Fibres

The Impact of Oil Prices on Fibers

IFAI Outlook Meeting – May 2015

Alasdair Carmichael – PCI Fibres864 583 6868

Fibres

Daily Oil Prices – WTI $/Barrel

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Jan 2014 May 2015

$107.17 - 6/23

OPEC Meeting

Yemen action 3/25

$42.53 - 3/18Recovery??

Fibres

Oil production growth in 2014 in the US was the largest in over 100 years

US Oil Production Annual Change (million barrels/day)

Fibres

West Texas (WTI) vs Brent Oil ($/barrel)

As WTI cannot be exported it is not so relevant to Polyester raw materials as Asia drives prices and Brent oil is a better indication of Asian oil prices.

020406080

100120140160

WTI Brent

Fibres

" A man who would pay money for an oil price forecast is a man with too much money."

- Dr. Phil Leighton, Jacobs Consulting

The price of oil is fundamentally unstable.

Sage Advice on Oil Prices

EIA is forecasting US oil production will be down 57,000 barrels a day by May on a total of 9 million + /day. This will help stabilize prices and lead to a gradual increase which will bring idled wells back into production as higher prices are reached. Tight oil wells can be easily stopped and started.

Global oil production = 93.6 million barrels/day (12 million tons/day)

Fibres

EIA Short Term Oil Forecast – WTI $/barrel

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2011 2012 2013 2014 2015 2016

Fibres

PCI PET Packaging, Resin &Recycling Ltd PCI Films Consulting LtdPCI Fibres & PCI Nylon

Xylenes

Paraxylene Ethylene Glycol

PTA MEG

PolyesterPolymer

PolyesterFiber

Ethylene

PCI Xylenes & Polyesters Ltd

Naphtha

Fibres

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Delta RHS Oil - WTI US Naphtha

Naphtha is the starting point for many Petrochemicals

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Main Polyester Raw Material Route ($/ton)

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2013 Jan Jul 2014 Jan Jul 2015 Jan

Oil - WTI Naphtha PX PTA

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Daily China Spot Prices for Polyester Raw Materials $/ton

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Jan 6 2014 5-May

Oil PX PTA MEG

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The average price disadvantage in US against Asia = $352/ton or 16c/lb

Polyester Raw Materials Prices, Asia vs USA $/ton

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0200400600800

100012001400160018002000

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Delta - RHS Asia PTA/MEG US PTA/MEG

Fibres

USA Raw Material Price Change for Major Synthetic Fibers + Cotton

$/ton

800100012001400160018002000220024002600

Jan-14 Apr-14 July-14 Oct-14 Jan-15

PTA/MEG Capro Propylene Cotton

Jan 14 – Mar 15WTI Oil - 46%

PTA/MEG - 29%Capro – 39%

Propylene - 34%Cotton – 29%

Fibres

-15%

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-5%

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PTA/MEG Capro Propylene Oil

But, Things Start to Change in April

March 2015 – April 2015 % Change (US prices) Daily Asian PriceApril 1 - April 30WTI Oil + 25%

($47.17 - $59.03)

PTA/MEG + 23%($833 - $1026)

Price increases announced in Polyester fibers & resin/polymer

Fibres

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1980 1990 2000 2010 2020 2030

CellulosicsPolypropPolyesterNylonAcrylicCottonWool

Source: PCI Fibres GB14

Total Fiber Demand (million tons)

CAGR %1980 – 2015

Total Fiber = 3.17%Polyester = 6.59%Total Fiber excl.

Polyester = 1.44%Nylon = 0.76%

Fibres

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Pfilament Pstaple Cotton Cellulosics Nylon PP Acrylic Wool

million tonnes

Source: PCI Fibres Demand Model

Change in Global Mill Consumption – 2007 : 2014, Winners & Losers

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2011 2012 2013 2014

ImportDomestic

Domestic39%

Import61%

Polyester Industrial US Domestic Consumption (000 tons)

Closure of Moncure in Q4 2014 starts to show in increased imports for full year

To Feb 2015

Impact of closure becomes clearer. Imports in 2013 were 44% of total, now 61%.

To 2/15 imports increased by 5.1ktons over 2/14, Chinese imports increased by 4.5k tons.

Fibres

North American Total Auto Build (millions)

02468

101214161820

1951 1961 1971 1981 1991 2001 2011

TruckCar

Total Auto production:

2009 = 8.67m2014 = 16.97m

Fibres

• In 2 years Mexico has announced or started up $11 billion of new automotive investment.

• Mexico will be the 7th largest vehicle producer in the world in 2015.

• Mexico is the 4th largest exporter of vehicles (Japan, Germany, S.Korea, Mexico)

• In last 20 months Audi, Kia, Daimler/Nissan and BMW have all announced new assembly plants each of more than $1 billion.

• 12/14 GM investing $3.6 billion at existing plants to double capacity in Mexico

• 03/15 VW announces $1 billion expansion at Puebla plant - Tiguan

• Mexico has excellent free trade agreements – EU, NAFTA, S.America, 40 countries + TPP Asia Pacific expected. Easy access to Atlantic and Pacific ports. Competitive labor costs, but expensive energy.

