Polyester Value Chain Challenges Ahead IndianOil Petrochemical Conclave Sanjay Sharma, Managing Director Middle East & India February 7, 2014 Dubai, UAE
Global Chemicals Investment Focused In Three Regions With Varying Strategies
3 Global real GDP growth expected to strengthen in 2014-15 Global economic growth expected to strengthen in 2014-2015. The US expansion will gain momentum with faster growth in consumer and business spending. Western Europe will gradually recover, with northern countries leading and southern countries with heavy debt burdens lagging. Asia (excluding Japan) and sub- Saharan Africa will achieve the fastest growth. (Percent change) 10 8 6 4 2 0-2 -4 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 World Advanced countries Emerging markets (Percent change)
The new realities for emerging markets Both structural and cyclical forces contributed to the emerging markets slowdown. There was no decoupling of growth in emerging and advanced economies. While macroeconomic management has been sound, there have been too few structural reforms; the state still plays too large a role. As growth in the developed economies picks up, emerging markets will have to compete harder for funds, although their exports will strengthen. The pace of globalization has slowed. A return to the boom years of the 2000s is unlikely. 4
Presentation Outline Polyester Chain: Emergence of New Industry Order Polyester Chain - Fibers and PET Chain Margins: Integration pays off Conclusions
Polyester Value Chain. Paraxylene (PX) Acetic Acid Terephthalic Acid (PTA) Ethylene Ethylene Oxide Ethylene Glycol Naphtha Crude Oil Polyethylene Terephthalate 6
80 Percent of World Population needs more Fiber.. 30 2011 Per Capita Fiber Demand West Europe 25 Japan North America Middle East 20 15 10 5 Africa China South America CIS & Baltic States Southeast Asia Indian Subcontinent East Europe South Korea Central Europe World Average 12.4 0 0 5 10 15 20 25 30 35 40 GDP per Capita - PPP, Thousand Dollars/person
Relentless Capacity Expansion 20 Million Metric Tons 18 16 14 12 10 8 6 4 2 0 PET PSF MEG PTA PX Demand Growth (2012-2014) Capacity Growth (2012-2014)
Paraxylene Entering a New Era, Prices will decline, but avoid a collapse? 20 16 Million Metric Tons Operating Rate, % Forecast 90 85 12 8 4 0 80 75 70 65-4 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Asia Europe, Middle East, Africa Americas Global Demand Growth Excess Capacity Operating Rate 60
Global MEG Capacity Growth Million Metric Tons 10 8 6 4 2 0 Percent Operating 100 90 80 70 60 50-2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 40 Asia Americas Excess Capacity Europe, Middle East, Africa Global Demand Growth Operating Rate 10
PTA: Emergence of a New Industry Order 100 90 80 70 60 50 40 30 20 10 0 Million Metric Tons Operating Rate, % Forecast 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Nameplate Capacity Effective Capacity Demand Operating Rate Effective Operating Rate 105 100 95 90 85 80 75 70 65 60
Global PTA Capacity Growth Million Metric Tons Operating Rate, Percent 30.0 100 25.0 90 20.0 80 15.0 70 10.0 60 5.0 50 0.0 40-5.0 2007 2009 2011 2013 2015 2017 30 Americas Asia Excess Capacity Europe, Middle East, Africa Global Demand Growth Operating Rate 12
Presentation Outline Polyester Chain: Emergence of New Industry Order Polyester Chain - Fibers and PET Chain Margins: Integration pays off Conclusions
Total Fiber Demand Shows a Strong Co- Relation with GDP 100 90 Fiber, Million Metric Tons Total Natural and Man-Made Fibers 2014 R² = 0.9911 2016 2018 80 2010 70 2012 60 50 2000 Fibers Growth = 1.6 X GDP Growth Polyester Fibers Growth = 2.4 X GDP Multiple 40 38,000 42,000 46,000 50,000 54,000 58,000 62,000 66,000 70,000 GDP (Billion 2005 $)
Polyester & Cotton Dominate The Mix Global Fibers Nylon 5% Olefin 6% Cellulosic 5% Acrylic 2% Other Synthetic Fibers 1% Wool, Silk & Linen 2% Polyester 49% Cotton 30% 2012 = 78.2 Million Metric Tons
Cotton Demand: Depends on Supply 30 Million Metric Tons Supply CAGR: -0.1% Supply CAGR: 1.7% Demand CAGR:-2.8% Demand CAGR: 2.3% 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Supply Demand
Polyester Accounts for Bulk of Growth in Fiber Demand 8,000 6,000 4,000 Fibers, Million Metric Tons GDP Growth, % Forecast 5 4 3 2 2,000 0-2,000 1 0-1 -2-4,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Growth of Cotton Growth of Polyester Growth of Other Fibers GDP Growth -3
Staggering Surplus in Capacity! 18 16 14 12 10 8 6 4 2 Excess Capacity, Million Metric Tons Operating Rate (%) 90 85 80 75 70 65 0 2009 2010 2011 2012 2013 2014 PSF PET POY 60
PET Virtually Every Region has Surplus Capacity! 0.2 1.5 FSU 0.9 NAM WEP -0.5 CEP 3.4 NEA (Excl. CHI) 0.8 CHI MDE 0.5-0.3 ISC -0.6 SAM AFR 0.6 SEA *Numbers are in million metric tons 2008 2013 2015
Presentation Outline Polyester Chain: Emergence of New Industry Order Polyester Chain - Fibers and PET Chain Margins: Integration pays off Conclusions
PET Resin Spreads in Terms of Polyester Integration Holds The Key 1,200 1,000 Global Value Chain Spreads - in PET Equivalent Dollars Per Metric Ton Forecast 800 600 400 200 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 PX-Naphtha PTA-0.66*PX MEG-0.6*C2 PET - PTA/MEG
Presentation Outline Polyester Chain: Emergence of New Industry Order Polyester Chain - Fibers and PET Chain Margins: Integration pays off Conclusions
India s growth recovery dilemma Currency has stabilized, but risks not over External pressures Investment slump High borrowing costs and weak business sentiment Structural reforms High inflation Delayed by pre-election policy inertia Limits policy space for monetary stimulus 23
Conclusion Polyesters demand growth remains on trend line Severe oversupply in the polyester industry threatens to restrict margins for producers Managing excess capacity is necessary but challenging Difficult to commit further investments due to lack of margins Integration holds the key
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