PTT Polymer Marketing Company Limited Polyethylene Market in China Analyst Meeting: Knowledge Sharing Session February 20, 2015
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PE Market in China
MACRO-VIEW OF CHINA ECONOMY
PTTPM Office
General Information Fast Facts Capital: Beijing Population: 1.3 billion Total Area: 9,600,000 km2 Language(s): Mandarin, Cantonese, others Government: One-party socialist republic Capital: Beijing GDP (PPP): $13.39 trillion Source: IMF, 2013 Land Area GDP (PPP) GDP (Nominal)
A New-Normal of Chinese Economy China s GDP growth stood at 7.4 percent in 2014, averting a hard landing. The growth rate experienced a slowdown from 2013, mainly President Xi Jinping described this economic pattern as the new normal.
PE demand grows though economy slowing down
A New-Normal of Chinese Economy BEIJING, Nov. 9 (Xinhua) The "new normal" theory elaborated by Chinese President Xi Jinping would be one of the hallmarks to be engraved in history by the ongoing meetings of the Asia-Pacific Economic Cooperation (APEC) in Beijing. "A new normal of China's economy has emerged with several notable features," the President said. First, the economy has shifted gear from the previous high speed to a medium-to-high speed growth. Second, the economic structure is constantly improved and upgraded. Third, the economy is increasingly driven by innovation instead of input and investment, he added.
China GDP Growth Rate by Province China is BIG and the Government promote Inner-China economy
China Emphasis on Reform Details of top reform agenda Streamlining government: Simplify the investment approval process by cancelling another 61 items that need approval or delegating them to lower levels (71 items have already been cancelled). Financial reforms: Promote interest rate liberalisation and develop an operational programme for renminbi convertibility under the capital account. A pilot programme allowing individuals to invest in overseas markets will be rolled out Fiscal reforms: Establish an open, transparent, standardized and comprehensive budget system, control local debt risks, expand pilot reforms of VAT and develop plans for a resources tax and to tax mineral resources. Pricing reforms: Establish a progressive pricing system for the supply of major urban utilities, including electricity, water and natural gas. Source: HSBC Global Research June 2013
What are the implications for the real economy? Financial Short-term (1 2 years) impact Slower expansion in shadow lending affects the funding of local projects Interest rate liberalization increases the cost of funding while giving better returns for household savings Medium/long-term (>2 years) impact Boost investment efficiency; more effectively price risks, Ease the financing constraints to SMEs
What are the implications for the real economy? Fiscal Budgeting Short-term (1 2 years) impact Reduce government administrative spending VAT reform reduce tax burden Pricing reforms are likely to dampen demand for resources and add inflationary pressures for related consumption Improve social provisions to ensure labor market stability Medium/long-term (>2 years) impact Boost the fiscal sustainability and transparency Cut red tape to lift efficiency
What are the implications for the real economy? Deregulation Short-term (1-2 years) impact Boost private investment in Railway, Energy and Telecom. Medium/long-term (>2 years) impact Break the monopoly of SOEs and encourage private investment Promote innovation and technology advancement According to Xinhua, at the end of 2011, there were 144,700 state-owned enterprises with total assets of 85.4 trillion yuan, revenues of 39.25 trillion yuan, and profits of 2.6 trillion yuan (43 percent of China s total industrial and business profit).
President Xi is serious on Anti-Graft campaign
Intention to SLOW DOWN to REFORM GOOD
A New-Normal of Chinese Economy China s GDP growth stood at 7.4 percent in 2014, averting a hard landing. The growth rate experienced a slowdown from 2013, mainly President Xi Jinping described this economic pattern as the new normal.
Polyethylene Market HDPE LLDPE LDPE
Ethylene Production by Feedstock Refinery Ethylene / Stream Cracker PE Plant Naphtha Ethylene Natural Gas Gas Separation Ethylene Gas Cracker PE Plant Ethane Ethylene
Ethylene Production by Feedstock (2) Gasifier Methanol Plant Ethylene Gas Cracker PE Plant Syn Gas Methanol Ethylene Ethanol Plant Ethanol Dehydration PE Plant Alcohol Ethylene
HDPE Applications
LLDPE / LDPE Applications LLDPE LDPE
Global Ethylene Demand & Supply Northeast Asia and North America remain the world's largest ethylene producing regions. However, recent large investments in the Middle East have propelled this region into the group of the largestproducing regions, and it has now surpassed West Europe in respect to ethylene production.
