Working Smarter... To improve profitability

Transcription

1 APLA Working Smarter... To improve profitability James Ray ICIS Senior Consultant 1

2 ICIS - Global Presence, Local Insight More than 30 years of industry insight and data Over 100,000 industry customers Weekly contact with thousands of market participants Over 9,200 price assessments in 1,200 reports covering 180 commodities 700+ global employees Customers include virtually every major chemical company 17,000+ annual news stories 2

3 Agenda Working Smarter Market price drivers Changing Markets Summary Copyright 2017 ICIS 3

4 Working Smarter 4

5 Working Smarter When we hear the phrase Work Smarter most people just nod their head and agree, but do not know how to achieve it. So what does it mean? If we asked a dozen people, we would probably get a dozen answers. I read a blog with 52 posts. One said: Hard work is reading all these comments. Smart work is reading only the comments with the highest number of Likes This post had the highest number of Likes. Here is a summary of my research on the topic: 1. Use your brawn less, your brain more by expanding your knowledge 2. Optimize your limited time/resources: Organize, prioritize, plan and execute 3. Utilize modern tools and information to make better business decisions Copyright 2017 ICIS 5

6 Market Price Drivers 6

7 Understanding Sellers Markets Cost Crude Oil Related Feedstocks Labor Overhead Logistics Government Margin Competition Supply & Demand Imports/Exports Number participants Sentiment Weather Market Price Cost Margin Margin is the most negotiable portion and therefore the largest opportunity/risk. Source: ICIS Purchasing Advisory Service 7

8 Understanding Buyers Markets Market Price Cost Margin Cost Crude Oil Related Feedstocks Labor Overhead Logistics Government Margin Competition Supply & Demand Imports/Exports Number participants Sentiment Weather The strategy for a buyer or seller is polar opposite in each of these markets. Source: ICIS Purchasing Advisory Service 8

9 At ICIS, we understand markets in detail Regional Demand Marginal producers set pricing in tight markets Marginal producer driven pricing More efficient or Integrated Producers Advantaged Producers Regional Capacity Advantaged producers benefit from higher margins and have no problem selling their lower cost product Source: ICIS Advanced Purchasing Course 9

10 Regional Market Logic Regional Buyer Regional Seller Regional market prices follow outside prices +/- delivery cost US Gulf Coast (USGC Benchmark) Source: ICIS Advanced Purchasing Course

11 Understanding market time lags (Leading indicators) 8,0 Market Cause & Effect Time Lag 7,0 6,0 5,0 4,0 Cause Effect 3,0 2,0 1,0 - P 1 P 2 P 3 P 4 P 5 P 6 P 7 P 8 P 9 P10 P11 P12 These two lines do NOT fit well 11

12 Understanding market time lags (Leading indicators) 8,0 Market Cause & Effect Time Lag 7,0 6,0 5,0 4,0 3,0 But watch the dotted line shift Cause Effect Offset 2P 2,0 1,0 - P 1 P 2 P 3 P 4 P 5 P 6 P 7 P 8 P 9 P10 P11 P12 Cause & Effect lines fit well when adjusted for time lag 12

13 Understanding market time lags (Leading Indicators) Before 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 Cause Effect 8,0 7,0 6,0 5,0 After - P 1 P 2 P 3 P 4 P 5 P 6 P 7 P 8 P 9 P10 P11 P12 4,0 3,0 2,0 Real World Example: When one product goes up 10 cents in China, It goes up 6 cents in the US, 6 weeks later and 4 cents in EU 2 weeks later 1,0 - P 1 P 2 P 3 P 4 P 5 P 6 P 7 P 8 P 9 P10 P11 P12 Source: ICIS Consulting

14 Cost 14

15 Shale oil production history In 2014 crude oil went from a seller to a buyers market 15

16 Production vs million bpd from most large producers, except... With US added difference is now 5.85 million bpd The increase goes from 1.7% to 6.3%! This is what led to the low prices in 2015/16 Source: EIA, ICIS Consulting 16

