AUGUST 2016 Polyester Value Chain Update · Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14...

© 2016 IHS

Polyester Value Chain Update

INDIAN Polyester - 2016

10 – 11 August 2016, Singapore

AUGUST 2016

Ashish Pujari, Senior Director (Aromatics & Fibers)

+ 65 6439 6100

[email protected]

mailto:[email protected]

© 2016 IHS Markit. All Rights Reserved.

IHS and Markit are now IHS Markit

IHS Markit thinks about the world in a unique way. We call this The New Intelligence.

IHS Markit’s singular ability to look across complex industries, financial markets, and government actions that drive the global economy and provide our customers with insights, perspective and solutions for what really matters.

2

Energy Chemical Automotive Financial Markets

Product Design Technology, Media & Telecom

Maritime & Trade Aerospace, Defense & Security

© 2016 IHS

Presentation Outline

• Economy & Energy Outlook

• Polyester

• Paraxylene

• PTA

• MEG

Global growth rates have slowed

down. Oil prices to remain range

bound – yet volatile

3

Polyester Value Chain Update / August 2016

© 2016 IHS

Outside Europe, the Brexit impact is limited

4

• After the UK vote to leave the European Union, our forecast of global real

GDP growth is revised downward from 2.5% to 2.4% in 2016, and from

3.1% to 2.7% in 2017.

• Economic and political uncertainty will hurt UK investment, consumer

spending, and capital inflows, stalling UK growth in the year ahead.

• Eurozone growth is projected to slow from 1.5% this year to 1.0% in

2017, reflecting increased political instability and banking problems.

• US economic growth will proceed at a 2.4% annual pace, led by

consumer spending and homebuilding.

• China’s economic growth will slow further because of imbalances in

credit, housing, and industrial markets.

• If sustained, the rallies in global financial markets will ease pressures on

emerging markets.


© 2016 IHS

-2

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1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Perc

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Global real GDP growth will strengthen in 2017–18

5


© 2016 IHS

0

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1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Perc

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Real GDP Industrial production

China’s economic growth will slow in the long run

8


© 2016 IHS

India is outpacing China in economic growth

• India’s real GDP increased 7.9% year on year in the January–March

quarter, led by growth in consumer spending.

• Foreign direct investment and government infrastructure projects are

driving capital spending; local private investment remains weak.

• Brexit could have a mild adverse impact on India if global risk aversion

leads to reduced foreign direct and portfolio investment.

• The Reserve Bank of India is expected to hold its policy rate at 6.50% to

restrain inflation. Consumer prices rose 5.80% y/y in June.

• Recent declines in real exports raise questions about India’s ability to

establish itself as a low-cost manufacturing center under Prime Minister

Modi’s “Make in India” policy.

• Policy reforms will move forward slowly. Much remains to be done to

open markets, upgrade infrastructure, and raise productivity.

9


© 2016 IHS

India outlook summary

10

Real GDP growth (%, fiscal years)

*Annual average, **Billions of US dollars

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2010 2012 2014 2016 2018 2020

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2010 2012 2014 2016 2018 2020

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3

6

9

12

2010 2012 2014 2016 2018 20204

6

8

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2010 2012 2014 2016 2018 2020

Exchange rate per USD*

Consumer price inflation (%)

Current-account balance**

Source: IHS Markit © 2016 IHS Markit Source: IHS Markit © 2016 IHS Markit

Source: IHS Markit © 2016 IHS Markit Source: IHS Markit © 2016 IHS Markit


© 2016 IHS

Key messages for the global crude oil market

1. IHS Energy continues to expect global oil (liquids) demand to be

higher than production through the rest of 2016.

2. The “Brexit” vote will impair global economic growth, but impact

on world oil demand will be modest.

3. An “undertow” of elevated global refined product inventories will

restrain upward crude price movements over the next several

quarters.

4. The world is at risk of veering into our Autonomy scenario, where

economic weakness hampers oil demand and keeps prices below

$50/bbl.

11

Note: Messages numbered for ease of reference and not necessarily order of importance.


