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7th Annual Pricing & Purchasing Summit

Chemicals & Plastics Outlook Howard Rappaport, Senior Director, Pricing and Purchasing Service

Copyright © 2013 IHS Inc. 7th Annual Pricing & Purchasing Summit

Chemicals & Plastics: What To Expect

• Currently a “sellers market” with high and volatile prices

• Demand slowly recovering, but growth is below normal historical rates for

many products

• New capacity is on the way, but not enough to change the short term

market dynamics

• Elevated energy prices (predominantly crude oil) continue to pressure the

cost side (strong profits, however)

• Recent events tipping the scales on supply / demand

• Price direction will be elevated, but more stable with downside potential

later in 2014

• Keep an eye on the Middle East (Syria) and the US Gulf Coast over the

next few months (politics, violence & weather)

2


Natural

Gas

Gas

Separation

Unit

Refinery Crude

Oil

Reformer

Reformate BTX

Extraction

Steam

Cracker

Butane

Hydrogen

Propylene

Pygas

BTX

Raffinate

Ethylene

EO/EG

POLYETHYLENE

ETHYLENE

DICHLORIDE / PVC

EP RUBBER

ETHANOL

Naphtha

Gas Oil

Ethane

Propane

Butane

TOLUENE

m-XYLENE

p-XYLENE

BENZENE

o-XYLENE

XYLENES

PTA/DMT PET

PIA

PAN/DOP/Plasticizers

POLYPROPYLENE

Butadiene

Methanol

SBR / PBR

ETHYLBENZENE/

STYRENE

Intimate Connection Between Energy

And The Chemical Industry

3


• Capacity expansions being driven by low cost feedstocks &

integration strategies in North America, Asia and the Middle East

• Cost of production is closely tied to the cost of hydrocarbon

feedstock's (ethane from natural gas and naphtha from crude oil). The

Middle East and North America have a natural gas cost advantage

• Higher global crude oil prices put added upward pressure on market

prices in all regions

• North America has had some recent supply issues, but those will

resolve themselves along with new projects coming on line

• Demand growth has been hampered by the slow economic recovery

and the expectation of lower prices in 2014

General Trends

Chemical Industry Building Blocks – Market Dynamics

4


Ethane Cracking Reduces Co-Product Volumes In Particular, Propylene & Butadiene

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Ethane (Natural Gas) Naphtha (Crude Oil)

Million Tons Production Yield For World Scale 1 Million Ton Cracker

Other

Benzene

Butadiene

Propylene

Ethylene

5


• High prices today with record margins for US producers

• Cost of production is closely tied to cost of hydrocarbon

feedstock's (ethane and naphtha)

• Location of advantaged feedstock's play key role in capital

investment decisions

• North America prepares for a surge in capacity investment

• Asia and Middle East continue to build as planned

Ethylene


6


Ethylene Nameplate Capacity

By Major Region Ethylene Production

By Feedstock

2012 Global Ethylene Capacity 149 Million Metric Tons

Ethane 35%

Propane 8% Butane 4%

Naphtha 47%

Gas Oil 3%

Other 3%

Americas 26%

Europe 20%

Africa/Middle East 20%

Asia 34%

7


Ethylene Prices – North America

•Near-term ethylene forecast slightly higher due to

recent spot activity.

•Costs still remain low relative to history.

• Low cash costs and fairly stable spot prices will

continue with a mostly flat forecast through the end

of the year.

•The turnaround schedule in the first half of 2014 for

crackers could affect spot pricing starting in

January as market players start pre-building

inventories…

8


Annual Ethylene Price Forecast – Lower In 2014

400

600

800

1,000

1,200

1,400

1,600

1,800

05 06 07 08 09 10 11 12 13 14 15 16 17 18

U.S. Large Buyer Contract Ethylene West Europe Contract Ethylene

Southeast Asia Spot Ethylene South America Ethylene

Dollars Per Metric Ton

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Copyright © 2013 IHS Inc. 7th Annual Pricing & Purchasing Summit 10

Polyethylene Prices Slightly Lower In 2014

0

20

40

60

80

100

120

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

NAM Cash Cost, Integrated NAM LLDPE WEP LLDPE CHINA LLDPE (Spot)

Cents Per Pound

10


Propylene Prices – North America

• The propylene forecast for next few months remains higher.

• PP supplies are tight and converters are having difficulty

building inventory.

• Chevron Phillips is still on sales allocation due to production

issues.

• Outages of supply expected in the 1H of 2014 boost prices

in the US.

• The average 2014 PG price will be 64 cents. Down 5 cents

from the 2013 average.

