Global PE. Nick Vafiadis Director Polyolefins North America. Foro PEMEX Petroquimica Singapore Shanghai Houston New York London Düsseldorf Dubai

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1 Global PE Nick Vafiadis Director Polyolefins North America Singapore Shanghai Houston New York London Düsseldorf Dubai

2 Global PE Demand Growth Key Assumptions PE resin remains cost competitive which supports global demand growth. Global demand ~ 11 kg/capita consumption- developing economies drive growth to ~ 13 kg/capita by 2015 LLDPE: New product opportunities continue to develop ex. Mlldpe is growing through new uses such as displacing EVA s, and film equipment increasingly designed to accommodate LLDPE. Also stand up pouches continue to gain market share LDPE survives as no other material duplicates properties: primarily (autoclave). Extrusion coating and high EVA s HDPE demand benefits from reverse substitution away from high cost PP. Ex yogurt cups, stadium cups etc. Environmental concerns continue to dampen global demand growth for some large use end markets such as carry out bags etc.

3 Global Total PE Growth vs. GDP Percent Change, % GDP HDPE LLDPE LDPE TotPE Total PE Demand Growth = 5.4%

Uneven Demand Growth 7% 20% 16% 30% % AAGR 10-15 NAM = 2.8 SAM = 6.0 WEP = 2.6 NEA = 7.4 World = 5.

4 Uneven Demand Growth 7% 20% 16% 30% % AAGR NAM = 2.8 SAM = 6.0 WEP = 2.6 NEA = 7.4 World = % Total Global Demand 2010 = 72.5 Million Metric Tons North America South America West Europe Northeast Asia Other

5 World PE Demand Year Over Year World 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 Demand

6 Global LLDPE Supply/Demand Million Metric Tons Operating Rate % Demand (4.4/5.8) Total Capacity (5.2/4.4) Operating Rate 95% 90% 85% 80% 75% 70% 65% 60%

7 Global HDPE Supply/Demand Million Metric Tons Operating Rate % 40 90% 30 80% 20 70% 10 60% % Domestic Demand (3.2/5.8) Total Capacity (4.8/3.9) Operating Rate

8 Global LDPE Supply/Demand Million Metric Tons 25 Operating Rate 100% 20 90% 15 80% 10 70% 5 60% % Domestic Demand (1.5/3.5) Total Capacity (2.0/2.7) Operating Rate

2009 2010 2011 2012 2013 2014 2015 World

9 Global Operating Rates % Operating Rate 95 Accelerate World North America West Europe Middle East Northeast Asia

Ton 100 2,640 80 60 40 20 0 Jan-07 Dec-07

10 HDPE Cash Cost vs. Price Cents Per Pound Dollars Per Metric Ton 100 2, Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 NAM Integrated Total Cash Cost NAM HDPE Disccounted China HDPE Spot WEP HDPE Discounted 2,200 1,760 1,

11 Cents Per Pound 100 NAM PE Prices Dollars Per Metric Ton 2, , , , , , Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 LDPE GP HDPE BM LLDPE C4 661

109-5 -111-15 -331-25 -551-35 Jan-07 Dec-07

12 Global HDPE Non-Integrated Margins Cents Per Pound Dollars Per Metric Ton Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 NAM WEP SEA -771

13 Global PE Capacity Additions Million Metric Tons Asia/Pacific Africa/ Middle East North America Central Europe/ CIS South America West Europe Global Demand Change Global Capacity AAGR 10-15: 3.7% Global Demand AAGR 10-15: 5.4%

14 4Q-10 3Q-10 2Q-10 1Q-10 Polyethylene Capacity Changes NAM WEP MDE NEA / SEA / ISC Company kta Company kta Company kta Company kta Borealis BEL HD (200) Yansab KSA HD 400 Sinopec/SABIC JV CHI Borealis SWE HD/ LL 600 HD/ LL (90) Sharq KSA HD 400 PTT Chem THA LD 300 Net Increase SABIC UK LD 400 Qatofin QAT LL 450 Bangkok PE THA HD 250 Panjin Eth. CHI HD 300 HD/ Haldia IND LL x 125 2,935 LBI GFR HD 250 Zhenghai Ref. CC CHI LL 450 Nova CAN LD x 60 Borealis SWE LD 350 MOC THA LL 300 SABIC NET LD (120) TPE THA HD 400 CNOOC & Shell CHI LD 75 Indian Oil IND HD 300 HD/ Borouge UAE Polimeri Eur. FRA LD 260 Q-Chem II QAT HD 350 Amir Kabir IRN LD 300 Indian Oil IND HD/ LL 600 Baotou Shenhua CHI CNOOC & Shell CHI HD 75 Gail IND LL 50 LL 350 2,355 HD/ LL 300 LG Chem KOS HD 40 1,