© 2016 IHS

Global oil demand to slightly exceed production in 2H

2016, for the first time in more than two years

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90

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99

1Q

2013

2Q

2013

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2013

4Q

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2014

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2014

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2015

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2016

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3Q

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4Q

2016

1Q

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3Q

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4Q

2017

Demand Supply

World oil (liquids) demand and supply by quarter

Source: IHS © 2016 IHS

Millio

n b

arr

els

per

day

Note: For more details on our global balance, please see the data file, “IHS Energy Global Crude Oil Markets Outlook for Oil Market Fundamentals,” posted with this report.


© 2016 IHS

Dated Brent price environment to 2017 Dated Brent to average about $44.3/bbl in 2016 amid global oversupply

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120

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Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17

Dated Brent FOB price

Source: IHS Energy; Argus Media Limited, ©2016 (historical)

© 2016 IHS

$/b

bl

Disclaimer: Historical oil price data are extracted or derived by IHS Energy from Argus Media. All rights reserved. All liability for errors and omissions is hereby

excluded by Argus Media and its sources. No representations or warranties are made by Argus Media or its sources concerning the data or any conclusions to be

drawn from it.


© 2016 IHS

Presentation Outline

• Polyester

• Paraxylene

• PTA

• MEG

Slower growth rates persist!

14


© 2016 IHS

Fiber Demand Growth in Line with GDP Growth

• Fiber demand is linked to Global GDP, growing between 1.1 to 1.2 X of GDP

growth rate

15


40

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110

120

46,000 50,000 54,000 58,000 62,000 66,000 70,000 74,000 78,000 82,000 86,000 90,000

2010

2012

2000

2016

2018

2014

Fiber Growth in line with GDP Growth

Total Natural and Man-Made Fibers

Source: IHS © 2016 IHS GDP (Billion 2010 $)

Fib

ers

, M

illio

n M

etr

ic T

on

s 2020

© 2016 IHS

Total Polyester Demand

• Demand growth has slowed post 2012. While growth rates will increase over the

next couple of years, it will be significantly lower than historical.

File:

X:\Supply Demand

Balances\LFORM\Xylenes\Graphs\New

Graph Data.xlsx

WS:PFY_World_SD w Dmd Gr (2D)

WS: COMPARE DATA_Altfst (3D)

Last updated:

16 Sept 2015

(once every half yr)

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N. America S. America W. Europe C. Europe CIS & Baltics

Africa Middle East Indian Subc. NE Asia SE Asia

World: Polyester Demand by Region

Mill

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etr

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ons


12% 4% 3% 4% 5% 5%6% 5%

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//sin_svr2/Data/Supply Demand Balances/LFORM/Xylenes/Graphs/New Graph Data.xlsx













© 2016 IHS

Paraxylene

20


Key Factors to Watch

• Gasoline OR Aromatics?

• Feedstock costs

• Project delays

• Restart of shut assets

• China crude oil import policy

© 2016 IHS

Strong growth in Gasoline demand and equally strong

margins resulted in a strain on Aromatics feed in 2015

21


• In the long run – Octane demand in the gasoline pool is expected to stay flat. On

the other hand Aromatics have no other better feedstock than Reformate.

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Premium-Regular Gasoline Spreads, % Gasoline Consumption Change

Gasoline Demand Growth vs Premium-Regular Spreads


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, %

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th,

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© 2016 IHS

Paraxylene – Large investments come on-stream

• Statistically PX sits on a huge over-capacity, at levels not seen before. Question

is can all these assets operate and at what cost?

22


File:

X:\GFFR\Charts and

Presentations\Polyester

Chain\HANDOUTS\Excel &

Charts\WorldBook-

SDcharts\Current\PXY_SDgrph16.xlsb

WS: PX Cap gr_book

Last Update:

16 Sept 2015

(once every half yr) – 15T

50%

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90%

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Demand Growth Americas EuropeCIS & Baltic States Africa & Middle East ChinaAsia Excl. China Excess Capacity Operating Rate

Global PX Capacity Growth


Mill

ion M

etr

ic T

ons

Op

era

ting

Rate

© 2016 IHS

PTA


• Asset Rationalization remains key

• New starts in India disrupt Asia ex-

China balance

• Diminishing trade volumes will lead to

regional pricing

• Profitability – Only the MegaTON units

to survive in the Long term!

