth Million Metric Tons Percent Operating Rate Americas Asia Excess Capacity Europe, Middle East, Africa Global Demand Growth Total Operating Rate

54 1,600 1,350 1, United States PET Economics Resin price flat Film prices +100 % Cents Per Pound Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Freight Conv Costs & Oth Raw PTA Comp Contract Price Fixed MEG Comp PX Comp Cash Margin 10.0

55 THANK YOU! Contact any CMAI location to assist in your petrochemicals and plastics market analysis New York Houston London Dusseldorf Dubai Shanghai Singapore CHEMICAL MARKET ASSOCIATES, INC.

56 90% Monthly Ethylene Production Wt % Produced From Feedstock 100% 80% 70% 60% 50% 40% 30% 20% 10% 0% By Feedstock Ethane Propane Butane Naphtha Gas Oil

57 North America PP Exports Million Pounds 1, Overcapacity and Cost Competitiveness Taking Toll Forecast 0 Q1-06 Q1-07 Q1-08 Q1-09 Q Q1-1111