Polyester Chain Dynamics and Outlook in South Asia. Steven Jenkins PCI Xylenes & Polyesters Asia Sdn Bhd

Transcription

1 Polyester Chain Dynamics and Outlook in South Asia Steven Jenkins PCI Xylenes & Polyesters Asia Sdn Bhd

2 Introducing PCI Xylenes & Polyesters Ltd Since 1988, PCI Xylenes & Polyesters has been the global leader in consulting for the polyester and raw materials markets. Established in 1988 PCI has grown alongside the polyester and raw materials industries, providing insight into the changing markets, answering some of the toughest questions and supporting many of the most significant investments. The Group has developed through the years from market reporting, business analysis and specific project work to provision of board-level strategy support and assisting leading clients in developing major projects from conceptual phase through project realization. Core team of 9 experienced industry consultants each with a minimum of 2 years expertise covering all regional markets in the petrochemical and downstream businesses. Our main centres, in Guildford-UK and Kuala Lumpur-Malaysia are supported by offices in USA, Singapore, Korea, Taiwan, India, Pakistan, Turkey and Saudi Arabia. From these locations our consultants and representatives support and study the industries in those regions. Access to a network of associated specialist consultants and technical consulting companies

3 Polyester & Downstream Markets

4 India is set to grow faster than most leading economies Currently, India has the world s third largest national economy, when measured in PPP terms. Over the next decade, the Indian economy is forecast to grow more quickly than all of the other large economies. In 224, the Indian economy will still be much smaller than those of the USA and China. However, it will be much larger than all other national economies. Over the next decade, the increment in India s GDP (in PPP terms) is forecast to exceed the increment in aggregated GDP of Japan, Germany, Brazil and Russia.

5 USA China India Japan Germany Russia Brazil UK France Mexico Per Cent The 1 Largest National Economies PPP share of world GDP

6 China USA India Japan Germany Russia Brazil UK France Mexico % of 213 world real GDP Projected Real GDP (PPP Terms) by 224 The chart below applies growth rate projections to the 213 world GDP shares of the ten largest national economies to demonstrate how the contribution of India to the global economy will increase in importance over coming years % 2.5% % CAGR 1.% 1.5% 3.% 3.% 2.% 1.5% 3.% Sources: IMF WEO database, April 214; author's computation; the percentage above each bar is the assumed CAGR for for each country

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8 Selected GDP Forecasts Q % 8% 7% 6% 5% 4% 3% 2% 1% % -1% Consensus points to reasonable economic growth Polyester typically 2x GDP USA Europe (EU28) China India NE Asia SE Asia Source: Average of World Bank, IMF and Oxford Economic Forecasting data

9 Indian textile & apparel market size is US$ 18 billion in 213 and growing at a healthy rate Total market size US$ 18 billion Domestic consumption US$ 68 bn. Exports US$ 4 bn. Apparel US$ 5 bn. Home textiles US$ 5 bn. Tech. textiles US$ 13 bn. Textiles US$ 2 bn. Apparel US$ 15 bn. H/crafts & carpets US$ 5 bn. Historical growth pattern of domestic market Historical growth pattern of Indian T&A exports % % Apparel Home Textiles Technical Textiles 29 Textiles Apparel H/crafts & Carpets Source: DGCIS & Wazir Analysis Note: Exports data for FY

10 India is the second biggest exporter of textile & apparel Largest Exporters of T&A Values in US$ Billion India s Ranking in Global T&A Trade in 213 Country 213 Exports China 274 India 4 Italy 36 Germany 35 Turkey 28 USA 27 Bangladesh 26 Vietnam 22 Belgium 16 France 16 Rep. of Korea 16 Spain 16 Pakistan 14 Indonesia 13 Data Source: UN Comtrade 2 nd in Textile Export with 7% Share 6 th in Apparel Export with 3.7% Share 2 nd in Global Export with 5.2% share India has potential to double its export share from present 5% to 1% in next 1 years

11 Indian fibres growth is based on strong fundamentals Growth Drivers for Domestic Apparel & Home Textiles Market Growth Drivers for Domestic Technical Textiles Market Growth Drivers for Export Markets Demographic dividend Increased purchasing power of consumers Rapid urbanization Increased penetration of organized retail Increase in residential and commercial space Growth of industry sectors e.g.automotive, healthcare, real estate, etc. Increasing awareness about hygiene and safety among common people Increased Government outlay for infrastructure along with private investments in the sector Government schemes for export promotion and attracting FDI Trade agreements with major markets CEPA with Japan, FTA with EU (under discussion) Best alternative to China as supply base