15 4Q-12 3Q-12 2Q-12 1Q-12 4Q-11 3Q-11 2Q-11 1Q-11 Polyethylene Capacity Changes MDE NEA / SEA / ISC Company kta Company kta Kayan SAR HD 400 Net Increase 400 ExxonMobil SIN HD/LL 650 ExxonMobil SIN LL 650 1,300 0 Zhongyuan Evolue Japan CHI JAP MDE NEA / SEA / ISC Company kta Company kta QAPCO QAT LD 250 Hanwa Chem. KOS LD 30 Llam PC IRN HD 300 Sichuan PC CHI HD/LL 600 LL LL Net Increase Saudi Polymers SAR HD 1100 Qilu PC CHI HD 250 2,530 Fushun PC CHI HD/LL 450 Fushun PC CHI HD Honam PC KOS HD

PE Operating Rates, % 120 Middle East Improves 100 80 60 40 20 0 2005 2006 2007 2008 2009

16 PE Operating Rates, % 120 Middle East Improves Middle East Saudi Arabia Iran Kuwait Qatar United Arab Emirates

17 N. America View

18 NAM PE Demand Growth Key Assumptions North America is a mature market: anticipating growth approximating GDP levels Production growth driven by feedstock advantages from shale gas Exports remain competitive and support high op rates and help maintain producer margins Demand loss due to down-gauging mostly complete with little potential for future impact Flexible packaging continues to displace rigid applications Reverse substitution from higher cost materials like PP (increases demand for HDPE)

19 PE Demand: Negative to Positive Rotomolding Wire & Cable Blow Molding Extrusion Coating Pipe & Profile Injection Molding Film & Sheet AAGR (-2.7%) Growth Rate Percent Demand Change (AAGR 7.8%) AGGR (2.8%)

20 Million Metric Tons U.S. Trade Trends Percent Imports Exports Production as a % of Exports 5

21 Thousand Metric Tons 40 Exports Imports -140 Mexico PE Trade Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 LDPE LLDPE HDPE

22 Thousand Metric Tons 400 Exports Mexico PE Trade Thousand Metric Tons Imports HDPE LLDPE LDPE Net Exports -1,000-1,200-1,400-1,600

Billion Units 70 60 50 40 30 20 10 0 U.S.

23 Billion Units U.S. PE Bags Imports 1Q-04 4Q-04 3Q-05 2Q-06 1Q-07 4Q-07 3Q-08 2Q-09 1Q-10 4Q-10 China Share of Total World China Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

24 High Density Polyethylene International Spot Arbitrage Opportunities 2012 (US$/Metric Ton) Integrated Cash Costs vs. Contract and Spot* Prices 147 U.S. Gulf Cost:1017 $/ton Del:1543$/ton N.W. Europe Cost:1430 $/ton Del: 1904 $/ton 316 Middle East* Cost: 217 $/ton CFR: 1485 $/ton N.E. Asia* Cost: 1468 $/ton CFR: 1400 $/ton Inter-region trade flows / arbitrage movements Inter-region arbitrage movement limited / closed Logistics & Import Tariffs ~

25 Linear Low Density Polyethylene International Spot Arbitrage Opportunities 2012 (US$/Metric Ton) Integrated Cash Costs vs. Contract and Spot* Prices 147 U.S. Gulf Cost:1093 $/ton Del: 1653 $/ton N.W. Europe Cost:1471 $/ton Del: 1859 $/ton 316 Middle East* Cost 2247 $/ton CFR: 1480$/ton 243 N.E. Asia* Cost:1520 $/ton CFR: 1345 $/ton 367 Inter-region trade flows / arbitrage movements Inter-region arbitrage movement limited / closed Logistics & Import Tariffs ~

26 Low Density Polyethylene International Spot Arbitrage Opportunities 2012 (US$/Metric Ton) Integrated Cash Costs vs. Contract and Spot* Prices 150 U.S. Gulf Cost:1098 $/ton Del:1962 $/ton N.W. Europe Cost: 1527 $/ton Del: 2063 $/ton Middle East Cost: 248 $/ton Del: 1790 $/ton 90 N.E. Asia 106 Cost: 1564 $/ton Del: 1660 $/ton 373 Inter-region trade flows / arbitrage movements Inter-region arbitrage movement limited / closed Logistics & Import Tariffs

27 LDPE New Math = New Life Then Obsolete, replaced by LLDPE High cost, low volume plants Minimal investment in new capacity

28 LDPE New Math = New Life Now Specialty status Tight supply globally Expanding margins EVA driving demand Limited capacity build

29 NAM: LDPE ISSUES Numerous 2010 outages created shortage Most units are old and running at capacity Price delta developed (sustainable?) New Capacity likely Metallocene now cheaper / Converters blending more LLDPE Autoclave premium?? Supply / Demand eases in 2011

30 PE Take-Away s Hindsight: Energy shift, start up delays, export options, and unplanned outages transform would-be trough to record profits for US resin producers expansions likely Demand: Global growth dependant on emerging economies N.Am growth near gdp Price: increasingly tied to global naphtha price trends, and spot Asia export options unplanned outages remain the wildcard Margins: US - Remain strong (integrated and non-integrated) New capacity: in MDE and China will be absorbed less dramatic impact on pricing and margins Caution: Rapid increases in crude oil price could kill demand and resin prices could fall as in 2008

31 Polypropylene

32 Polypropylene s New Paradigm High cost High price From 2008 Reduced demand growth rate Improved profitability, in spite of apparent global loose supply and demand balance

P/E Ratio: Fundamental Shift Propylene to Ethylene Price Ratio 1.6 1.4 1.2 1.0 0.8 0.

