Chemicals and Resins Outlook - The Right Place...IHS Markit Customer Care [email protected]...

Confidential. © 2019 IHS MarkitTM. All Rights Reserved.Confidential. © 2019 IHS MarkitTM. All Rights Reserved.

Chemicals and Resins OutlookResins: Key Market Drivers and the Outlook for 2020

September 25th, 2019

Ted Semesnyei, Senior Economist +1 781 301 9121 [email protected]

Tony Budd, Account Manager+1 248 728 8409 [email protected]

Confidential. © 2019 IHS MarkitTM. All Rights Reserved.

Enabling smarter purchasing decisions and supply chain cost savings

The IHS Markit Pricing & Purchasing

Service enables supply chain cost

savings by providing timely, accurate

cost and price analysis.

Armed with a better understanding of

suppliers’ cost structures and market

dynamics, organizations can effectively

negotiate prices, strategically time buys,

and boost the bottom line.

Comprehensive Data and Analysis

to Cover All Your Spend Categories

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Transportation and logistics Chemicals and plastics

Electronic components Services

Nonferrous metals Indirect Costs

Clients realize savings of up to 10% of overall spend

2


Key chemical and resin drivers

• Pricing outlook has been lowered because of several factors

> Concerns about slowing demand are negatively impacting market sentiment

> Oversupply conditions continue to persist, which are keeping pricing pressures muted

> Soft feedstock cost pressures

> Buying conditions are clearly improved compared to 2018 and

earlier in 2019

3


Global growth slows, but no recession

4

GDP (in local currency,

percent change) 2018 2019 2020 2021

World 3.2 2.7 2.6 2.6

Brazil 1.1 0.9 1.3 1.5

Canada 1.9 1.4 1.3 1.6

China 6.6 6.2 5.7 5.6

Eurozone 1.9 1.1 0.8 1.0

India 6.8 6.1 6.4 6.9

Japan 0.8 1.0 0.3 0.6

Mexico 2.0 0.3 1.1 1.4

Russia 2.2 1.3 1.7 1.8

United States 2.9 2.3 2.1 1.9

United Kingdom 1.4 1.0 0.5 0.9


Manufacturing: the point of weakness in the global economy

5

Industrial Production (percent

change) 2018 2019 2020 2021

World 3.1 1.3 2.0 2.3

Brazil 0.9 -0.9 1.3 1.4

Canada 3.0 1.5 1.7 1.9

China 6.3 5.7 5.2 5.1

Eurozone 0.9 -0.5 0.4 1.2

India 5.2 3.6 4.3 4.8

Japan 1.0 -0.9 0.6 0.8

Mexico 0.1 -1.2 0.6 0.7

Russia 2.9 2.3 2.0 2.1

United States 4.0 1.0 1.1 1.4

United Kingdom 0.8 -0.2 0.4 1.2


Shrinking backlogs and faster delivery times describe a buyers’ market

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Global chemical production is dependent on feedstock source and varies by region

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0%

20%

40%

60%

80%

100%

China Europe N. America

Coal to Olefins Methanol to Olefins Gas Oil

Naphtha Butane Propane

EthaneSource: IHS Markit

Regional ethylene production: 2020

0%

20%

40%

60%

80%

100%

China Europe N. America

Coal to Olefins Methanol to Olefins Gas Oil

Naphtha Butane Propane

EthaneSource: IHS Markit

Regional ethylene production: 2016


Summary of chemical and resin pricing factors

• Energy

> N. America t natural gas

– Ethylene and ethylene derivatives are mainly via natural gas. Thus, a resin such as

polyethylene is heavily impacted by gas feedstocks

– Cost of production for the aromatics chain (coming from benzene) is more strongly

associated with crude oil, including in N. America. Thus, a resin such as polystyrene

will be more influenced by oil.

> Europe/Asia crude oil

• In addition to feedstock costs, there are several other factors that can impact final market prices for chemicals and resins. These include, but are not limited to:

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Demand growth

Trade flowsInventory and

supply growthProduction capacity

Alternative valuesProduction routes

and technologies


Ethylene: Market has turned the corner, with prices now trending higher

• US contract prices pushed higher

by 0.75 cents per pound (cpp) in July, and is forecasted to have risen

by 2 cpp in Aug

• Additional price increases are

projected for the fall

• Despite a continuing slide in

feedstock costs, short-term supply

disruptions have helped push market sentiment more bullish

• Still, new plant operations continue

to come online. Thus, the price push is expected to ease soon, with the market shifting to a more neutral position by early next year

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22.0

24.0

26.0

28.0

30.0

32.0

34.0

36.0

38.0

2015 2016 2017 2018 2019 2020

North America

Ethylene contract price, cents per pound

Source: IHS Markit © 2019 IHS Markit


Big surge in new ethylene/PE capacity, notably in the USNew ethylene supply has come on quicker, with major price implications

1010

0

50

100

150

200

250

Millio

n M

etr

ic T

on

s

Africa Middle East Asia Americas Europe

© 2019 IHS Markit

Ethylene Capacity by Geography

0

10

20

30

40

50

60

70

80

Millio

n M

etr

ic T

on

s

Africa Europe Middle East Asia Americas

© 2019 IHS Markit

Polyethylene (HDPE) Capacity by Geography


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Drivers of ethylene demand:N. American profile