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More “On Purpose” Production Will Drive Global Propylene Capacity Growth

0

5

10

15

20

25

30

35

2000 2002 2004 2006 2008 2010 2012 2014 2016 2022

Ex Dehydro - PDH Metathesis Olefin Cracking

Via Methanol: CTP HS FCC Others On-Purpose

On Purpose Propylene Production, Million Metric Tons

25%

45%

12

Copyright © 2013 IHS Inc. 7th Annual Pricing & Purchasing Summit 13

1,000

1,200

1,400

1,600

1,800

2,000

2,200

10 A J O 11 A J O 12 A J O 13 A J O 14 A J O

NAM Net Trans. Contract Price WEP Disc. Contract Price SEA CFR Spot Price


U.S. Propylene Prices

In & Out Of Global Competitiveness

13


Lower Regional Polypropylene Prices In 2014

882

1,102

1,323

1,543

1,764

1,984

2,205

2,425

2,646

40

50

60

70

80

90

100

110

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

North America Discounted West Europe Discounted

SAM Domestic Delivered China spot (cfr China)

Dollars Per Metric Ton Cents Per Pound

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Benzene

• Supply trends complicated by ethylene, gasoline,

paraxylene and shifting environmental regulations

• Refinery operations and renewable fuel trends are critical to

benzene supply

• Shale crude oil actually results in lower benzene yields

• Growth in demand and capacity migrating to Asia (where

majority of polystyrene & ABS growth is)

• Elevated prices are expected for the next 12-18 months


15


Benzene Prices Remain Over $4.00 Per Gallon

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Jan-2000 Jan-2002 Jan-2004 Jan-2006 Jan-2008 Jan-2010 Jan-2012 Jan-2014

US Asia

Price (Cents Per Gallon)

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Butadiene

• On-Purpose production will continue to rise

• Technology related to region and feedstock availability

• Steam cracker and refinery (FCC) supply trends also vary

by region. North America is “supply challenged” near term

• Demand growth trending towards GDP due to emphasis

on more durable goods applications (auto, construction,

appliances, electronics)

• Prices heavily influenced by crude oil trends

17


Regional Butadiene Prices “Coming Down”

0

25

50

75

100

125

150

175

200

0

551

1,102

1,653

2,205

2,756

3,307

3,858

4,409

07 May Sep 08 May Sep 09 May Sep 10 May Sep 11 May Sep 12 May Sep 13 May Sep

Contract WEP, CIF Spot Korea, FOB Contract USA, FOB

Dollars Per Metric Ton Cents Per Pound

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2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2000 2002 2004 2006 2008 2010 2012 2014 2016

Russia China U.S. Global Share

Thousand Tons Percent

More “On Purpose” Butadiene Production Coming In The US & China

19


Chlorine (and PVC)

• New capacity in North America will require increasing

exports of vinyls and caustic

• China will be more self-sufficient in PVC production

• Cost structure is critical to investment; electricity is the

major cost factor

• Middle East followed by North America are lowest-cost

regions for Chlor-Alkali production


20


Regional Energy Chains Impact

Chlorine & PVC Production

21

China

Coal Carbide Acetylene

Coal Electricity Chlor-Alkali VCM

PVC

North America & Middle East

Natural Gas Ethane Ethylene

Natural Gas Electricity Chlor-Alkali EDC VCM

PVC

Most of the World

Oil Naphtha Ethylene

Oil valued energy Electricity Chlor-Alkali EDC VCM

PVC

Pip

e/S

idin

g &

Oth

er

Fab

ricate

d P

VC

Pro

du

cts

21


PVC Price Forecast Down In 2014, Then Trending Higher

700

800

900

1,000

1,100

1,200

1,300

06 07 08 09 10 11 12 13 14 15 16 17

NEA Spot NAM Contract-Market WEP Contract-Market


22


• Soft demand and new capacity in Asia have

depressed caprolactam and nylon 6 prices

• New capacity in China is built ahead of demand

• North American suppliers have relied on exports of

caprolactam and nylon 6

• Buyer’s market for compounding grades

Nylon 6 Market Price Drivers

23


Honeywell

DSM - Europe

BASF, DSM,

UBE, Univex,

Baling PC,

Mitsubishi

Benzene Cyclohexane Caprolactam Nylon 6

Nylon 6 Producers:

Benzene

Cumene Phenol Cyclo-

hexanone

Propylene

Nylon 6 Chain Overview

24


Nylon 6 Regional Price Forecast – “Flat Line”

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14

NAM Market Price WEP Market Price NEA Market Price


25


0

20

40

60

80

100

120

140

160

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Styrene Contribution Acrylonitrile Contribution

Butadiene Conversion Costs (Var. + Fixed)

GP ABS Market Price

Cents Per Pound

~

US ABS Cash Costs & Price Forecast Relatively Flat In 2014

Forecast

26


Implications For Buyers

• Ethylene • Lower prices near term, but higher in early 2014

• Keep an eye on hurricane activity in USGC

• Big investments coming in US capacity longer term

• Propylene

• Tight supply in the US near term

• Higher prices in 2H of 2013 and early 2014. More “on purpose” production

• Benzene • Closely following oil price trends

• Prices will remain above $4.00 per gallon through 2014

• Butadiene • Recent high prices coming down in 2014 as supply improves

• Continuing volatility will plague rubber prices until “on purpose” capacity arrives

• Chlorine & PVC

• US has a cost advantage due to natural gas and low electricity prices

• PVC exports will increase from the US as global prices rise

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