25


© 2016 IHS

PTA capacity growth continues to outstrip demand

• Although investment interest in PTA is low, there are still a few projects under

plan, with potentially each being able to cater to 1 year annual demand.

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File:

X:\GFFR\Charts and



Charts\Capacity from

Database\Polyster-

DemandGrowthVSCapGrowth.xlsx

WS: PTA

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Demand Growth Americas Europe Africa & Middle EastAsia Excl. China China CIS & Baltic States Operating Rate

Global PTA Capacity Growth


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ons

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Rate

, %

//sin-2pbos01/Sin_svr2/DATA/GFFR/Charts and Presentations/Polyester Chain/HANDOUTS/Excel & Charts/Capacity from Database/Polyster-DemandGrowthVSCapGrowth.xlsx






















© 2016 IHS

There Have Been Many Shutdowns:

Even the MegaTON Is Vulnerable

27


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China Korea(South)

Japan Taiwan India Indonesia Thailand UnitedStates

UnitedKingdom

GermanFederalRepublic

Spain Canada Italy

<1 Million Tons ≥1 Million Tons

Mix of All Shutdowns


Millio

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etr

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on

s

16 million mt capacity rationalized in last 4 years

MegaTONs account for 20% of all rationalizations

Another 4 MegaTON capacity has remained idle since May 2015

© 2016 IHS

Global Trade Flow - Diminishes

30


File: X:\Supply Demand

Balances\LFORM\Xylenes\Graphs\Gra

ph data.xlsb

WS: PT_Trade

Last Update:

16 Sept 2015

(once every half yr)

• China has gone from being the largest importer to balance and possibly could

emerge as net exporter. Taiwan and now Korea producers under threat.

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Regional PTA Net Trade


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//sin_svr1/data/Supply Demand Balances/LFORM/Xylenes/Graphs/Graph data.xlsb














© 2016 IHS

Invest or Exit : PTA Spreads will remain low

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File:

\\ihs\cmai\Houston\Groups\PF\Pe

rsonal_Folders\Chase's

Folder\AsiaPolyesterChainSpotA

nnual.xlsb

WS:Chart35 - PPT

26 Feb 2016

File:11 April 2015

Chart:24 Apr 2015

• At-least 85% operating rates required to earn positive margins. While

bankruptcies will shut a few plants, will they remain shut permanently?

40%

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PTA Spread Over PX PTA Global Operating Rate

Asia PTA Spreads


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$125 Per Ton Spread

85% Operating Rate

//houfile1/PF/Personal_Folders/Chase's Folder/AsiaPolyesterChainSpotAnnual.xlsb




















© 2016 IHS

MEG


• Market balance – just right

• Coal – to – MEG

• Capacity addition in US

• Reliance project – changes regional

dynamics

33


© 2016 IHS

MEG – Global capacity growth surpasses demand

• Capacity balance skewed towards coal based in China and operations remain

uncertain. Shale based expansions – possibility of delays?

34


File:

X:\GFFR\Charts and



Charts\Capacity from

Database\Polyster-

DemandGrowthVSCapGrowth.xlsx

WS: MEG

16 Sept 2015

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Demand Growth Americas Europe CIS & Baltic StatesAfrica & Middle East Asia Excl. China China Operating Rate

Global MEG Capacity Growth


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© 2016 IHS

CTM - What You Need To Know

35


• 2015 Status:

• 11 operational units

• 2 million mt; 7(!) technology variants

• Quality & Operations Problems; improving

• 2019 IHS Expectation (base case):

• 21 units; 3.8 – 4.0 million tons capacity

• Units built 2015 - 16 solve quality issues

• Operating rate for industry 75% from 2017

© 2016 IHS

Impact : From Negligible to Significant

36


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Effective Capacity Offline Capacity

Monthly Effective CTMEG Monitor

© 2016 IHS

Th

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Source: IHS

© 2016 IHS

MEG Scenarios: CTM will be a major influencing factor

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Demand Operating Rate Op Rate(CTM@70%) Op Rate(CTM has no improvement)

World: MEG Supply & Demand


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© 2016 IHS

Naphtha based cost sets price in Asia

• US Ethane based still cost advantaged despite the drop in Naphtha prices, but

the lower differential has the potential to delay further investments.

