Vision 2015 Driving Success in the PO Resin Industry Through Innovative Catalytic Solutions Raphael Crawford Albemarle Corporation Advances in Polyolefins 2013, Oct 13 th Sonoma Valley, CA AN UNWAVERING COMMITMENT TO BENEFIT THE WORLD IN WHICH WE LIVE
OUTLINE Brief Introduction to Albemarle Corporation Discussion of Market Needs - Macro & Regional Trend Overview - Engaging end users and compounders Market Understanding and Innovation Drive Value - PO Producers - Compounders - End-users 2
FROM BASE ORGANOMETALLICS TO SINGLE SITE CATALYSTS POLYMER CATALYSTS GROWTH Global Revenues (2011) ($3.3B) Projected Growth (2011-2020E) ($ in billions) CAGR = 4.1% CAGR = 4.5% Source: The Catalyst Group CAGR = 5.4% CAGR = 2.9% CAGR = 5.1% ALBEMARLE STRONG IN 2 LARGEST TECHNOLOGY SEGMENTS 3
FROM BASE ORGANOMETALLICS TO SINGLE SITE CATALYSTS PLAYING A KEY ROLE IN POLYMERIZATION 4
ADDRESSING THE REGIONAL SHIFT GETTING CLOSER TO OUR MARKETS & CUSTOMERS YEOSU - South Korea World scale MAO & SSC manufacturing Latest technology, close to Asian customers Fully operational since Q2 2013 ActivCat SSC Catalysts + Components PureGrowth MOCVD R&D Center / Lab, Pilot & Commercial scale SOCC Saudi Organometallics Chemical Company 50/50% JV Albemarle-Sabic 6,000 mtpa TEA capacity Security of Supply to the Middle-East Fully operational in Q3 2013 5
Market Needs: Macro & Regional Trends and Market Engagement 6
MACRO PO TRENDS Feedstock Shifts Shale Gas starts to expand NA (potentially Middle East & China) higher margin for PO production Technological Shifts Innovation in products and applications is the ultimate driver of continued aboveaverage market growth for polymers. Catalysis plays a pivotal role in this innovation. Growing need for specialization & differentiation Need for a shift away from commodity type resins to gain extra value Geographic Shifts Growth in value added markets like OECD slows (shutdowns in Europe) Non-OECD increased market competition is anticipated as producers seek more advanced applications & increase protectionism (PP expansions in China) Middle-East to become world s largest co-catalyst consuming region by 2104 7
PO PRODUCT TRENDS Sustainability Downgauging Optical Clarity Increased Strength, Toughness, Durability, and Puncture Resistance 8
EMERGING ECONOMIES WILL DRIVE FUTURE DEMAND 9
REGIONAL TREND PRODUCT EFFECT During recession and in emerging markets users were traditionally focused on just good enough /commodity mentality for products. - Recession ended in most markets driving new need for differentiation and innovation. BRIC markets are now growing quickly and demanding more sophisticated (innovative & higher value) products. - China s GDP per capita is $5,413 in 2011 rising to $9,152 in 2017. 80% of China s households will be able to afford a smartphone by 2017. - India's GDP per capita doubles from $1,388 to $2,225. BRIC Countries will begin some domestic specialty product production. Just good enough /Commodity products will soon fall to the N-11. - And be produced by the BRIC countries. Increased Drive for Product Innovation in Emerging Markets 10
POLYOLEFIN MARKET TRENDS TECHNOLOGICAL SHIFT Current: Commodity grade production in ME & China drive demand for specialty catalysts from the Western World. Future: ME & China will begin more specialty production to serve domestic specialty needs, and current ME & China commodity production will export to N-11. Decreasing dependence on licensors for (proprietary) catalysts supply. 2010 PO Catalyst Market Value $2.0 B 2020 PO Catalyst Market Value $3.2 B A growing need for DIFFERENTIATION Requiring Catalyst Innovation 11
INDUSTRY INTERVIEWS Interviewed 3 resin producers and 2 compounders Most important resin properties: Toughness (tear resistance, puncture resistance, etc.), Productivity related (melt strength, process temperature, shear viscosity, etc.), Processability, Downgauging Expect to see growth in flexible packaging High growth markets: food packaging, pharmaceutical and medical packaging Metallocene products to increasingly become more commodity-like Esp. India & other Asian countries (rising middle classes) Expect to see continued growth in specialty/innovate, higher value products in the west Purchasing drivers: China: Pricing the most important factor OECD: Quality, consistent availability of resin, pricing Customer property requirements 12