Total domestic demand: 33.3 Million Metric Tons

Confidential. © 2019 IHS MarkitTM. All Rights Reserved.12

Polyethylene: US prices fell by 3 cents per pound in both July and August, as buyers have gain leveraged

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2015 2016 2017 2018 2019 2020

North America, Domestic Market Contract (converted)

West Europe, Domestic Contract Market (converted)

Northeast Asia, Spot Average

Polyethylene, Blow Molding, dollars per metric ton


US

do

llars

per

metr

ic t

on


13

Polyethylene: Global supply and demand summary

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018 2019 2020 2021

Western Europe Northeast Asia North America

Polyethylene (HDPE) total demand


Millio

n m

etr

icto

ns

0

5

10

15

2013 2014 2015 2016 2017 2018 2019 2020 2021


Polyethylene (HDPE) total production


Millio

n m

etr

ic t

on

s

Confidential. © 2019 IHS MarkitTM. All Rights Reserved.14

Polypropylene: Outlook is for prices to decline slightly, with risk to the forecast on the downside

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2015 2016 2017 2018 2019 2020

North America, Domestic Market Contract (converted)

West Europe, Domestic Contract Market (converted)

Northeast Asia, Spot Average

Polypropylene, Homopolymer, dollars per metric ton


US

do

llars

per

metr

ic t

on


15

Polypropylene: Global supply and demand summary

Western Europe18%

Northeast Asia66%

North America16%

Polypropylene total demand in 2019


5

10

15

20

25

30

35

40

2014 2015 2016 2017 2018 2019 2020 2021


Polypropylene total production


Millio

n m

etr

ic t

on

s


Bottom line: North American PC

prices will continue to ease into 2020,

while Asian prices look to have

reached bottom and will begin pushing

up shortly

Following a prolonged period of sliding

prices, Asian producers are beginning

to manage production and supply

levels in an attempt to firm pricing

pressures

North America general purpose

polycarbonate market price has fallen

by more than 20 cents per pound so

far in 2019 because of increasing

supply and slowing demand

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Demand in North America is growing at a

slower pace than last year, but still has the

best growth of the major global markets

0

1

2

3

4

5

6

7

8

9

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Millio

n M

etr

ic T

on

s

Middle East Americas Europe Asia© 2019 IHS Markit

Global Polycarbonate Capacity Growth

2019Q2 2019Q3 2019Q4 2020Q1

PC,cts/lb (US) 168.7 ▼ 158.0 ▼ 147.7 ▼ 140.0 ▼

PC euro/mt 2,217 ▼ 2,147 ▼ 2,093 ▼ 2,117 ▲

PC, $/mt (Asia) 1,933 ▼ 1,933 ► 2,000 ▲ 1,953 ▼

Polycarbonate: Buy now in Asia; wait in North America


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Nylon: Prices finally pushing down for nylon66, as feedstock issues begin to clear up

100.0

120.0

140.0

160.0

180.0

200.0

220.0

2016 2017 2018 2019 2020

North America

Nylon 66 (Engineering Thermoplastic), cents per pound


112.0

116.0

120.0

124.0

128.0

132.0

136.0

140.0

144.0

2016 2017 2018 2019 2020

North America

Nylon 6 (Engineering Thermoplastic), cents per pound



Bottom Line: Demand is soft and

supplies are more than adequate. Still, feedstock costs will begin to

rise, which will balance pressures by early next year. Thus, look to

lock in and purchase this fall in Q4

Stronger than expected production in the first half of 2019 and

ensuing accumulation of finished

goods has weighed on ABS prices in Asia

The downside pricing risk is strong

over the next couple of months,

especially in Asia

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The North American market has seen lower

costs, softer demand, and lower prices of

imported ABS

2019Q2 2019Q3 2019Q4 2020Q1

ABS,cts/lb (US) 86.7 ► 81.7 ▼ 79.3 ▼ 81.3 ▲

ABS, $/mt (Asia) 1,511 ► 1,412 ▼ 1,358 ▼ 1,405 ▲

ABS: Fourth quarter of this year is shaping up to be the ideal time to buy


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800

1,200

1,600

2,000

2,400

2,800

3,200

2016 2017 2018 2019 2020

North America, contract-market price (converted)West Europe, contract-market price (converted)Asia, spot price

Styrene Butadiene Rubber, dollars per metric ton


US

do

llars

per

metr

ic t

on

100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

260.0

280.0

2016 2017 2018 2019 2020

Singapore, Spot Price, Natural Rubber

Natural rubber outlook, cents per kilogram


Rubber: Natural and synthetic prices trending down and contained for the foreseeable future


Chemical and resins summary

• Bottom Line:

> Prices are declining for most resin markets, with leverage on the side of buyers

> Look to time purchasing and to lock in rates in late 2019/early 2020 when prices will generally be at their near-term low point

• Risk Factors:

> The overall risk to the forecast is on the downside

> Still upside risks are present: crude oil pricing/weather disruptions

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Negotiating Tips for 2020

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• Lock in at late 2019 pricesPolyethylene

• Buy as neededPolypropylene

• Ask for ongoing price dropsNylon

• Ask for ongoing price dropsPolycarbonate

• Capture price drops of 2019ABS

• Buy as neededRubber

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Chemicals and Resins Outlook - The Right Place...IHS Markit Customer Care [email protected]...

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