Global petrochemical industry outlook shifting trade · PDF fileGlobal petrochemical industry...

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Global petrochemical industry outlook

– shifting trade flows

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A macro outlook on the petrochemical industry –

gauging demand

Source: Macquarie Capital (USA), September 2013

We forecast rising global economic health

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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


We forecast rising global economic health

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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

A macro outlook on the petrochemical industry – a

look at the cost landscape

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


Global Cost Setting – Advantage USA

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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

Ethylene cash costs – North America remains highly favorable


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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

Source: Bloomberg, Macquarie Capital (USA), September 2013

North American ethane prices have de-coupled from oil

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Brent ($/bl) - LHS Ethane (c/gal) - LHS Natural Gas ($/mmbtu) - RHS

Ethane has decoupled from crude

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Brent ($/bl) - LHS Propane (c/gal) - LHS Natural Gas ($/mmbtu) - RHS

Propane has also fallen sharply, towards nat. gas


US ethane production poised to rise further, sharply…

Ethylene margins – a regional outlook


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Regional Ethylene Margins (US$/MT)

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Regional Ethylene Margins (US$/MT)

2000-2009 Avg 2010-2014E Avg

A macro outlook on the petrochemical industry

– what do these shifts mean for co-products

and aromatics?

US shale gas has contracted ethylene co-product and aromatic production

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2,500 Butadiene (000 MT)

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9,000 Propylene (000 MT)

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300 Benzene (000 MT)

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150

200

250 Toluene (000 MT)


Source: Bloomberg, IHS, Macquarie Capital (USA), September 2013

Benzene values have lifted amid tightening supply

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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

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Benzene Contract SM

Spot SM Cumene, Formula

Cents Per Gallon

U.S. Benzene Netback Values


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

A macro outlook on the petrochemical industry – a

quick look at technology and supply growth

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


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


PX sees new capacity pressure from Korea in 2014

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

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

Challenges relating to feedstock availability

China shale: Vast resource base, ambitious targets

Source: EIA, Macquarie Capital (USA), September 2013

China shale: Vast dry gas and oil potential, wet gas

(NGL) opportunity appears less well defined


Source: IEA, Macquarie Capital (USA), September 2013

NGL Supply Trends

U.S. NGL Production Grows Lighter


Source: IEA, Macquarie Capital, Naphtha and NGLs analysis, September 2013

New crudes more paraffinic but N+2A ratings comparable to old crudes

Will China stabilize and recharge growth

Regional indicators denote improving conditions

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China PMI by subindex

China New Orders PMIChina New Export Orders PMIChina Manufacturing PMI


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%


Chinese auto production and sales have improved


China residential property sold vs. new starts (6m lag)


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GFA new starts (6m lag, YoY,%) GFA sold (YoY,%)

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.

.



Additional tables

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




Macquarie - Canada




Macquarie - USA




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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

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be aware this stock could be speculative.

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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

total assets

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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)

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SALES TRADING US Robert DeRosa (212) 231 2594 Nicholas Struk (212) 231 2487 Greg Calvino (212) 231 0902 Pat Caufield (212) 231 2581 Mark Corcoran (212) 231 0951 John Curley (617) 598 2506 Bill Durand (212) 231 2413 Tom Durand (212) 231 8024 Brad Hoenig (212) 231 8089 Michael Ingrassia (212) 231 8064 Jon Jensen (617) 598 2517 Carlos Jimenez (212) 231 0883 Allen Jordan (212) 231 0947 Marty Livingston (212) 231 2523 Ross Peet (212) 231 0953 John Pennington (212) 231 2488 Stephen Sibilia (212) 231 8030 John Strack (212) 231 8067 Tarik Turner (212) 231 6365 Jess Wilson (617) 598 2509 Lance Wood (415) 762 5009 International Chris Reale (212) 231 2555 Ryan Bakker (212) 231 8083 Guy Devereux (212) 231 0900 Kai Keller (212) 231 2555 Marc Rosa (212) 231 2555

Australia/NZ Daniel Pittorino (212) 231 2552 Charlotte Edelman (212) 231 2571 Rowland Hirst (212) 231 2553 Asia Eric Roles (212) 231 2559 Darrin Blumenthal (212) 231 2562 Paul Colaco (212) 231 2496 Jeff Evans (617) 598 2508 Mark Lawrence (212) 231 2516 Mehvish Mirza (212) 231 2519 Todd Narter (415) 762 5005 Sheila Schroeder (415) 762 5003 Peter Slater (617) 598 2502 Navin Vallabhaneni (212) 231 2483 Jean Zhang (212) 231 6397 Europe Martin Pommier (212) 231 8054 Chris Carr (212) 231 6398 Jan Halaska (617) 598 2503 Jessica London (212) 231 0977 Matthew Schibanoff (212) 231 0989 Doug Stone (212) 231 2606 South Africa Mario Casis (212) 231 0937

SALES US Austin Graham (212) 231 0902 Juliana Biolsi (212) 231 2505 Michael Burguieres (212) 231 2506 Michael Cagney (312) 660 9144 Brian Cohen (212) 231 8002 Michael D’Arcangelo (212) 231 2573 Peter Doerr (312) 660 9052 Roni Gudell (617) 598 2504 Jim Isentol (212) 231 2567 Greg Jannetta (617) 598 2507 Alex Martin (212) 231 0376 Khristina McLaughlin (212) 231 8012 Rob Moderelli (212) 231 2495 Heidi Muccifori (212) 231 2466 Bruce Murdock (212) 231 8025 Tad Nacheff (212) 231 2615 Brad Neill (312) 660 9051 Todd Pigott (212) 231 8007 Jack Rose (415) 762 5002 Mark Swank (212) 231 2415 Ben Taylor (415) 762 5025 Liz Whiteley (617) 598 2501 Email Addresses [email protected] eg [email protected]

TRADING Michael Cornette (212) 231 0882 Matt Coleman (212) 231 2534 Michael Nevitt (212) 231 2408 Sam Panageas (212) 231 2459 Chris Richards (212) 231 0902 Peter Schwartz (212) 231 6381 EXECUTION SERVICES (PT/EE) James Henry (212) 231 0900 Steve Bloom (212) 231 0934 Ed Eng (212) 231 0900 Matt McNamara (212) 231 0900 Victor Morange (212) 231 2538 George Nikitiadis (212) 231 0884 Robert Redfield (415) 762 5027 CORPORATE ACCESS Katie Gray (212) 231 1318 Maria Martin (212) 231 2557 Erica Miolla (212) 231 6542 Katie Nahnybida (212) 231 6364

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