12 Consumption of Polyester based end products will increase in the domestic market, with strong export potential Growing categories that will drive demand of Polyester textiles in the domestic market Women s western wear & Innerwear Active wear Work wear / Uniform Hygiene Products Mobiltech products Protective wear Increase in women s participation in workforce and changes in culture/fashion will push the demand of western office wear, casual wear etc India s large young population base with increasing awareness towards fitness will increase the consumption of active-wear / sportswear Increasing no. of school-going children & consciousness of corporates towards their image are likely to create more usage of school & corporate uniform Awareness of Indian women towards health and hygiene will cause increased women s hygiene product usage India s emergence as global automobile manufacturing hub will surge the demand of technical textile products e.g. seat belts, airbags, seat covers and headliners Stricter compliance norms and increasing workers awareness towards health and safety will create large demand for protective wear products

13 Kg/Capita Polyester Consumption Polyester Consumption vs GDP/Capita (Selected Countries) 25 2 USA UK Turkey China Indonesia India S Korea Majority of global population still in developing countries. Polyester penetration is still relatively low in these areas, implying significant ongoing growth potential. 5, 1, 15, 2, 25, 3, 35, 4, 45, GDP/Capita Income (USD) Source: PCI Analysis

14 Key Synopsis: Indian textile industry may consume more polyester than cotton within the next five years Total Fibre Consumption At Mill Level Polyester Other MMF Cotton Other Natural Fibres Values in Tonnes % 4% 4% 5% 4% 3% 3% 5% 51% 48% 47% 46% 45% 44% 43% 6% 6% 6% 7% 7% 8% 8% 32% 11% 4% 41% 42% 43% 44% 45% 46% 53% Share of manmade fibre in total mill consumption is expected to reach ~65% by 23. However, the share of cotton is expected to decrease from current level of ~55% to 32% by 23. A drastic change is expected in the mill consumption of polyester fibre, share of which is projected to grow to 53% (9,455, tonnes) by 23. Source: Wazir & PCI Analysis

15 Volume ( metric tons) PET Packaging Resin Growth North America South America West Europe East Europe Africa Middle East China Indian Subcontinent NE Asia Rest of Asia

16 Key Drivers for Polyester Lower oil and energy prices could add.8%-1% to global GDP growth. Approx $2tn per year diverted from energy to other expenditure. Consumer disposable income will increase as a direct result of lower energy pricing (unlike QE1/2/3) Higher population and GDP drives fibre growth. Demand is relatively inelastic for polyester, which sees little inter-product competitive threat PET growth is driven by rising living standards, urbanisation and retail sector growth, especially in Asia/Middle East/Africa, innovative package and performance development for food and non-food applications. Innovation in niche markets for fibre and packaging driving valueadded growth.

17 World Polyester Forecast Staple 15,6 16,392 17,264 18,141 19,89 Filament 28,167 29,42 31,14 33,296 34,873 Total Fibre 43,767 45,433 48,278 51,437 53,962 PET Resin 18,428 19,335 2,593 22,1 23,128 Film 3,214 3,458 3,688 3,979 4,215 Other Resins 1,876 2, 2,136 2,232 2,339 Net Polymer Production (excl recycle) 63,186 65,63 69,778 74,311 78,213 Polymer Capacity 79,439 86,99 91,435 96,99 99,456 Polymer Utilisation Rate 8% 76% 76% 77% 79% Polymer Production Growth 5.2% 3.9% 6.3% 6.5% 5.3% PSF 4.8% 5.1% 5.3% 5.1% 5.2% PFY 5.9% 3.1% 6.8% 7.4% 4.7% PET 3.4% 4.9% 6.5% 6.8% 5.1%

18 Kt World Polyester Production Growth by Product 6, 5, 4, 3, GDP and lower oil prices expected to stimulate volume growth Chain destocking (price) Higher GDP growth (oil effect) Chain re-stocking (price) Return to trend growth 2, 1, Staple Filament PET Resin Film Other Resins

19 KT South Asia Polyester Capacity Growth by Sector 25, 2, After cyclical over-investment in polyester , we expect capacity rationalisation, M&A as well as project delays and cancellations to improve polyester markets as production growth remains steady 85% 8% 15, 75% 1, 7% 5, 65% PSF ISC PSF SE Asia PFY ISC PFY SE Asia PET ISC PET SEA Film ISC Film SE Asia Polyester Production Utilisation 6%