17 Oversupply crashes crude prices 17

18 Crude Prices represent the highest risk to budgets, with more upside than downside potential necessitating a best and worst case scenario analysis when forecasting Source: ICIS Consulting 18

19 Source: ICIS Consulting 19

20 Brent Price History vs Epoxy Resin Epoxy follows Crude with only a 56% R-Squared which is expected Source: ICIS Dashboard - Copyright 2017 ICIS 20

21 Brent Price History vs Epoxy Resin Epoxy is a copolymer usually formed from a reaction between epichlorohydrin and bisphenol A or similar chemicals. Understanding your value chain is important to understanding your market Source: ICIS Consulting - Copyright 2017 ICIS 21

22 Margin 22

23 Supply & Demand It is worth noting that a 2% oversupply in crude oil led to a 70% drop in price which emphasizes the impact of the Supple & Demand Balance. Supply is rebalancing, moving from a buyers to a sellers market 23

24 Strategic sourcing to ensure the lowest cost Buyers Market Sellers Market Source: ICIS Advanced Purchasing Course 24

25 Supply & Demand Cycles Most markets go through a cycle of: Market Cycle Right now, PP is tight and growing tighter with no new capacity until approximately Tight 2. Balanced 3. Long supply LONG BALANCED MARKET TIGHT LONG TIGHT PP Market Over several years which will affect your buy/sell strategy PE Market BALANCED PE on the other hand is slightly long and growing longer 3-10 year cycle Source: ICIS Purchasing Advisory Service 25

26 Margin analysis Lower utilization historically leads to lower margins & adders Higher utilization leads to higher margins and adders Quality Supply & Demand intelligence is a good indicator to adders and margins Source: ICIS Purchasing Advisory Service 26

27 Ethylene supply is long Supply is long and will remain so for several years with growing exports Source: ICIS Dashboard - Copyright 2017 ICIS 27

28 Using High and Low Risk

29 Trade Flow Knowing your product trade flow is essential for international trading. To do so otherwise, can cost much more on a single shipment than the market intelligence costs! Source: ICIS Purchasing Advisory 29

30 Changing Markets 30

31 Naphtha Paraffinic DEL USG Asse Crude drives naphtha Market Price Relationship Naphtha Paraffinic DEL USG Asse = Crude BFOE FOB UK / Norway Asse 3.0 Regression 95% CI 95% PI S R-Sq 95.4% R-Sq(adj) 95.3% Naphtha, the global feedstock for ethylene, is driven by crude prices Crude BFOE FOB UK / Norway Asse 3.0 Source: ICIS Purchasing Advisory Service 31

32 Naphtha very predictable Source: ICIS Consulting 32

33 Percent Naphtha very predictable Distribution of Naphtha Forecast Error Normal 50 Mean StDev N Error Percentage 5 10 Source: ICIS Consulting 33

34 Brent Price History vs MEK Outage/Allocation MEK follows Crude With a 35% R-Squared however, there are some anomalies to note Source: ICIS Dashboard - Copyright 2017 ICIS 34

35 MEK Ex-Tank US Assessment Spot Brent Price History vs MEK Market Price Relationship MEK Ex-Tank US Assessment Spot = Crude Dated BFOE FOB UK $/Bbl 1.0 Regression 95% PI S R-Sq 90.9% R-Sq(adj) 89.8% Rejecting outliers with an assignable cause, we see a 90% correlation Crude Dated BFOE FOB UK $/Bbl Source: ICIS Consulting - Copyright 2017 ICIS 35

36 Brent Price History vs Propylene (refinery grade) Propylene follows Crude with a 77% R-Squared Source: ICIS Dashboard - Copyright 2017 ICIS 36

