Global Petrochemical Outlook. Ben Morse Senior Editor

Transcription

1 Global Petrochemical Outlook Ben Morse Senior Editor

2 AGENDA Crude oil overview Crude, natural gas & light vs heavy feedstocks Feedstock impact on polymers How to follow benzene China & Middle East developments Conclusions

3 Brent Crude & Platts Global Petrochemical Index

4 Petrochemical prices follow crude Platts Global Petrochemical Index follows crude oil --weighted index of ethylene, propylene, polymers, aromatics Crude oil s been on an upward swing, so have petchem prices Crude oil has not been the only commodity on the rise Have oil & commodity prices hit their peak? --Sure looks that way Will anyone begin short selling?

5 Platts PGPI, gold high prices here to stay? Central banks dilemma rein in inflation by raising interest rates or risk stunting growth? Global commodity prices gold, oil, petchems pushing record highs

6 High inflation push food prices higher Food Price Index Meat Price Index Cereals Price Index Oils Price Index Sugar Price Index World food price index hit new record in February, up 8th consecutive month, surpassed 2008 food crisis peaks - UN's Food and Agriculture Organization Source: UN s FAO

7 Weak dollar trends toward higher crude Euro/Dollar ICE Brent Jan- 08 Mar- 08 Jun- 08 Sep- 08 Dec- 08 Feb- 09 May- 09 Aug- 09 Nov- 09 Jan- 10 Apr- 10 Jul-10 Oct- 10 Dec- 10 Mar- 11

8 Financial Factors in Commodities Global Economy screeches to a halt in 2008 US Federal reserve begins bailouts & QE1, 2 Over $1 trillion pumped into the market --Does not include global pumping ($5 trillion?) CME volume up YTD: Commodities-44%, Energy-14%, Metals-24% CME, Zhengzhou exchanges report record volumes

9 Financials continued China raises interest rates, requires more banking reserves (tightens money supply) Asia prices stall--china exporting!! CME raised margins on silver, price drops from $49 to under $40 in a day Commodity Prices not only supply/demand driven!!!!! Need to track the fundamentals of money

10 Crude steady increase, natural gas flat

11 Crude oil & US Natural Gas US natural gas prices show weak industrial demand Not tradable like oil-no exports limit natural gas to US supply/demand Shale gas increases supply US ethylene margins have benefited

12 US vs Europe cracker margins Light versus heavy feedstocks

13 Heavy feedstocks track oil; light feedstocks natural gas Heavy feedstock for steam crackers = mainly naphtha Naphtha comes from oil refining Natural gas stream made up of ethane, propane, butane, etc Ethane (C2), propane (C3), butane (C4)=Liquid Petroleum Gas=LPG Ethane, propane, butane extracted from natural gas stream for other uses. Lighter=more ethane than propane or butane Crackers often use an ethane/propane mix (E/P mix) Different feeds in=different products out

14 Reason for tight Propylene & Butadiene Olefin Plant Product Yields Ethylene Propylene Butadiene Benzene Motor Fuel Heating Fuel Ethane Propane Butane Lt.Naphtha Kerosene Gas Oil

15 Global ethylene: Green-NWE, Red-NE Asia, Black-US

16 US spot ethylene regularly lowest in the world Many US PE producers are fully integrated The economics from ethane to polyethylene, MEG, etc have been huge US spot May ethylene spike from unplanned cracker outages Weak Asia ethylene due to weak Asia demand (China)

17 China s ethylene imports fall in 2010, 2011 even less 1,000, , , , , , ,

18 China s ethylene capacity rising China's ethylene capacity ,000 mt

19 US, Canada ethylene advantage: Ethane US cash cost of ethylene from Jan-May averaged $647/mt, ethylene contract $1,138, HDPE blow molding averaged $1,490/mt US producers making a windfall NWE Jan-May ethylene contract $1,623 HDPE BM contract averaged $1,952/mt US producers sent ethylene derivatives to Europe. NWE companies cut rates Further tightened butadiene, propylene

20 Light feedstock impact Butadiene price doubles from year ago to $4,410/mt Propylene price up 57% to 80 cts/lb Propylene & butadiene demand strong from fast growing global auto sector Butadiene also firm from high natural rubber prices US Goodyear declares force majeure on styrene butadiene rubber, butadiene products on May 23 for indefinite period

21 Natural Rubber prices shooting up: IMF Jan-10 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-11

22 New Normal for US producers since 08 crash Global Petrochemical Index $/Mt /2/2008 4/2/2008 7/2/ /2/2008 1/2/2009 4/2/2009 7/2/ /2/2009 1/2/2010 4/2/2010 7/2/ /2/2010 1/2/2011 4/2/2011

