global petrochemical industry outlook shifting trade flows · pdf filespot sm cumene, formula...
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Page 1
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Global petrochemical industry outlook
– shifting trade flows
Page 2
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Page 3
A macro outlook on the petrochemical industry –
gauging demand
Page 4 Source: Macquarie Capital (USA), September 2013
We forecast rising global economic health
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
World Real GDP (y/y)
US Real GDP (y/y)
OECD Real GDP (y/y)
Euro zone Real GDP
(y/y)
Total Asia (ex JPN) Real
GDP (y/y)
SE Asia Real GDP (y/y)
NE Asia Real GDP (y/y)
China Real GDP (y/y)
Brazil Real GDP (y/y)
Global GDP Growth Estimates
2012 2013E 2014E
Page 5 Source: Macquarie Capital (USA), September 2013
We forecast rising global economic health
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
World Real GDP US Real GDP OECD Real GDP Euro zone Real GDP Total Asia (ex JPN) Real GDP
China Real GDP
2013 GDP Estimates
2013 LTM 2013 YTD 2013E 4Q13E
Page 6
A macro outlook on the petrochemical industry – a
look at the cost landscape
Page 7 Source: IHS, Macquarie Capital (USA), September 2013
Oil-to-gas ratio likely to remain elevated
0x
10x
20x
30x
40x
50x
19992000
20012002
20032004
20052006
20072008
20092010
20112012
2013E
2014E
2015E
Macquarie - Predicted Oil/Gas Ratio
Page 8 Source: IHS, Macquarie Capital (USA), September 2013
Global Cost Setting – Advantage USA
-
200
400
600
800
1,000
1,200
0 20 40 60 80 100 120 140 160 180
20122007
North East Asia
Middle East Ethane
Middle East Avg
Alberta Ethane
US Ethane
US Avg
South East AsiaWestern Europe Avg
North East Asia
Middle East Avg
South East Asia
US AvgWestern Europe Avg
Ethylene Production Costs,
US$/MT
Cumulative Ethylene Capacity, million MT
2016E
US Ethane
US Avg
Page 9
Ethylene cash costs – North America remains highly favorable
Source: IHS, Macquarie Capital (USA), September 2013
0
200
400
600
800
1000
1200
1400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Regional Cash Costs (US$/MT)
North America Northeast Asia Southeast Asia West Europe
North American cash costs have dropped 65% since 2008
Page 10 Source: Bloomberg, Macquarie Capital (USA), September 2013
North American ethane prices have de-coupled from oil
$0
$2
$4
$6
$8
$10
$12
$14
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13
Brent ($/bl) - LHS Ethane (c/gal) - LHS Natural Gas ($/mmbtu) - RHS
Ethane has decoupled from crude
$0
$2
$4
$6
$8
$10
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$14
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Brent ($/bl) - LHS Propane (c/gal) - LHS Natural Gas ($/mmbtu) - RHS
Propane has also fallen sharply, towards nat. gas
Page 11 Source: Macquarie Capital (USA), September 2013
US ethane production poised to rise further, sharply…
Page 12
Ethylene margins – a regional outlook
Source: IHS, Macquarie Capital (USA), September 2013
0
200
400
600
800
1000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Regional Ethylene Margins (US$/MT)
North America NorthEast Asia SouthEast Asia Western Europe
0
100
200
300
400
500
600
North America NorthEast Asia SouthEast Asia Western Europe
Regional Ethylene Margins (US$/MT)
2000-2009 Avg 2010-2014E Avg
Page 13
A macro outlook on the petrochemical industry
– what do these shifts mean for co-products
and aromatics?