Global Ethylene feedstock mix (2013) 67% of global olefins production comes from naphtha / naphtha mix feedstock while 32% comes from ethane and mixtures of ethane, propane and butane or LPG Source: IHS
China Ethylene feedstock mix (2013) Naphtha is also the major feedstock in China 97% of olefins produced from naphtha / naphtha mix feedstock 3% from MTO/ CTO Source: IHS
Source: HIS, Deutsche Bank Market Research, July 2014
Ethylene Produced from Coal-To-Olefins in China: Competitive
Global HDPE Market Remains Tight Global HDPE Demand Projected to Grow at 4.2% per year during 2014-204 Only 3.8% of HDPE Capacity is projected to increase Global HDPE Plants Operating Rates will remain at High Level, 84-88%
Global HDPE by Region & by Country Demand in Asia for HDPE is more than half of the Global Demand. NEA accounted for 31% or 12 Million Metric Tons HDPE Demand in China = 9.91 Million Metric Tons.
China is and will be importing HDPE China has been importing HDPE and will do so for foreseeable future China imports more than 4 million ton annually China demand grew more than 8% during the last 5 years and is projected to grow at 6 7% for the next 5 years.
China HDPE Imports: 2006-2014 Source: China Customs House
Operation Green Fence: More Virgin Resin Imported In 2013, China implemented Green Fence. All plastic scraps imported have been inspected for contamination (insects, food mix types of recycle) Less Recycle means more New (Virgin) resins required China has been importing some 70% of world post-consumer plastic
Tight Global HDPE Market Push Price UP
Global LLDPE Market Keeps Growing Global LLDPE Demand Projected to Grow at 4.9% per year (Flexible Packaging) Only 4.6% of LLDPE Capacity is projected to expand Global Operating Rates remain high, 84 87%
Global LLDPE by Region & by Country Demand for LLDPE in Asia is more than half of the Global Demand NEA accounted for 34% or 9.1 Million Metric Tons LLDPE Demand in China accounted for 82% of NEA or 7.5 Million Metric Tons.
China LLDPE Demand & Supply LLDPE demand in China grew more than 10% during the last 5 years and is projected to grow faster than GDP for the next 4-5 years. The fastest growth is in film for flexible packaging FOOD SAFETY Several new capacities announced especially from Coal base however it s believed that not all the announced will be materialized. New capacity is projected to increase at 8-10% annually resulting to declining operating rates.
China LLDPE Imports: 2006-2014 2014
Delayed of New LLDPE Capacities Push Price UP
Global LDPE Market is also Tight LDPE Demand is growing slower than other PE s, 2 2.5% as some applications were replaced by LLDPE. Few new capacity will be built both because of slow demand growth and higher project construction costs.
Global LDPE by Region & by Country Asian LDPE demand accounted for almost half of global LDPE demand NEA accounted for 31% or 6.1 Million Metric Tons LLDPE Demand in China accounted for 82% of NEA or 4.5 Million Metric Tons.
China LDPE Demand & Supply China LDPE supply has been tight and will be tight until a couple new plants started up in 2016 2017. One 300 KTA LDPE plant from Shenhua Xiwan and the other 250 KTA Zhonglian Hechuang started up by 2016-2017
China LDPE Imports: 2006-2014 2014 Source: China Customs House
Historical LDPE Price:
Integrated HDPE Margin remains Healthy
Key Summary: China Economy is growing and is managed to be more sustainable China Polyethylene Demand is and will be growing at equivalent to GDP China is and will be import 40-50% of her demand at least for the next 5 years. InnoPlus is well known and is well accepted as high-quality polyethylene Thai Origin LLDPE is duty-free PE supply is and will be tight for the 2-3 years Healthy P2F Margin