37 Brent Price History vs Propylene Source: ICIS Consulting - Copyright 2017 ICIS 37

38 Butadiene CIF USG Assessment Sp WTI Price History vs Butadiene ICIS Analysis Butadiene CIF USG Assessment Sp = Crude Midland WTI FIP Midland, Regression 95% PI S R-Sq 21.7% R-Sq(adj) 19.9% Crude Midland WTI FIP Midland, Source: ICIS Consulting - Copyright 2017 ICIS 38

39 $/Tonne WTI Price History vs Butadiene Butadiene Vs Crude Brent V ariable Butadiene C IF USG A ssessment Sp Butadiene F D NWE A ssessment Inl C rude Brent F O B Sullom V oe A sse Jan-2014 May-2014 Oct-2014 Mar-2015 Aug-2015 Jan-2016 Jun-2016 Nov-2016 Apr-2017 Sep-2017 Monthly Source: ICIS Consulting - Copyright 2017 ICIS 39

40 US Butadiene Crude vs Butadiene ICIS Analysis US Butadiene = WTI Regression 95% PI S R-Sq 89.5% R-Sq(adj) 89.1% Isolating on the cost driven market, we find almost a 90% correlation to crude oil WTI Source: ICIS Consulting - Copyright 2017 ICIS 40

41 UTILIZATION Effects of hurricane Harvey 120,0 100,0 Hurricane Rita vs Harvey Recovery National Refinery Utilization % 9.3% Spread 0.0% Spread 80,0 60,0 40,0 RITA Harvey Harvey over Rita Utilization Spread Target Utilization 20, (20,0) WEEKS BEFORE/AFTER IMPACT 41

42 Market Distribution Understanding the market price distribution is helpful 42

43 Summary 1. Oil drives cost, but the effects diminish as you move down the value chain. 2. Supply & demand are our most controllable opportunity/risk. 3. Short term, most prices will be stable, but changing supply & demand pictures affect Business Strategies. 4. Oil prices are generally expected to increase slowly, but when supply & demand rebalances and inventory is reduced, expect investors to drive prices higher. Followed by an OPEC announcement to cut production further and $80/bbl is possible. 5. Beyond that, the marginal oil producers will set the floor market price. 6. Hurricanes will drive prices higher in 2017 and Crude oil will drive prices higher in 2018 and ICIS can help you Work Smarter. Copyright 2017 ICIS 43

44 Q & A James Ray Senior Consultant ICIS Consulting, Americas Direct: Cell: james.ray@icis.com Mention this presentation within 90 days to get a 10% discount on new ICIS Subscriptions:

45 APPENDIX 45

46 ICIS Advanced Purchasing Class 1. Learn about market drivers A. Cost structures, margins and price drivers B. Improve your comprehension of costs, margins and the value chain C. Explore contract mechanisms and how to improve supplier relationships D. Gain expert insights into strategy planning and risk management E. Develop cost models, to reduce costs and maximize margins 2. Identify & Prioritize Savings 3. How to execute and achieve the savings. 4. How to measure the savings

47 ICIS Chemical Business Magazine Global team of expert ICIS reporters cover all the key issues, prices trends and projects driving the world s chemical markets all in one digital magazine. ICB is published 45 times a year with three added special editions Every issue of ICB brings you: Insight into chemical price changes and their impact on the markets Analysis of short- and long-term price movements Supply and demand trends and the factors impacting them Regular special reports including ICIS Top 100 Chemical Companies, ICIS Top 100 Chemical Distributors, ICIS Top 40 Power Players and more Two regional chemical profiles in every issue as well as access to the annual chemical profile directories 47

48 Website and e-magazine ICB is available as a premium website and as an enhanced e-magazine A single login, can access both versions Preview the website with free articles and special publications at E-magazine preview Website preview 48

49 ACA Members - 25% Discount use this code: within 90 days for a new subscription View to preview the ICB magazine website with access to some free content and special publications Contact icbcorpsubs@icis.com to request a free, four week trial Multi-user quotes also available for 2+ subscribers Plus, check out the free-to-access Custom Publishing content 49