23 What the New Normal means H inventory losses were huge Produce to demand One month ahead for orders If you don t order it, you won t get it Created a tighter supply chain

24 Produce to Demand effects Every outage, small or large, leads to price spikes Producers issue allocation based on past orders Past orders at flat demand leaves no inventory Must continually buy Pushes prices up Produce to demand destruction

25 Case study Jan/Feb US PP market January propylene contracts shoot up 17 cts/lb to cents/lb Pushes PP to mid-80 s (monomer cts/lb) Polypropylene buyers said NO!!! Produce to demand meant producers cut rates Buyers & Producers left with low stocks February prices came down

26 Case study continued Minimum contract volumes, some paid 85 Producers sold excess PP at & under monomer on spot market (to Mexico?) PP buyers came back in March Stronger demand lifts monomer, polymer prices Prices kept climbing May-June sees a similar cycle

27 Can US polyolefin demand absorb new capacities? Source: METI

28 New US Petrochemical plant list growing Taking advantage of low cost LPG Westlake, CP Chem, Shell, Dow new world-scale ethylene plants Dow to build new on-purpose propylene plants Ineos announces new MEG plant WHERE WILL ALL THE MATERIAL GO? Braskem/Idesa JV will takeaway much of the Mexican market also using ethane feedstock Likely to lead to rationalization and modernization Braskem/Idesa could target the US market

29 Margin slide to remind you of Europe s challenge

30 About Europe, applicable to all regions European polymer prices have recovered by around 80% since the debacle of 2008 Manufacturing growth in Germany, France, the UK with high feedstock costs led to a 12% average rise in Q1 polymer prices: Polypropylene up 15% Polyethylene Terephthalate strengthened by 14% Polyethylene & Polystyrene up by 13% respectively PVC increase by 6.7% in Q1 Plant shutdowns tighten supply, support price increases

31 Relentless rally impacts converters profitability Relentless rally in Q1 polymer prices has savaged European plastics converters profitability dented, credit facility strained some in danger of financial collapse struggle to pass the full weight of higher prices to end-users. "When you have rises in the tens of percent, that's not a level of increase our industry can afford or absorb, particularly as raw material purchases can represent up to 50% of the cost of the product. - Dick Searle, CEO of UK s Packaging Federation

32 Eurozone demand strong, exports rising Euro-zone manufacturing activity grew in February at its fastest pace in almost 11 years Rising exports from Germany in particular led to high manufacturing activity Euro-zone Purchasing Managers Index for the manufacturing sector rose 1.7 points on the month to 59 points in February This is the strongest pace of growth since June 2000 A reading above 50 points signals expansionary trends, a reading below 50 points shows contraction Weak euro accelerated growth in new orders Euro-zone Industrial orders gained 2.9% in January from a revised slump in December of 3.6% Strongest rise was in domestic demand, which gained 4.5% on the month

33 Germany pulling Eurozone out of the rut German, consumer good output rose 5.1%, a sign German households have brighter outlook German government forecast 2011 GDP growth of 2.3%, down from 3.6% in 2010 Unemployment fell in February to 7.3%--the lowest level since the current measure was first presented in 1999 Beijing become Berlin's third-largest trading partner and biggest overall provider of imports France was the biggest buyer of German goods, as it has been since 1961, followed by the US and the Netherlands

34 Turning to Benzene: Benzene to crude ratio

35 Styrene in red, tracking benzene in blue

36 Tips for tracking benzene, styrene For every 10 cts/gal drop in BZ, styrene tends to fall 1 ct/lb Ethylene can be a wildcard, but benzene is the driver Asia s benzene length comes to the US Asian BZ almost a by-product to Asian PX production (PX needed for PTA to fuel Asia s polyester industry) US government just announced styrene a likely carcinogen How will consumers react? If like bisphenol A expect some styrene demand destruction

37 China snapshot million mt/yr BTX imports BZ PX TL Key players are all state-owned: Sinopec, PetroChina and CNOOC China s imports have fallen as its own petrochemical industry matures Still building new refineries, expanding existing ones Kuwait-Sinopec JV in Zhanjiang, Guangdong province expects to have more than 1 million mt/yr of PX Sinopec Tianjin awaiting approval to expand PX capacity by 1 million mt/yr PetroChina Sichuan (600kt/year, Sinopec Hainan 600kt/year)

38 China growing, still needs imports Japan key supplier Japan is South Korea and China s top PX source 2008: Japanese PX makes up 45.7% of S. Korea s total import volume and 35.5% of China s total import volume 2009: Japanese PX makes up 55.3% of S. Korea s total import volume and 29.6% of China s total import volume. 2010: Japanese PX makes up 55.4% of S. Korea total import volume and 28.4% of China s total import volume. S. Korea China

39 Inventory at 6-month high amid falling demand, tightening credit Weak demand persisted after Chinese New Year. Labor shortage meant downstream plants could not operate at full capacity Monetary curbs: On Feb 24, Chinese central bank raised bank reserve ratio by 0.5 percentage point to 19.5% In the US, the reserve requirements range from 0% to 10%, depending on the size of the institutions. In the UK, there is no minimum reserve requirement. But average cash reserve ratio across UK is around 3.1% Rising Yuan hurts exports. The Yuan has risen 3.9% against the US dollar since last June.

