polypropylene industry...
TRANSCRIPT
Polypropylene Industry Briefing
HMC’s Customer Seminar 2016
Chommanad Thammanayakatip
May 2016
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AgendaPetrochemicals recent performanceInvestment LandscapeSouth East Developments
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Chommanad ThammanayakatipManaging Consultant
May 2016HMC's Customer Seminar
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Jan-2008 Jan-2010 Jan-2012 Jan-2014 Jan-2016
US$ p
er ba
rrel
What a difference a year makesBrent Crude Oil Price Decline, mth average
Source: Nexant
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What does low oil mean for the petrochemicals sector?
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40
60
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100
120
140Brent Crude Oil Prices – US$/bbl Issues for Global Chemicals:
Investment slowdown in Middle East and in other geographies. Partly associated with Middle East sponsors.
Shifts in industry competitiveness. Naphtha cracking has become more competitive.
Feedstock alternatives have become less attractive e.g. coal, bio etc.
Pricing correction across the value chain due to falling cost base. However margins have improved for some products
Demand upside for some geographies –increased disposable income?
May 2016HMC's Customer Seminar
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Shale gas advantage has been eroded as naphtha cracking competitiveness improves with lower oil prices
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20
40
60
80
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140
-15
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15
30
45
2007 2008 2009 2010 2011 2012 2013 2014 2015
Bre
nt o
il pr
ice
($/b
bl)
Index
(198
4 Q1=
100)
ROCE - Naphtha ROCE - US Shale Brent oil price
Petrochemicals Return on Capital Employed Index
Sharp decline in crude oil
Economic crisis
Shale gas advantage
Chemicals up-cycle
May 2016HMC's Customer Seminar
Demand growth for polyolefins has varied over time yet the trend remains link to economic growthGlobal Polyolefins Demand Growth and Economic Growth
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-5
0
5
10
15
2000 2005 2010 2015 2020
perce
nt
Average Global GDP LDPE LLDPE HDPE Polypropylene
Polymer consumption growth is driven by economic growth, or in more developed countries, by industrial production indices and consumer trends
Estimated global PP demand CAGRs for 2000-2015 / 2015-2020are 4.6% and 4.4% percent respectively
Estimated global GDP growth for 2000-2015 / 2015-2020 is 2.9% / 3.2%
Short-term global GDP forecasts (through 2020) have recently been reduced by almost 0.5% due to on-going low oil prices, uncertainty about China, and other economic factors
May 2016HMC's Customer Seminar
China is by far the largest polyolefins market and the gap is continuing to widenPolyolefins per Capita Consumption, 2000-2020
20002010
20202010
2000
2020
2000
2010
2020
2000
2010
2020
0
10
20
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0 10 20 30 40 50 60 70
Marke
t Size
(milli
on to
ns)
Consumption per Capita (kg)United States Western Europe China Asia (ex China)Consumption per capita
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Note: Bubble size reflects size of population
Polymer demand is driven by industrial production and consumer trends, varying by country maturity
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Investment Landscape
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A number of new petrochemical projects are expected to be delayed due to the impact of low oil prices Regional Petrochemical Feedstock Sources and Trends
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Increase focus on coal to chemicals and PDH (via propane imports).
Investment in new refinery capacity with a focus on refinery/petchem integration.
Variable competitive position depending on feedstock. Access to markets is key.
China Coal Reserves Increased oil & gas production, resulting in lower energy prices.
Increased production of co-produced ethane and other NGLs.
Improved competitive position, resulting in reinvestment in commodity products.
US Shale Reserves
Further utilisation of ethane and other available NGLs.
Investment in new refinery with a focus on refinery/petchem integration.
Declining competitive position off-set by mixed feeds, integration/scale and higher value products.
Middle East Oil and Gas Reserves
May 2016HMC's Customer Seminar
New propylene supply trending towards on-purpose technologySteam Cracker Products: Naphtha vs. Ethane
May 2016 12
Global Propylene Capacity Profile
CTO/MTO and PDH processes are increasingly becoming important sources of incremental global propylene supply. This trend has been due to higher growth in propylene demand than refinery and cracker investments, and also prompted by trends towards using a lighter feedstock slate for global ethylene production.
Globally, incremental propylene capacity from cracker and refinery developments is forecast to remain insufficient to balance propylene demand growth
Firm CTO projects are limited to China and supported by the local availability of low-cost mine-mouth coal PDH investments are taking place in North America, Middle East and Asia. Propane exports from the US and the
Middle East are also supporting PDH projects in Asia.