50 ICIS PP Forecast Reports

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59 ICIS Consulting Your partner for research and analysis, providing an alternative view of chemical, fertilizer and energy markets Access to powerful tools, data and industry experts providing: Insight on the global energy and crude markets, oil refining, petrochemicals, fertilizers, specialty polymers and fine chemicals China specific insight into the domestics iron and steel, non-ferrous metals and paper and pulp markets Analysis of current and future market prices, margins and supply and demand trends that could affect your business 59

60 ICIS Consulting Recent Engagements We have advised on a number of other major energy and infrastructure projects in the region. Over two-thirds of our work is from repeat clients. Our selected experience is included below: Client Purchasing Advisory for Global PP/PE Convertor ICIS Consulting provided an Independent Purchasing Advisory service to a Global PP/PE Converter(s). ICIS Consulting s services included: Global and regional supply/demand balances, trade flows and a market outlook for PE/PP Led purchasing strategy team in developing a multi-year strategy that led to saving millions of dollars while insuring a more reliable supply. 60

61 ICIS Consulting Recent Engagements We have advised on a number of other major energy and infrastructure projects in the region. Over two-thirds of our work is from repeat clients. Our selected experience is included below: Client Clients considering a multimillion dollar co-location investment ICIS Consulting provided a Purchasing Advisory Service for Long term price agreements. ICIS Consulting s services included: Multiple projects globally with clients seeking to co-locate next to feedstock provider Feedstock contract negotiations are critical as they are for years Reviewed co-location offers, modelled historical and forecast costs to evaluate offers; identified several years that contract offers were likely to be unfavourable and proposed alternative price mechanisms that represented over $150 million of lower costs. Clients were able to achieve over $100 million lower feedstock costs over the life of the contract. 61

62 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client World s largest naphtha cracker and integrated petrochemical unit Commercial and Market Due-diligence for Project feasibility for the world s largest naphtha cracker planned ICIS Consulting s Role Provided market advisory for the MENA project developer, representing them for financing options from an Export finance conglomerate Global and regional supply/demand, trade flow and market analysis for feedstock and its derivatives Cost and economics analysis to further assess potentially viable derivatives SWOT and competitiveness analysis for the planned project Also included review of marketing plans/offtake, financial and supply agreements, as well as representation of client in front of ICA s, legal, financial & engineering advisors. 62

63 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Large integrated PDH-PP complex in the Middle East PDH-Based Derivatives Study; Independent Market consultant to the lender s for the integrated PDH-PP complex ICIS Consulting s Role Acting as lenders market consultant for syndicated debt facilities granted to the project developers by a leading commercial bank Global and regional supply/demand, trade flow and market outlook for feedstock and its derivatives Potential new market entrants, key competitors and likely new projects during the 10 year forecast period Detailed SWOT and competitiveness analysis for the project Competitive assessment for PP producers in Middle east and competitive positioning of the project against other producers Review of existing transport & logistics arrangements for finished products and raw materials Independent assessment of the proposed international traders ability to perform their role as defined in offtake agreements and raw material supply contracts Cost-benefit analysis of additional investment in propane import and storage facilities for incremental PP production and higher plant operating rate 63

64 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Partnership between leading Northeast Asian Industrial giant & state owned Eurasian E&P company Global Polyolefin Market Study, Competitiveness & Economic Assessment of Greenfield Petrochemical Development ICIS Consulting s Role Developers Counsel for long term assessment of project fundamentals and advisory role on feedstock price negotiation strategy Marketing Study for polyolefins in the project s target markets, covering recent and long term future trends for supply and demand by specific applications, with a focus on Turkey, NW & Central & East Europe Feedstock cost, product pricing and competitiveness analysis of this project and potential global competitors in target markets across a range of pricing scenarios Feedstock procurement and product sales strategies of current and future market players Assessment and advice of logistic options for infrastructure build-out and development of operating supply chain 64