Page 14
US shale gas has contracted ethylene co-product and aromatic production
-
500
1,000
1,500
2,000
2,500 Butadiene (000 MT)
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000 Propylene (000 MT)
-
50
100
150
200
250
300 Benzene (000 MT)
-
50
100
150
200
250 Toluene (000 MT)
Source: IHS, Macquarie Capital (USA), September 2013
Page 15 Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013
Benzene values have lifted amid tightening supply
-500
-400
-300
-200
-100
0
100
200
0
50
100
150
200
250
300
350
May-11Aug-11Nov-11Feb-12May-12Aug-12Nov-12 Feb-13May-13
OtherW. EuropeAsiaDelta: Asia Spot - U.S. Contract
Thousand Metric Tons Dollars Per Metric Ton
U.S. Benzene Imports
0
100
200
300
400
500
600
700
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Benzene Contract SM
Spot SM Cumene, Formula
Cents Per Gallon
U.S. Benzene Netback Values
Page 16 Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013
Margin and Spread Forecasts - Asia
2010 2011 2012 2013E 2014E 2015E Avg (2003-2012)
Dubai Crude (US$/bbl) 78 106 109 105 113 115 69
NCC benchmark margin (US$) 282 285 250 260 275 302 259
Ethylene-Naphtha spread 386 260 276 350 380 430 371
Propylene-Naphtha margin 474 510 411 400 380 400 421
Benzene-Naphtha spread 200 175 276 400 450 450 256
Butadiene-Naphtha spread 1,085 1,895 1,155 700 860 1,000 736
PX-Naphtha spread 328 616 570 570 500 480 438
HDPE-Naphtha 457 387 373 452 482 583 509
PP-Naphtha 501 500 378 421 434 507 494
HDPE-Ethylene 70 125 94 100 100 150 135
PP-Propylene 25 -10 -31 20 50 100 69
PVC-Ethylene 391 418 320 350 370 400 358
MEG-Ethylene 211 465 291 370 430 470 300
PTA-PX 256 228 80 50 40 50 177
Polyester cash margin 397 336 200 160 200 250 305
Page 17
A macro outlook on the petrochemical industry – a
quick look at technology and supply growth
Page 18
LPG
• BP/UOP, Cyclar
• Mobil, M-2 Forming
• IFP/Salutec, Aroforming
• Research Association of Japan, Z F
orming
• Asahi Chemical, Alpha Process
Methanol
• In research
Other Advantaged Feedstocks (Paraff
inic, etc)
• ChevronPhillips, Aromax
• UOP, RZ Platforming
New Technologies for Benzene – not
yet commercialized
Source: IHS, CEH, Macquarie Capital (USA), September 2013
Example: Benzene. Most new technologies will unlikely be meaningful near term
Page 19 Source: IHS, Macquarie Capital (USA), September 2013
Regional capacity growth
Additional
Capacity
% of
Additional
Additional
Capacity
% of
Additional
Additional
Capacity
% of
Additional
Middle East 3,127 10% 14,192 40% 13,281 26%North America 8,863 29% 791 2% 11,090 21%Northeast Asia 7,994 26% 11,587 32% 16,894 33%Southeast Asia 3,177 10% 2,541 7% 4,538 9%Western Europe 5,045 17% 2,850 8% (2,264) -4%Others 2,122 7% 3,874 11% 8,052 16%
30,328 35,835 51,591
Additional
Capacity
% of
Additional
Additional
Capacity
% of
Additional
Additional
Capacity
% of
Additional
Middle East 154 1% 1,653 15% 3,454 16%North America 1,899 18% (1,071) -10% 900 4%Northeast Asia 6,188 60% 7,399 68% 9,410 42%Southeast Asia 1,530 15% 2,191 20% 2,985 13%Western Europe 478 5% 25 0% 120 1%Others 55 1% 679 6% 5,296 24%
10,304 10,876 22,165
Additional
Capacity
% of
Additional
Additional
Capacity
% of
Additional
Additional
Capacity
% of
Additional
Middle East 1,049 6% 5,369 28% 6,293 33%North America 6,104 36% 1,916 10% 4,868 25%Northeast Asia 793 5% 1,262 7% 772 4%Southeast Asia 2,233 13% 2,080 11% 3,701 19%Western Europe 5,268 31% 3,071 16% (1,333) -7%Others 1,497 9% 5,679 29% 4,967 26%
16,944 19,377 19,268
Regional Propylene Capacity Growth (000 MT)
1990-1999 2000-2009 2010-2019E
Regional Ethylene Capacity Growth (000 MT)
1990-1999 2000-2009 2010-2019E
Regional Paraxylene Capacity Growth (000 MT)
1990-1999 2000-2009 2010-2019E
Page 20 Source: Macquarie Capital (USA), September 2013
PX sees new capacity pressure from Korea in 2014
Page 21 Source: Company data, Macquarie Capital (USA), September 2013
On-Purpose Propylene and Butadiene Production Company Project Capacity (t/yr) Location Cost Start-up Likelihood
Dow Chemical PDH 750,000 tonnes Texas 2015 Likely
Enterprise Products PDH 750,000 tonnes Texas 2015 Committed
Enterprise Products PDH 750,000 tonnes Texas 2015 Speculative
Formosa Plastics PDH 600,000 tonnes Texas 2016 Likely
Dow Chemical PDH TBD US Gulf 2018 Speculative
Williams PDH 1,000,000 tonnes Alberta TBD Speculative
LyondellBasell Metathesis TBD Texas TBD
PetroLogistics PDH Expansion Texas TBD Likely
TPC Group Dehydro unit Texas $300m 2014
TPC Group OXO-D unit 272,000 tonnes Texas $300m 2015
Company name Location Capacity ('000 t/yr) Start-up date Progress