33 P/E Ratio: Fundamental Shift Propylene to Ethylene Price Ratio North America West Europe Southeast Asia

34 PP Shifts from Inexpensive To Expensive PVC LLDPE HDPE PS PET LDPE PP ABS Cents Per Cubic Inch

Price Ratio, Cents Per Pound 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.

Dec-2011 Jul-2012 PP Spot Export North America/PS High Heat Net Trans.

35 Price Ratio, Cents Per Pound Prices Volatile Jan-2009 Aug-2009 Mar-2010 Oct-2010 May-2011 Dec-2011 Jul-2012 PP Spot Export North America/PS High Heat Net Trans. North America PP Spot Export North America/HDPE Disc. Contract North America

ACN and Production Impact PGP Price ACN, $/Ton C3, Cents per Pound 3,000 90 2,500 2,000 1,500 1,000 Cracker Turnarounds Extreme TX Weather + Refinery Turnarounds + High

36 ACN and Production Impact PGP Price ACN, $/Ton C3, Cents per Pound 3, ,500 2,000 1,500 1,000 Cracker Turnarounds Extreme TX Weather + Refinery Turnarounds + High ACN Prices December C3 Production Issues + High Cotton Prices + High ACN Prices Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 ACN Asia PGP NAM 0

North American Prices: One Notch Above The Rest Cents Per Pound Dollars Per Metric Ton 120 2,640 100 2,200 80 1,760 60 1,320 40 880 20 440 Jan-09 Aug-09

37 North American Prices: One Notch Above The Rest Cents Per Pound Dollars Per Metric Ton 120 2, , , , Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 West Europe PP Discounted Price Northeast Asia PP Spot North America PP Discounted Price North America PP Spot Export

38 Polypropylene More Expensive Price, Cents Per Pound Price Ratio PS High Heat Net Trans North America PP Spot Export North America PS/PP Price Ratio

39 Volatility Affecting Demand N. Am PP Demand & Exports, Billion Pounds Cents Per Pound Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul Domestic Demand Exports PP Homopolymer Discounted Price NAM

40 In Spite of Higher Costs, Demand to Injection Molding Film & Sheet Raffia Grow 7.3% 5.8% 5.2% Fiber 5.1% Other Pipe & Extrusion Blow Molding 4.9% 5.0% 4.0% Average Annual Growth Rate, Total Demand: 5.6% Global Demand, Million Metric Tons %: 2010 to 2015 Average Annual Growth Rate

41 Global PP Market Outlook Demand/Capacity, Million Metric Tons Operating Rate, % Domestic Demand (3.9/5.6) Exports (6.8/1.3) Total Capacity (6.1/4.5) Imports (6.8/1.3) Operating Rate

42 Investments Begin To Slowdown PP Capacity Increases, Million Metric Tons Average Annual Growth 4.0 Demand Northeast Asia Middle East Indian Subcontinent Southeast Asia CIS & Baltic States Africa North America West Europe Central Europe South America

43 Transitional Economies Driving Per Capita Consumption, Kg/person 25 Growth 2015 Population, Billions % % % 11.2% West Europe South America North East Asia ISC %: Demand Average Annual Growth Rate Population 0.0

44 North America PP Market Outlook Demand/Capacity Million Metric Tons Operating Rate, % Domestic Demand 1.9/2.5 Exports 22.9/-22.2 Total Capacity -0.8/-0.8 Imports 2.9/0.5 Operating Rate 80

45 Latin America Consumption by Country Brazil 5.4% Mexico Argentina 3.8% 5.4% Colombia Venezuela Other 5.8% 6.5% 3.7% Average Annual Growth Rate, Total Demand: 5.5% %: Average Annual Growth Rate Consumption by Country, Million Metric Tons

46 Latin America Consumption by End Injection Molding Film and Sheet Fiber Use 5.4% 6.6% 5.3% Other 5.2% Raffia Blow Molding Pipe and Extrusion 4.7% 3.8% 6.2% Average Annual Growth Rate, Total Demand: 5.6% %: Average Annual Growth Rate Consumption, Million Metric Tons

Thousand Metric Tons 200 Exports 100 0-100 -200-300 -400-500 -600-700 -800-900 Imports Mexico PP Trade Thousand Metric

47 Thousand Metric Tons 200 Exports Imports Mexico PP Trade Thousand Metric Tons Polypropylene Net Exports

48 Conclusions North American demand growth and capacity closures improves operating rates Exports to suffer, but will reach a balanced level Spreads/margins to expand only marginally; propylene plus contracts expected to remain in place as long as volatility rules market Long term prices line up after propylene capacity and imports help balance propylene market

POLYOLEFINS THE NEVER ENDING STORY

MARCH 2016 POLYOLEFINS THE NEVER ENDING STORY Martin Wiesweg Senior Director Polymers EMEA +49 211 97550707 Martin.Wiesweg@ihs.com Western Europe stays on a slow growth path World Economic Outlook / March