65 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client World leader in hydrocarbons exploration, production, refining, distribution, shipping and marketing, and the world s top exporter of crude oil and natural gas liquids (NGLs) Market & Project Feasibility for a proposed Integrated Refinery and Petrochemical complex in China ICIS Consulting s Role Global analysis of refining and petrochemical markets, with a focus into Asia-Pacific region Defined optimum product mix and key target markets based on Global / Regional supply, demand, trade flows Supply/demand, trade flow and market analysis of China s refining and petrochemical industries at regional and provincial level Identify and analyse competitive environment in the region Long-term Price forecasts and Netbacks computed for different scenarios of crude oil Strategic Roadmap and Marketing / Sales plan for the proposed integrated complex 65

66 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Entrepreneurial Middle Eastern petrochemical developer Commercial and Market Analysis and Product Screening study for a greenfield LPG- Based Petrochemical Cluster in Turkey Screening of the most attractive Derivatives, with respect to synergies of derivative with Turkish Demand and then analyse the Economic Feasibility for Domestic Production ICIS Consulting s Role Provided market advisory for the project developer on which of the wide variety of petrochemical olefin derivatives offer the most attractive future opportunities for investing in for a project based on propane and butane dehydrogenation technologies using imported LPG feedstock Forecast Supply & Demand, Price, Cost and economic analysis to further assess potentially viable derivatives Development of multi-oil scenario (Base, high & Low) financial model for analysis of relevant financial details throughout the facilities operational lifetime SWOT and competitiveness analysis for the planned project Review of technology options available to the project developer for most efficient and cost effective entry into downstream derivatives 66

67 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Rapidly growing diversified petrochemical producer Market & Economic Feasibility for the refinancing of a Polymer facility in Middle East North Africa region ICIS Consulting s Role Acting as lenders market consultant for a consortium of Middle East banks considering refinancing options for a PP plant Project included the provision of supply/demand, trade flow, current and future pricing, and netback data together with a logistics analysis for the products and feedstocks involved on a country, regional and global basis This study also included review of marketing plans together with offtake and supply agreements SWOT and risk analysis of backward integration into long-term propylene supply security PP facility has now been refinanced and is fully operational 67

68 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Long-term strategic feedstock review of one of the petrochemical facility, to secure economic competitiveness and viability against changing industry dynamics One of the largest petrochemical projects through a joint venture in China ICIS Consulting s Role Global, regional and Chinese supply/demand, trade flow and market analysis for both feedstock and products Analysis of global, regional and Chinese cracker operations Global and Chinese cost curve analysis to understand cost position under several different feedstock options Strategic Recommendation for feedstock options for optimal future operations for survival in a time of changing market dynamics Advisory assistance for future investment decisions and go-forward strategy 68

69 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client An international JV between a leading Middle Eastern Aromatics producer and one of the largest chemical manufacturers globally Global & Asian Benzene Market study, Pricing implications & Negotiation strategy ICIS Consulting s Role Global & Asian Benzene and derivatives Supply-Demand Benzene Merchant markets, trade flow patterns and likely changes in future Typical contracts set out volume, volume flexibility, term, price basis & discount, product specification, delivery terms, invoicing & payment, force majeure provisions and general terms Typical Contract pricing structure Recommended contract pricing formula Relative negotiation positions & Premiums including the Zone of Possible Agreement Negotiation strategy plan 69

70 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Alliance between two Top 10 Chemical companies looking to aggressively grow their chemical footprints Global Alliance and Potential JV between two global chemical giants for joint investment in North American Cracker & Polymer Investments ICIS Consulting s Role Global Ethylene and derivatives Supply-Demand Marketing & logistics plan for Domestic, regional and Global product Sales Pricing, Netback and project Economic analysis for multiple Oil and GDP Scenarios Strength s and synergistic potentials of pursuing a multi-commodity, multi-phase investment strategy for the addition of globally significant Greenfield capacities Competitiveness, cost and Investment Assessment in extreme feedstock pricing scenarios 70