Tianjin Bohai Chemical Industry (Group) Tianjin 600 Late August 2013 Under construction
Ningbo Haiyue New Materials Co Ningbo, Zhejiang 600 Early 2014 Under construction
Zhejiang Satellite Energy Co Pinghu, Zhejiang 450 Early 2014 Under construction
Sanyuan Petrochemical Shaoxing, Zhejiang 450 End 2013 Under construction
Yantai Wanhua Group Yantai, Shandong 750 End 2014 Under construction
Zhangjiagang Yangzijiang Petrochemical Zhangjiagang, Jiangsu 600 Early 2014 Under construction
600 2016 Planning
Haiwei Group Hengshui, Hebei 500 2015 Under construction
500 2017 Planning
Huanghua, Hebei 500 N/A Planning
500 N/A Planning
Fujian Meide Petrochemical Fuqing, Fujian 660 End 2015 Under construction
660 N/A Planning
Shandong Haili Chemical Industry Co Dafeng, Jiangsu 750 N/A Construction to start in H1 2013
ZOUEC Ningbo, Zhejiang 660 N/A Waiting for approval
660 N/A Waiting for approval
Changjiang Gas Chemical Nantong, Jiangsu 650 N/A Suspended
Total 10,090
China's PDH Projects under Construction or in Planning Stage
Announced On-Purpose Propylene Projects
Announced On-Purpose Butadiene Projects
Page 22 Source: Company data, Macquarie Capital (USA), September 2013
Company Project Capacity (t/yr) Location Cost Start-up Likelihood
Dow Chemical PDH 750,000 tonnes Texas 2015 Likely
Enterprise Products PDH 750,000 tonnes Texas 2015 Committed
Enterprise Products PDH 750,000 tonnes Texas 2015 Speculative
Formosa Plastics PDH 600,000 tonnes Texas 2016 Likely
Dow Chemical PDH TBD US Gulf 2018 Speculative
Williams PDH 1,000,000 tonnes Alberta TBD Speculative
LyondellBasell Metathesis TBD Texas TBD
PetroLogistics PDH Expansion Texas TBD Likely
TPC Group Dehydro unit Texas $300m 2014
TPC Group OXO-D unit 272,000 tonnes Texas $300m 2015
Company name Location Capacity ('000 t/yr) Start-up date Progress
Tianjin Bohai Chemical Industry (Group) Tianjin 600 Late August 2013 Under construction
Ningbo Haiyue New Materials Co Ningbo, Zhejiang 600 Early 2014 Under construction
Zhejiang Satellite Energy Co Pinghu, Zhejiang 450 Early 2014 Under construction
Sanyuan Petrochemical Shaoxing, Zhejiang 450 End 2013 Under construction
Yantai Wanhua Group Yantai, Shandong 750 End 2014 Under construction
Zhangjiagang Yangzijiang Petrochemical Zhangjiagang, Jiangsu 600 Early 2014 Under construction
600 2016 Planning
Haiwei Group Hengshui, Hebei 500 2015 Under construction
500 2017 Planning
Huanghua, Hebei 500 N/A Planning
500 N/A Planning
Fujian Meide Petrochemical Fuqing, Fujian 660 End 2015 Under construction
660 N/A Planning
Shandong Haili Chemical Industry Co Dafeng, Jiangsu 750 N/A Construction to start in H1 2013
ZOUEC Ningbo, Zhejiang 660 N/A Waiting for approval
660 N/A Waiting for approval
Changjiang Gas Chemical Nantong, Jiangsu 650 N/A Suspended
Total 10,090
China's PDH Projects under Construction or in Planning Stage
Announced On-Purpose Propylene Projects
Announced On-Purpose Butadiene Projects
Chinese propane imports set to spike
Page 23
Challenges relating to feedstock availability
Page 24
China shale: Vast resource base, ambitious targets
Source: EIA, Macquarie Capital (USA), September 2013
Page 25
China shale: Vast dry gas and oil potential, wet gas
(NGL) opportunity appears less well defined
Source: EIA, Macquarie Capital (USA), September 2013
Page 26 Source: IEA, Macquarie Capital (USA), September 2013
NGL Supply Trends
Page 27
U.S. NGL Production Grows Lighter
Source: EIA, Macquarie Capital (USA), September 2013
Source: IEA, Macquarie Capital, Naphtha and NGLs analysis, September 2013
New crudes more paraffinic but N+2A ratings comparable to old crudes
Page 28
Page 29
Will China stabilize and recharge growth
Page 30
Regional indicators denote improving conditions
40
45
50
55
60
Ma
r-1
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Au
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Regional PMI
US PMI Germany PMI China PMI
45
50
55
Ma
r-1
2
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
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Au
g-1
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Se
p-1
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Oc
t-1
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No
v-1
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De
c-1
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Ja
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Fe
b-1
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Ma
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Ap
r-1