INDUSTRY INTERVIEWS Global Resin Provider A Resin properties dependent on customers and their specific needs Lower packaging costs either through increased outputs or downgauging Development focuses: Incorporating co-monomer at appropriate production processes conditions Lower overall catalyst cost and production costs 13
INDUSTRY INTERVIEWS Compounder - European Downgauging primary driver for mlldpe vs. znlldpe Differential on pricing between znlldpe & mlldpe not that important in terms of determining usage If they need it for their product, they need it. Price +25% would impact usage See mlldpe usage growth at 10-15% p.a. through 2018 Continuously offer higher hot tack strength and broader sealing latitude than ZN copolymers of similar density and type. 14
TRADITIONAL PO VALUE CHAIN INNOVATION CYCLE Typical Information Flow and Innovation/Trend Requests Catalyst Provider PO Producer Compounder End- Product Producer End User Develops catalysts to address resin trends Creates Resin per End Product Producer Specs Creates Resin per End Product Producer Specs Develops product to fit/promote trend Identifies & Develops Trend Tech can drive product innovation 15
ACTIVELY DRIVING/ENHANCING PRODUCT INNOVATION CYCLE Catalyst Provider PO Producer Inform end-product producer about innovation possibilities to drive differentiation Develops catalysts to address resin trends Creates Resin per End Product Producer Specs Identifies & Develops Trend Re-position Catalyst Provider and PO Producer market influence to enhance End Product value by giving them the End Product Producers technology which differentiates and thus drives value. 16
Leveraging Innovation 17
TECHNOLOGY SHIFT A recent evaluation of patents covering over 140 filings over the past five years in polyolefins depicts the areas of emphasis 18
INNOVATION ABILITY FROM METALLOCENES A number of applications can benefit from the properties that metallocenes and single site catalysts can impart to polyolefins: - Potential move from PE 80 to PE 100 in high pressure PE pipes - Increased optical clarity on film/packaging applications - Leverage NG feedstock - Increase process efficiency - Market and technical competitive response from other polymer systems (e.g. PS) as well as competitive response from within the family of PO solutions (e.g. finding new ways to blend monomers) 19
ADDRESSING THE TECHNOLOGICAL SHIFT METALLOCENE / SINGLE SITE CATALYSTS HAVE ALLOWED COMMODITY-LEVEL PRODUCTS ACHIEVE INCREASED DIFFERENTIATION & VALUE VS INCUMBENT RESINS 20
Drive Value: PE case study 21
Film and FILM & PACKAGING SPEND ACCELERATES AS WEALTH INCREASES 22
ETHYLENE DEMAND/CAPACITY & LLDPE TIGHTLY CORRELATED WITH MLLDPE PRICING Year Ethylene Demand thousand mtpa Ethylene Capacity LLDPE Capacity US$/t mlldpe Pricing 2011 122,727 138,454 27,937 1,516 2012 129,000 140,954 29,639 1,533 2013 135,500 149,000 31,078 1,578 2014 142,000 155,000 32,575 1,595 2015 148,500 159,000 34,756 1,621 2016 155,000 164,000 38,569 1,646 2017 161,500 170,000 43,242 1,672 23
GLOBAL METALLOCENE PRICING AND PREMIUM 24
DRIVING AND CAPTURING VALUE Current Average Metallocene premium: $100-$150/MT stable with slight upward trend (max 5%) through 2017 (Source: TCG) Feedstock Prices will decrease with new Ethylene Capacity Thus margin gap creates a unique market opportunity to promote differentiated products created through increased catalyst/metallocene technologies while still retaining current ASP & margin for end product and PO producers. Ultimately differentiated products creates sustainable enhanced value for both our resin customers and end-users. Market conditions are ripe to switch market play from price to enhanced differentiation and value. 25
VALUE CHAIN Catalyst Adding Value Catalyst Adding Value Catalyst Adding Value Catalyst Production Albemarle Resin Producer Resin Compounder/ Processor Application Purchaser PO Catalysts determine the molecular structure of the resin & is directly tied to the final physical and performance properties. This catalyst Value is captured throughout all the chain. 26
ALB POSITIONED TO DRIVE GROWTH VIA INNOVATION Understand & anticipate market needs by: - Understanding & monitoring macro & regional trends - Engaging end users and compounders Leverage Innovation Expertise Drive Value - PO Producers - Compounders - End-users 27