38


File:

X:\GFFR\Weekly\PFFR_Weekly_Master

.xlsb

WS: Feed_MEG (for PPT)

9 June 216

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C2: @ Market(Spot)

Naphtha Ethane C2: @ Market(Spot)

Ethane

ASIA MIDDLE EAST NORTH AMERICA

Fixed Variable Spot Price

12-May-16

Delivered Spot Asia MEG Economics Snapshot


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ASIA MIDDLE EAST NORTH AMERICA China

Fixed Variable Spot Price

2-Jun-16

Delivered Spot Asia MEG Economics Snapshot


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© 2016 IHS

Finding Value in the Polyester Chain

• Products

• Markets

• Location

• Differentiation

• Innovation

• Manpower

40


© 2016 IHS

Who Has the Money?

• Chain profitability expected to slowly improve

41


File:

X:\GFFR\Charts and


Chain\Polyester Chain Margins

Charts.xlsb

WS: ASP_POLY_Econ (PET Eq) (DTY)

Last Update:

9 June 216

, refresh DI sheets

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DTY margins MEG margins PTA margins PX margins Total Margins

Dollars Per Metric Asia Polyester for DTY Cash Chain Margins


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© 2016 IHS

Fiber Demand

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Central Europe

China

East Europe

India Subcontinent

Middle East

North America

South America Africa

South Korea

Southeast Asia

West Europe

CIS & Baltic States

Japan

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0 5 10 15 20 25 30 35 40GDP Per Capita — PPP, Thousand Dollars / Person

2014 Per Capita Fiber Demand, Kg

World Average = 12.4

© 2016 IHS

PET Demand

43


Central Europe

China

Indian Subcontinent

Middle East

North America

South America

Africa

Korea (South)

Southeast Asia

West Europe

Former Soviet Union

Japan

-2.00

0.00

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0 5 10 15 20 25 30 35 40

GDP per Capita - PPP, Thousand Dollars/person

World Average = 2.8

2015 Per Capita PET Demand, kg

© 2016 IHS

Cost Competitiveness – Shipping Costs Start to Pinch!

44

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Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Raw Material Conversion

Fixed (Labour) Packaging

Freight Shipping Cost as % of Total

POY Cost Trend


Do

llars

, U

S$

Perc

en

tag

e,

%

• China’s polyester growth was

fueled by the significant cost

advantage the country offered.

• Labor rates are increasing fast

and the labor intensive industry is

already looking at other labor cost

advantaged regions to invest.

• As crude oil prices decline, the

packing & shipping costs start to

pinch. Fresh investments will be

made near markets.

© 2016 IHS

Integration Is the Key for Survival

45

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PTA POY DTY ChainTotal

PTA DTY Total PTA toDTY

Stand-alone Businesses New GenerationNon-Integrated

Integrated Model

Margins Across the PTA – Polyester Chain


Ma

rgin

s, D

oll

ars

Pe

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on

s

© 2016 IHS. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any

internal client distribution as may be permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must

display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable but its accuracy and

completeness are not warranted, nor are the opinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any

errors or omissions or any loss, damage or expense incurred by reliance on information or any statement contained herein. For more information, please

contact IHS at [email protected], +1 800 IHS CARE (from North American locations), or +44 (0) 1344 328 300 (from outside North America). All

products, company names or other marks appearing in this publication are the trademarks and property of IHS or their respective owners. V2.0-29.04.14

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AUGUST 2016 Polyester Value Chain Update · Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14...

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Transcript of AUGUST 2016 Polyester Value Chain Update · Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14...