0%
50%
100%
2005 2010 2015
Perce
nt of
total
capa
city
Steam Cracker Refinery PDH CTO/MTO Others
0
1
2
3
4
Naphtha Feedstock Ethane Feedstock
Ton p
er to
n ethy
lene
Ethylene Propylene Others
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New refinery investments heavily concentrated in China and India
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Bubble size – scale of total capacity additionsBubble size – scale of total capacity additions
Global Refinery Capacity Changes 2014-2017
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More than 20 CTO/MTO projects are under various stages of development in ChinaCTO/CTP Operating Plants in China
First phase CTO project concentrated in the western regions exploiting lower cost coal reserves. East coast developments are focused on methanol
imports for new MTO projects. Higher cost projects may not succeed.
Xinjiang
Qinghai
Tibet
Gansu
Sichuan
Yunnan
Hainan
Guangxi
FujianHunan
Hubei
Henan
Jiangxi
Guangdong
Ningxia
Inner Mongolia
Heilongjiang
Jilin
Liaoyang
Hebei Tianjin
Zhejiang
Anhui
Jiangsu
ShandongShanxi
Shaanxi
Beijing
Guizhou
CTO MTO
CTO/CTP Capacity
0
10
2012 2013 2014 2015 2016
Millio
n ton
s
Ethylene Propylene
14
15
PP additions highly concentrated in China, strong emphasis around new refinery and on-purpose propylene Regional Polypropylene Incremental Capacity Additions (million tons)
NA SAEU
ME/AF
China
Other
Incremental Changes 15-20
Over the next five years, polypropylene capacity will increase by almost 20 million tons
May 2016HMC's Customer Seminar
Global polypropylene demand was estimated at 60 million tons in 2015, following growth of 4.4% from 2014
Regional Polypropylene Demand, 2015-e(Global demand 60 million tons)
Source: Nexant Analysis May 2016
Film applications are expected to have the highest growth rate, but almost all applications are forecast to have good growth
North America
12% South America
5%
Western Europe
12%
CEE5%
Middle East7%
Africa3%
China33%
Asia (ex China)23%
Global Polypropylene Demand by End Use, 2015-e(Global demand 60 million tons)
Film19%
Fibre29%
Injection Moulding
39%
Other Extrusion
8%
Others5%
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Polypropylene volume growth set to remain highly dependent on China
May 2016 17
Incremental PP Consumption Growth, million tons
0.0
2.5
5.0
Millio
n ton
s per
year
China ROW
Global Polypropylene Demand and capacity, million tons
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100
Millio
n ton
s per
year
Demand Capacity
The Middle East will continue to be the dominant export region, while China will remain the largest importer
Global Polypropylene Net TradeMillion tons
With its low-cost production base, the Middle East is the dominant net export region, and this is not expected to change
North America, Western Europe, and Asia (ex China) are also net exporters- Despite its low-cost
propane position and large additions of PDH capacity, very little polypropylene capacity has been announced in North America
Despite large capacity additions, China continues to be the largest net importer, although this position will decline slightly
-6
0
6
Millio
n ton
s
2010 2015 2020
May 2016 18
South (East) Asia Developments
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Economically, South East Asian is a major market with half a billion people registering U$2.4 trillion GDP in 2014
Population of six major countries, 2014(Total Population 560 million people)
Source: Nexant Analysis May 2016
Indonesia46%
Malaysia5%
Philippines18%
Singapore1%
Thailand13%
Vietnam17%
GDP of six major countries, 2014(Total GDP 2.4 trillion dollars)
Indonesia27%
Malaysia16%
Philippines7%
Singapore1%
Thailand29%
Vietnam20%
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Although in relative term, not as big as China – the GDP is 5 times smaller, half slower growth and half GDP per capita consumption
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11 8 5 4 4 3 20
10
20
30
40
50
60
Singapore
Korea &Taiwan
Malaysia
China
Thailand
SEA 6combined
Indonesia
Philippines
Vietnam
GDP per Capita (estimated US$ thousand, 2014)
The region’s fragmented market is illustrated by the highly varied GDP per capita Singapore is 5 times per capita larger than Malaysia (second largest per capita market) and
Malaysia is 5 times larger than Vietnam (the smallest market in the analysis).
May 2016HMC's Customer Seminar
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For the past decade, SEA PP markets have grown about as fast as GDPSEA Polypropylene Demand and Economic Growth
-4%
0%
4%
8%
12%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
on
year
cha
nge
Actual GDP Actual polymer
Polypropylene growth ~ 1.1 – 1.2 times GDP growth on average
May 2016HMC's Customer Seminar
High growth opportunities still exist in specific marketsAsia Polypropylene Demand Growth
May 2016 24
Consumption growth in polymers is associated with the substitution of traditional materials, infrastructure development and population demographics (income, urbanisation etc.)
