State of the Industry

Transcription

1 33 Reunión Anual Latinoamericana de Petroquímica Outlook State of the Industry Global Renaissance Challenges and Opportunities Gary K. Adams Former CMAI President & Chief Advisor, IHS Chemical 2013, IHS IHS Inc. Inc. No No portion of of this this presentation may may be be reproduced, reused, or or otherwise distributed in in any any form without prior written consent.

2 Connecting to the whole IHS family Advancing decisions that advance the world Energy Oil & Gas Healthcare Transportation Aerospace & Defense Government Power & Utilities Military & Security Electronics & Telecom IHS Chemical Consumer & Retail Construction Metals & Mining Financial Agriculture Automotive Shipping 2 2

3 Current State of the Global Industry Supply Capacity is being added or transformed Higher Cost units are closing down Demand Recovery limited to fast-growth centers, most others see little or no increase Earnings Energy cost in control wide product, location and technology differences exist Continuing Evolution into a Revised Market Structure 3

4 Agenda - Basic Chemicals and Plastics Five Years Later Recession Energy Renaissance From a Feedstock Perspective Impact of Resulting Capital Cycle Capacity Additions Distribution Trade Migration Latin America shifts from opportunistic trading to a strategic demand growth location and becomes one of the primary destinations for global petrochemical exports 4

5 Business Opportunities look slightly brighter U.S. expansion gradually gains momentum, sparked by a housing recovery and an energy boom, but restrained by government policies The Eurozone will struggle with weak growth; structural reforms are essential to improving long-run competitiveness In China, financial deleveraging and investment consolidation will restrain growth Asia will lead global growth, while Latin America and Africa will do relatively well by historical standards attracting more attention Inflation and interest rates will remain low for at least another year Geopolitics and policy mistakes are main sources of risk 5

6 Expected Growth in 2013 of 23.3 Million Metric Tons (+3.4%) is below trend Global Basic Chemical and Plastics Distribution of 2013 Demand Growth Million Metric Tons % of Total Growth North America South America West Europe China Other Asia Middle East All Others

7 Economic Cycles Impact Petrochemicals Consumer Reality Check - When the Consumer stops Compounds Retail Finished Goods Petchems it all comes to a stop! Energy 7

8 Rise of the Emerging Market Consumer The share of Global GDP related to consumption is converging in noted markets Emerging markets share will match that of U.S. & Europe by the end of this decade Message to producers is clear: do not ignore the absolute size of U.S. and European market, but for rapid growth you need to look to the emerging world including Latin America 25% 20% 15% 10% 5% Ratio of Domestic Consumption to Global GDP United States Western Europe BRICs 0%

9 Tomorrow s Basic Chemicals & Plastics Market is more Globally Interconnected Trade accelerates, connecting resources with high growth markets Percent Total Exported Year Trade % 240 Percent of Production Exported 50% Total Trade and Export Share 200 Supply-chain expertise and well-crafted go-tomarket strategies will increase in importance 40% 30% 20% Total Trade (Million Tons) Pressure on high-cost producers servicing high-growth markets is especially intense 10% 0%

10 Agenda - Basic Chemicals and Plastics Five Years Later Recession Energy Renaissance From a Feedstock Perspective Impact of Resulting Capital Cycle Capacity Additions Distribution Trade Migration Latin America shifts from opportunistic trading to a strategic demand growth location and becomes one of the primary destinations for global petrochemical exports 10

11 What about Global Competition? Secret to Success in Commodity Petrochemicals It is not all about who has the biggest plant The next plant built will be the Biggest Plant It is not all about who has the best technology Technology has become readily available It is not all about who traded there first Competitive conditions dictate buying decisions It is literally all about the cost As much as 75% of integrated cash costs are hydrocarbon based!

12 American landscape is dotted with new wells Picture from airplane between Dallas and Houston, Texas Volume of new drilling activity remains very high especially for liquids (crude oil and wet gas) Investment in methane and NGL separation, storage & transportation continues to grow Result is significant incentive to use methane and ethane for petchems 60,000 50,000 40,000 30,000 20,000 10,000 0 U.S. Drilled Well Count Annual Results Source: IHS, EIA and Baker Hughes 12

13 Ethylene cost curve revels large feed difference Oil and gas price separation means large difference in ethylene cost Note wide difference in China s CTO versus MTO production economics $1,500 $1,250 $1,000 $750 $500 $250 Ethylene Cash Cost Curve Do not foresee a significant change in relative position during the remainder of this decade U.S. shifts from ethane representing 40% of ethylene production in 2000 to 75% of production in 2020 $1,500 $1,250 $1,000 $750 $500 $250 $0 ---Ethane--- CTO Naphtha----- MDE EUR BRA LPG LPG MTO NAM China MDE MDE U.S. -Naphtha- SEA Asia Naph $0 NEA China 13