40 China growth rate moderating

41 China inflation curbs accelerate update from June 14 China s May inflation rate highest since 2008 at 5.5% year-on-year Government s official target was 4% Bank of China to raise banks reserve ratio 50 basis points from June 20 Analysts expect China to also raise interest rates by June 20 Tighter & more expensive credit to limit petrochemical demand Prices fall

42 China as exporter to the world (offers from June 14) 1 LLDPE 253S 2 Maker Japan L/C AS shanghai 2 LLDPE Maker Formosa L/C AS shanghai 3 LDPE Coating C170X 7 Maker PETLIN L/C AS shanghai 4 HDB HD5502GA 0.23 Maker Philippine L/C AS shanghai 5 HDB BL3 0.3 Maker PCC L/C AS shanghai 6 PP block M Maker LG L/C AS NINGBO 7 PP block Maker FORMOSA L/C AS NINGBO 8 PP block EP548R 21 Maker BASELL L/C AS NINGBO 9 PP block AV161 5 Maker SUMITOMO L/C AS NINGBO 10 PP block PP300S 30~36 Maker BASELL L/C AS NINGBO Freight rates CFR WCSA(West Coast South Asia) : FOB CFR TURKEY & EUROPA : FOB CFR SEA(Southeast Asia) : FOB + 20~40

43 Middle East Expansions to continue Petro Rabigh to tender for its $6.67 billion Phase II expansion project comprising 17 products including caprolactum, cumene, phenol, acetone, acrylic acid, LDPE SABIC sets up holding company for JVs to manufacture downstream specialty petrochemicals. Expects annual sales to reach $60 billion/year by SABIC signed JV with ExxonMobil in Jubail to produce 400kt/year of rubber and thermoplastic polymers SABIC planning billions of dollars of investments in India Octal mulling PET bottle chips expansion to cater to Middle East, European, Indian markets

44 Sanctions not hurting Iran s exports Iran exported million mt of petrochemicals from Jan- Sep The company had exported million mt for the whole of Iran s petchems exports to Europe expected to reach $2 billion by March, up 100% year on year. Iran exports to 65 countries, 17 of which are in Europe. India's purchases of petrochemicals from PCC grew by 5% on year to 17% of the company's total exports in the first nine months of this year at 1.92 million mt or $837 million. The increase pushed India past Far East Asia (excluding China) as PCC's third largest customer so far this year.

45 Percentage break-down of who s buy from Iran Europe, 11 SEA, 7 Africa, 1.2 China, 37 India, Mid-East, 25

46 Iran s trading partners/patterns Chinese imports of Iranian PX have fallen 42.6% on year from an average of 22,296 mt/month in 2009, to 12,796 mt/month in the first eight months of this year. China still key buyer of Iranian products in 2011 The Far East is the leading destination for Iranian petrochemicals, taking 41.5% of its exports, while the Middle East takes 23.9% and India 10.7% while 9% of the total goes to southern and southeast Asia. African countries account for just 1% of the export market. Traders polled across the Middle East and Asia said that they used various payment methods to get around the problem of banks not willing to open LCs when doing business with Iranian companies. Iranian petrochemicals exports amounted to $2.3 billion (2005), $3.3 billion (2006), $6 billion (2007), $7.8 billion (2008) and $6.5 billion (2009). It is is also in talks with Bolivia, Brazil, Ecuador and Venezuela to expand its exports market.

47 Conclusions Light cracker feedstocks to continue to exert influence Produce to demand to keep US supplies tight US Fed said no more stimulus bearish for oil and petchems (Goldman Sachs forecast higher 2012 prices) Scramble for new markets Africa the next focus where to put the new product Latin American markets open up Brazil 5 th largest economy in the world, more China imports Europe to suffer Eni announces closure of steam cracker US industry sees rebirth needs to be open to import

48 Questions?

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50 Thank you, please keep in touch Thank You Benjamin Morse Senior Editor, Petrochemicals Telephone : benjamin_morse@platts.com