71 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Asia s leading integrated petrochemical and refining company. CTO & MTO Strategic and Feasibility Assessment in China, Indonesia & India ICIS Consulting s Role Supply-Demand scenario for Olefins in China, Indonesia & India Pricing mechanism and Cost assessment in China, Indonesia & India Methanol to olefins Coal to olefins Policy overview and regulatory framework for Coal to olefins in China, Indonesia & India Comparison (Pros & Cons) of available Process Technology options Fixed and Variable cost comparison against all competing feedstock Ethylene (Coal vs. Methanol vs. Naphtha) Propylene (Coal vs. Methanol vs. Naphtha vs. PDH) Key Drivers and Restraints for developing CTO / MTO Projects Country prioritization and attractiveness matrix for CTO / MTO Project investment 71

72 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Entrepreneurial project developer Due Diligence Study to Assess the Viability of Restarting Plant Operations at an Existing Condensate Splitter Refinery in South East Asia ICIS Consulting s Role Recent trends and outlook of regional supply demand of fuel products in South East Asian region over project lifetime Assessment and projection of trade flow patterns throughout the project lifetime Long term price forecast for raw material and fuel products over the period of assessment for multiple oil pricing scenarios Detailed cashflow modelling & assessment outlining the annual revenues and costs of the project together with return calculations based on capital cost inputs. Recommendation on the economic feasibility of restarting Condensate splitter plant operations and advisory consultant on options available for improvement of the economic business case 72

73 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client Government Investment Promotion Board Benchmarking Services for Manufacturing Cost Competitiveness in the Refining, Petrochemicals and Specialty Chemicals Sectors ICIS Consulting s Role Designed and developed a robust methodology to conduct a benchmarking exercise to access the target site s manufacturing cost competitiveness against 12 shortlisted competing industrial sites Conducted comprehensive and extensive research into the utility costs of each industrial site to build up a realistic cash cost model Performed cash margin assessment for each sector across all industrial sites, taking into account of product prices, feedstock costs, freight, cost of processing and etc Identified gaps and suggested areas of improvement to increase the target site s competitiveness 73

74 ICIS Consulting Recent Engagements We have also advised on a number of other major energy and infrastructure projects in the region. Over two-third of our work is from repeat clients. Our selected experience is included below: Client A Leading European Chemical Company PDH-Based Derivatives Study; A European Market Study to Assess Viability of PDH-based Polypropylene in terms of Economics and Market Opportunity ICIS Consulting s Role Conducted in-depth analysis of supply and demand, and trade flows for propane, propylene and PP in Northwest Europe, East Europe and Central Europe, thereby evaluating market attractiveness and recommending an optimum size for a new PP plant Identified characteristics and features of the PP market in Europe to enhance client s know-how in the PP business Performed cost competitiveness analysis of PP production via PDH against other plant archetypes operating in the same region, coupled with a longterm price forecast under different crude oil price scenarios, to ascertain the viability of PDH-based PP Detailed SWOT analysis for PP production via PDH at the target site 74

75 ICIS Consulting Recent Engagements We have also advised on a number of other major polymer end-user market research studies. Over two-third of our work is from repeat clients. Our selected experience is included below: Client A Leading European Chemical Company A major European, Asian and Middle East end-user Market Study to Assess the Polypropylene Converters Market growth opportunities. ICIS Consulting s Role Conducted and in-depth polypropylene converter market study which involved the direct interview of several major conversion companies across a number of regions & applications Evaluate and confirm the individual polypropylene converters current product use and the plans for market growth over the following 5 to 10 years Development of a detailed business plan to assist the client in deciding the most suitable polypropylene production plan for their expanded production facilities Identification of the most suitable polypropylene markets (countries & applications) that will provide a fertile market for the new production volumes 75

76 Thank you James Ray Senior Consultant ICIS Consulting, Americas Direct: Cell: james.ray@icis.com