14 U.S. Shale Gas Advantage does not benefit all products Cost advantage accrues to the integrated and Btu basis contracted producers Lower Btu values mean that lower feedstock and electricity prices are a potential but not a certainty market forces prevail Differentiated natural gas results in lower generation of C3s, C4s and Aromatics in steam crackers will change trade volumes Relative Advantage Due to Shale Natural Gas Highly Advantaged Polyethylene Ethylene Oxide Derivatives MEG, Amines, Alpha Olefins Moderate Advantage Chlorine & Caustic Soda Vinyls EDC /VCM Styrenics Methanol Ammonia No Advantage Oil Refinery Products BTX Other Aromatics Potential Disaster Butadiene Butylenes Rubber Latex Adiponitrile Propylene 14

15 Agenda - Basic Chemicals and Plastics Five Years Later Recession Energy Renaissance From a Feedstock Perspective Impact of Resulting Capital Cycle Capacity Additions Distribution Trade Migration Latin America shifts from opportunistic trading to a strategic demand growth location and becomes one of the primary destinations for global petrochemical exports 15

16 Large increase in capital spending underway Petchem demand growth and hydrocarbon availability have provided sufficient motivation to invest in a wide range of new production Investment levels are inflating Capital costs $120 $100 $80 $60 $40 $20 Global Chemical Capital Spend Constant 2012 U.S. Dollars - Billions Plastics Olefins Methanol-Ammonia Inorganics Fibers Aromatics $

17 Overbuilding Capacity is very evident, Capacity additions react to local drivers - cost advantage & growth Long lead times and global scale produce disconnected timing Global market faced with expanding over-supply conditions Global Basic Chemicals and Plastics Comparison Capacity Change vs. Demand Change Absorbing Expanding Million Metric Tons Capacity adjusted to 90% of Nameplate Intense Pressure to Close Facilities

18 New, low cost units improve profitability Ethylene production realizing >$200 cash margin is expanding This increases the economic incentives to raise derivative exports Also forces drastic actions reduce cost or shut down $1200 $1000 $800 $600 $400 $200 $0 Global Ethylene Cash Margin Curve Ethylene Cash Margin - U.S. $ per Metric Ton % of the capacity experiencing moderate to severe margin pressure $ Million Metric Tons of Global Ethylene Capacity $1200 $1000 $800 $600 $400 $200 $ $0

19 Distribution of U.S. Ethane to PE Chain Margins Cents Per Pound Polyethylene Dollars Per Metric Ton Wtd. Avg. PE Margin - Contract Non-Int. Including Discounts -220 Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs Ethane Margin - Ethane Price Minus Shrinkage & 5.5 cpg Extraction Costs 19

20 Imports of ethylene derivatives from outside South America are growing Brazil s Chemical Trade Balance is estimated to be $-32 Billion in 2013 In concert with a growing volume of imports for the whole region On the way to becoming a strategic customer base for new capacity Million Metric Tons Net Equivalent Imports Local Supply South America Region Ethylene Self Sufficiency Self- Sufficiency 100% % 80% 70% 60% 50% 40% 20

21 Trend of Rising Imports Will Continue Including New Imports from Mexico APLA Region is attracting imports of resins to support development Low cost electricity and low cost ethane are providing enhanced opportunity for North- South trade Message to low-cost producers is clear: focus on building strategic partners in APLA South America PE and PVC Imports PVC PE Million Metric Tons

22 Basic Chemicals & Plastics Conclusions - Delivering Success? Improving economic fundamentals are expected to enhance pace of demand growth prospects Economic Megatrends shift demand to developing world at an ever-increasing pace Unconventional feedstocks play a larger role in shaping the global industry High-cost supply reacts to more competitive pressure by stepping up rationalization 22

23 Basic Chemicals & Plastics Conclusions - Delivering Success? Supply & demand dislocation increases need for sound supply-chain strategies Level of success defined by strategic focus on right cost for the right product for the right market Latin America shifts from opportunistic trading to a strategic demand growth location and becomes one of the primary destinations for global petrochemical exports 23

24 33 Reunión Anual Latinoamericana de Petroquímica \ Thank you for your support these many years. IHS Chemical values the continuation of our longstanding relationship. 2013, IHS IHS Inc. Inc. No No portion of of this this presentation may may be be reproduced, reused, or or otherwise distributed in in any any form without prior written consent.