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Ma
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Ju
n-1
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Ju
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Au
g-1
3
China PMI by subindex
China New Orders PMIChina New Export Orders PMIChina Manufacturing PMI
Source: Bloomberg, Macquarie Capital (USA), September 2013
Page 31
End market growth in key products in China has improved
YoY Growth of key products in China 2010 2011 2012 1H13
Textile production volume 18% -5% 1% 1%
Garment and clothing export value 21% 18% 4% 13%
Refrigerator and washing machine production volume 27% 11% 1% 12%
Auto production volume 33% 1% 5% 13%
Auto sales volume 32% 3% 4% 12%
Construction (GFA new start) 42% 16% -7% 4%
Property GFA sold 10% 5% 1% 29%
Source: Bloomberg, Macquarie Capital (USA), September 2013
Page 32
Chinese auto production and sales have improved
Source: Bloomberg, Macquarie Capital (USA), September 2013
Page 33
China residential property sold vs. new starts (6m lag)
Source: Bloomberg, Macquarie Capital (USA), September 2013
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Jan
-10
Ap
r-10
Jul-1
0
Oct-
10
Jan
-11
Ap
r-11
Jul-1
1
Oct-
11
Jan
-12
Ap
r-12
Jul-1
2
Oct-
12
Jan
-13
Ap
r-13
Jul-1
3
GFA new starts (6m lag, YoY,%) GFA sold (YoY,%)
Page 34
Conclusions
•Demand is moving in the right direction – we anticipate a YoY pickup globally in 2014
•A wide oil/gas ratio will persist – this showcases a significant difference in regional base chemical production
costs.
•Ethylene cracker co-product production will remain under pressure – this due to light feeds
•NGL and ethylene –chain export opportunities out of North America are set to rise., but many co-products (i.e.
benzene) will need to be imported
•Companies from around the world are studying investment opportunities in the US.
•Capex targeting on purpose co-product production has picked up in China.
•China’s forecast growth rates will not be what they were, and we remain cautious medium term.
.
Source: IHS, Macquarie Capital (USA), September 2013
Page 35 Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013
Additional tables
Page 36 Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013
Additional tables
Page 37 Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013
Additional tables
Page 38 Page 38
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand
Outperform – return > 3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return > 3% below benchmark return
Benchmark return is determined by long term nominal GDP growth
plus 12 month forward market dividend yield
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected <-10%
Macquarie First South - South Africa
Outperform – return > 10% in excess of benchmark return
Neutral – return within 10% of benchmark return
Underperform – return > 10% below benchmark return
Macquarie - Canada
Outperform – return > 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Macquarie - USA
Outperform – return > 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Volatility index definition* This is calculated from the volatility of historic
price movements.
Very high–highest risk – Stock should be
expected to move up or down 60-100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40-60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up
or down at least 30-40% in a year.
Low–medium – stock should be expected to
move up or down at least 25-30% in a year.
Low – stock should be expected to move up or
down at least 15-25% in a year.
* Applicable to Australian/NZ stocks only
Recommendation – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging, IFRS
impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
EPS = adjusted net profit /efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
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ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average number
of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendation proportions – For quarter ending 30 June 2013
AU/NZ Asia RSA USA CA EUR
Outperform 49.80% 57.68% 48.05% 41.13% 61.75% 47.10% (for US coverage by MCUSA, 8.12% of stocks covered are investment banking clients)
Neutral 39.85% 24.45% 42.86% 54.70% 34.42% 30.89% (for US coverage by MCUSA, 6.60% of stocks covered are investment banking clients)
Underperform 10.35% 17.87% 9.09% 4.17% 3.83% 22.01% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)
Page 39 Page 39
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