North American Auto Industry Booming

• BMW investing a further $1 billion in Spartanburg making it the largest BMW plant in the world. 75% of production for export. Total Investment $7.5 billion

• US auto exports broke record for 4th consecutive year in 2014. 2010 = 1.3 million light vehicles, 2014 = 2.1 million ($159 billion)

• Volvo announce $500m plant in S.C. 4/2015

Why is Auto Build important to Polyester & Nylon

Fibres

Synthetic Fibers into N. American Auto Build (lbs/vehicle)

01234567

PET FilamentPET StaplePA Filament

Total Polyester Fiber used in LCV Auto Build 2014 = 450 mm lbswith an estimated 150 mm lbs from rPET

Total Nylon Fiber used in NA LCV Auto Build 2014 = 200 mm lbs

38.2 lbs/vehicle

Fibres

02468

101214161820

1969 1974 1979 1984 1989 1994 1999 2004 2009 2014

Total US Housing

Starts & Sales

Total N.A. Auto Build

Auto & Housing Recovery from Recession (million units)

Fibres

Nylon 66 impacted by Invista Force Majeure Early April 2015

Plant issue at Victoria TX resulting in Force Majeure. No official news yet of the severity of the cut back in deliveries of the expected duration. Key products impacted by FM are Adiponitrile(ADN), Hexamethylene Diamine (HMD) and Nylon 66 Polymer.

Nylon – Current Issues

Fibres

PCI PET Packaging, Resin &Recycling Ltd PCI Films Consulting LtdPCI Fibres & PCI Nylon PCI Films Consulting Ltd

Nylon

Caprolactam

ButadieneBenzene Propylene

Cyclohexane Adiponitrile

Adipic Acid

HMDA

N6 polymer N66 polymer

Acrylonitrile

PCI Xylenes & Polyesters Ltd

Fibres

Nylon 66 impacted by Invista Force Majeure Early April 2015

Plant issue at Victoria TX resulting in Force Majeure. No official news yet of the severity of the cut back in deliveries of the expected duration. Key products impacted by FM are Adiponitrile(ADN), Hexamethylene Diamine (HMD) and Nylon 66 Polymer.

ADN is particularly critical as there are only 4 major plants in the world that supply the world’s needs for Nylon 66:• Invista Victoria TX – 403,000 tons• Invista Orange TX – 360,000 tons• Ascend Decatur AL – 455,000 tons• Butachimie France – 520,000 tons (Rhodia/Invista J/V)

Nylon – Current Issues

Fibres

Global PA Demand by End-Use: PA6 vs PA66

Global PA6 Consumption – by Application Global PA66 Consumption – by Application

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Textile FilamentIndustrial FilamentCarpet FilamentStaple FibreEngineering PlasticsFilm

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Source: PCI Nylon

Non Fiber

Fiber

Fibres

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Nylon 66Nylon 6

Total Nylon Fiber Production (000 tons)

2015 Polyester Production = 48.7 m tons; Nylon = 4.2 m tons

Fibres

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Nylon Industrial Filament Production by Region (000 tons)

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N6 N66

Share by Polymer Type

N66 makes slight gains – air bags, cap ply

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What do all these have in Common?

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Source: Composites Forecasting & Consulting

Fibres

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OthersSABICHyosungKemrockAKSACytecHexcelChineseFormosa PlasticsSGLMitsubishi RayonZoltekToho TenaxToray

Note: 2020 capacity forecasts vary from 170,000 tons to 200,000 tons

Global Capacity Estimates for Carbon Fiber (000 tons)

Fibres

Toray acquire Zoltek in 2014 - $584 million Toray announce $1 bn investment in SC. 65% spend by 2017 – precursor, fiber & prepreg

Toray adding 5th prepreg line in Washington State

Toray sign 10 year deal with Boeing for 777X & 787 estimated at $8.6 bn sales

Toray start new precursor plant in France in 2014

Mitsubishi doubling CF capacity to 4,000 tons in Sacramento CA in 2016

SGL/BMW doubled CF capacity to 6,000 tons in WA in 2014; adding a further 3,000 tons started. $300m

invested

Cytec doubling CF capacity by adding 3,000 ton plant in SC – start up 2016

Hexcel building new plant in France – start up 2017. $250 million investment

Hyosung invest $230m for 2,000 tons in 2013, plan to invest further $800m to 17,000 tons by 2020

Recent Carbon Fiber Activity

Toray doubling large tow carbon fiber capacity in Mexico to 5,000 tons – May 2015

Fibres

Source: Toho Tenax (Division of Teijin)

Production Process for Carbon Fiber

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Industrial

Consumer

Aerospace

Global End Use Growth in Carbon Fiber (000 tons)

Source: Composites Forecasting & Consulting

IndustrialAutomotiveEnergy (wind, gas & oil, storage, tidal)General engineeringMedicalTooling

ConsumerSports (golf, fishing, tennis, skis, bikes etc)MarineOthers

AerospaceAircraft (wings, bodies, engines)MilitarySpace launchMunitionsOthers

Fibres

Fiber Industry Status

Market is generally strong – Carpet has been weakest element.

Apparel business very good – mainly via CAFTA/NAFTA.

Automotive excellent – Domestic origin preferred.

Closure of Performance Fibers Moncure plant cuts US capacity for High Tenacity by 36%

Non Woven volumes continue to grow.

Polyester producers in filament & staple running full, Nylon not as strong.

Short term forecast sees polyester prices increasing due to raw materials and full utilization.

Mid term: as oil increases synthetic fibers will increase, we expect oil to plateau to mid year and then increase into Q4.

Nylon 66 Invista Force Majeure coming to a conclusion without too much disruption in the market.

Fibres

IFAI Outlook Meeting – May 2015

THANKS&

Questions??

Alasdair Carmichael – PCI Fibres864 583 6868