20 Outlook for Polyester Margin cycle may have bottomed out for polyester, with increasingly competitive PX/PTA prices giving positive margin outlook. Oil price fall has forced chain destocking in 214. Forecast is for inventory recovery in 215 and higher growth (+1% over forecast) by 216 as oil stabilises at lower levels. Scale investment has driven the business cycle, but now anticipating some rationalisation and M&A activity. Utilisation recovering in on strong volume growth and delayed/cancelled projects in Asia. Many polyester assets sit idle in China, Korea, and Taiwan and are likely to be scrapped as M&A options are limited. Actual industry utilisation is higher than nameplate rates would indicate.

21 Paraxylene & PTA Markets

22 Million Tonnes World PTA Supply Demand Bottom of cycle reached improving outlook for % 86% 84% 82% 8% 78% 76% 74% 72% Demand growth remains solid at 6%. Market pricing dynamics begin to see positive recovery. Net capacity additions forecast to stabilise post-215. Plant closures are being seen, rationalisation set to pick up pace in Total Consumption Capacity 7% Production discipline starts to emerge in China with positive impact on margins Utilisation Rate (Effective) Utilisation Rate (Nameplate Basis) Effective utilisation rates support margin recovery in next 2-3 years

23 KT World PTA Production Growth by Region 5, 4, 215 volume growth boosted by re-stocking, low oil prices and increased polyester competitiveness 3, 2, 1, - (1) (2) North America South America Europe Middle East/Africa Asia/Far East Net Growth

24 Million Tonnes Tonnes India small compared to China and becomes a PTA exporter China dominates PTA pricing and polyester economics (China in light shaded bars) 95% 6 New capacity additions (RIL and JBF) turn India in to PTA exporter % % 8% % -8-1, 7% Capacity Production Consumption Utilisation Rate (RHS) -1, Import Export Net Trade

25 Million Tonnes Indian Subcontinent PTA Supply Demand 12 1 RIL & JBF PTA expansions set to change South Asian dynamics considerably 95% 9% % 8% 75% 7% 65% % Total Production Total Consumption Capacity Utilisation Rate

26 Outlook for PTA South Asia margins have potential to improve as China s discipline to hold lower production levels establishes a new modus operandi. Cash generation now paramount in China as recognised by central bank decision to cut interest rates. This policy move should reinforce local production discipline, supporting margin recovery. Rate of investment is slowing in Asia, but capacity will continue to be added into 215, diluting the industry s effort to restructure. Any project not yet under construction now likely to be delayed or is considered very doubtful. Investment in India will redefine Asian PTA trade and will inevitably have a major impact on N Asia and Middle East balances Lower energy prices will provide cost benefit to many PTA producers via lower production costs

27 Million Tonnes World Paraxylene Capacity Growth Growth per annum MT % North America Europe Asia/Far East South America Middle East/Africa Utilisation (RHS) % 88% 86% 84% 82% 8% 78% 76% 11 new PX units started , increasing competitive supply Utilisation rates drop from the high 8 s to the low 8 s. Asset closures (or idling) in Korea, Japan and Taiwan has been underway for 12 months already. Anticipate similar asset outages in Europe and North America. PX buyers now in stronger position than in prior years as excess supply increases competition RIL set to expand in India by end 215 Further projects in India being evaluated

28 Million Tonnes Indian Subcontinent Paraxylene Supply Demand Increased domestic demand into PTA in 215 ahead of RIL PX Consumption growth broadly supportive of further investment in PX in India 15% 1% 95% 9% 4 85% 3 8% 2 75% 7% 1 65% % Total Production Total Consumption Capacity Utilisation Rate

29 Regional PX Net Trade (Thousand Tonnes) EU28 North America 1 5 China Middle East South America Other Asia -1 W Hemisphere balanced. China is the major importer. Middle East, N Asia and S Asia all net exporters

30 Paraxylene Summary China remains the focus of consumption growth in the medium term and is struggling to meet domestic demand, with growing deficit of 1 million tes + Feedstock for new PX growth is not widely available to all potential investors India has an advantage via good access to feedstock heavy naphtha Increasing scale and complexity of build and higher capex per tonne for grassroots projects Supply addition in 214 has reversed the business cycle PX markets increasingly competitive and highly integrated Middle East PX increasingly important dynamic for South Asian markets PX-naphtha spreads set to decline to cyclical low Planned capacity under construction likely to keep PX market highly competitive and well-supplied until 218/219