China
Korea
Indonesia
Malaysia
Thailand
India Vietnam
0%
4%
8%
0 20 40
Dema
nd C
AGR
in 20
15-2
025 (
%)
Consumption per Capita in 2015 (kg)
High growth potential
Indonesia32%
Malaysia10%
Philippines7%Singapore
1%
Thailand29%
Vietnam21%
Polypropylene consumption by major countries(total demand 4.4 million tons)
HMC's Customer Seminar
Major Projects are progressing in India, however elsewhere project delays are occurring
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Jamnagar, Gujarat Reliance Industries C2/C3: 1400/200 kta, no new PP only expansion Status: Under Construction, Start-up 2016
Reliance Refinery & Cracker
Dahej, Gujarat ONGC, Gail, GSPC C2/C3: 1100/400 kta, PP 340 kta Status: Under Construction, Start-up 2016
ONGC Petro Additions Limited (OPaL)
Balongan Pertamina/ Partners C3: 500-2000 kta, derivatives not announced yet Status: Under Evaluation
Indonesia integrated Refinery/petchem Projects
Pengerang, Malaysia Petronas/Partners C2/C3: 1300/1300 kta, PP 900 kta (Spheripol) Status: Planning: Start-up >2021
PETRONAS RAPID Refinery & Cracker
May 2016HMC's Customer Seminar
IRPC, Thailand 140 + 160 kta (late 2017)
South Korea• Hyosung 200 kta, 2017• S-Oil 400 kta, 2018
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Overview of major refinery/petrochemical investments in Vietnam
Located at Thanh Hoa Province PetroVietnam/Idemitsu/Mitsui/Kuwait Petroleum C3/PP: 370/370 kta Status: Start-up 2017/Q4
Nghi Son Refining & Petrochemical
Located at Dung Quat economic zone PetroVietnam C3/PP: 150/150 kta Status: Operational since 2010
Binh Son Refining & Petrochemical
Located at Ba Ria - Vung Tau PetroVietnam/SCG – (QP exit 2015) C2/C3: 1000/500 kta Status: Start-up 2020-21
Long Son Petrochemical
Located at Phu Yen Province PetroVietnam/Technostar/Telloil C3/PP: 900/900 kta Status: Not Firm
Vung Ro Refining & Petrochemical
May 2016HMC's Customer Seminar
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Despite regional expansions many markets are expected to rely on imports
0.0
0.5
1.0
1.5
2.0
2.5
Indonesia Vietnam Other Asia Philippines Oceania
Demand in 2025 Capacity in 2020
1.2 mta
0.6 mta
1.3 mta
0
10
20
30
40
China India
Demand in 2025 Capacity in 2020
2.7 mta
1 mta
Polypropylene Potential Market Deficits (million tons)
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Olefin pricing dynamics show a reversal of previous trends
152319
29
0
25
50
10-15 15-20Demand Capacity
2030
17
41
0
25
50
10-15 15-20Demand Capacity
Ethylene
Propylene
Incremental Supply & Demand Changes, million tons Ethylene and Propylene Pricing Ratio Dynamics
Initial price premiums on propylene reversed due to market oversupply
Increase in merchant propylene sales reflected in quoted pricing – more liquidity versus ethylene market
Future pricing corrections expected longer-term due a combination of C3 cost structure, value chain integration and polymer substitution.
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Parity SEA Propylene/Ethylene
First PDH(NPC Thailand)
First Asian Metathesis(Mitsui Chems)
First MTP(Shenhua Ningxia)
May 2016HMC's Customer Seminar
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Olefin price trends are reflected in downstream polymer marketsHDPE & PP Pricing Trends (US$/ton, CFR SEA) HDPE & PP Price Spreads (US$/ton, CFR SEA)
May 2016HMC's Customer Seminar
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0.9
1
1.1
1.2
1.3
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1000
1200
1400
1600
1800
2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 2015Q4
US$ p
er to
n
HDPE PP HDPE/PP
Ratio HDPE/PP
-300
-200
-100
0
100
200
300
2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 2015Q4US
$ per
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HDPE - PP spread
Summary of Polypropylene Market Developments
May 2016
Demand Outlook:Demand fundamentals are expected to remain strong in the outlook Global polypropylene demand was estimated at 60 million tons in 2015, an increase of 4.4% compared with 2014 Global growth driver is Asia – China is forecast to account for 65% of Asia’s incremental demand over the next five
years On-going low oil prices, uncertainty about China, and other economic factors have reduced short-term global
GDP forecasts and polymer demand growth forecasts
Supply Developments and Net Trade:New capacity additions slowed in recent years, but will reach unprecedented levels in the next few years Total polypropylene production increased from 44 million tons to 73 million tons per year from 2005 to 2015 Developments in the Middle East and Asia will contribute to capacity expansions up to 2020 Global capacity additions planned for 2016 and 2017 will exceed the amount of demand growth Low oil prices have caused some longer term projects to be delayed or cancelled
HMC's Customer Seminar 30
22nd Floor, Rasa Tower I, 555 Phahonyothin Road, Kwaeng Chatuchak,Khet Chatuchak,Bangkok 10900 ThailandTelephone: +662 793 4600 Facsimile: +662 937 0144www.nexant.com
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