CHUA Sok Peng,

Managing Editor, Asian Petrochemicals | February, 2013

Asian Olefins 2013: Changing Landscapes

� Ethylene 2013: Rebound on naphtha, European demand

� Derivatives: PE demand weak, MEG faces challenge as MTO-based MEG starts up

� Propylene 2013: Prices rising but derivatives hurt

� Derivatives: PP still in the red, ACN struggling

� Butadiene 2013: A seemingly good year

� Derivatives: New synthetic rubber drives C4 demand

2

Agenda

Ethylene prices rebound from on tight supply

3

Ethylene CFR SEA spread still negative

4

Ethythylene CFR NEA margin positive

5

� Asian cargoes headed towards Europe since mid-December

� European demand unsustainable as downstream PE hurt by rising feedstock. PE producers cutting run rates will lead to excess ethylene being put back in the market � Taiwan Formosa sells 6,000-10,000 mt of spot ethylene via tender

� MEG the only bright spark for ethylene but downstream polyester in a lull

� US ethylene weak, imports for 2012 at 3.27 million mt, down 783,430 mt or 19% from 2011

European demand pushes Asian Ethylene to 4 ½ - year- high

6

Europe, Asia arbitrage

7

PE prices climbing on cost push factors

8

Negative margins for LLDPE, LDPE, HDPE

9

MEG the only bright spark for ethylene

10

� Ethylene 2013: Rebound on naphtha, European demand

� Derivatives: PE demand weak, MEG faces challenge as MTO-based MEG starts up

� Propylene 2013: Prices rising but derivatives hurt

� Derivatives: PP still in the red, ACN struggling

� Butadiene 2013: A seemingly good year

� Derivatives: New synthetic rubber drives C4 demand

11

Agenda

Propylene: Positive margin on turnarounds

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Propylene up on US arbitrage, SEA shortage

13

PP margins negative

14

Acrylonitrile rising on cost-push factors

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� South Korea's ACN January exports fell 32.8% month on month and 35.2% year on year to 13,453 mt. Exports to key destination China slid 23.7% month on month to 13,361 mt.

� Downstream acrylonitrile-butadiene-styrene producers were concerned about firm styrene monomer prices. ABS makes up 30% of ACN derivatives.

� Acrylic fiber makes up 50% of ACN derivatives. China is top spot buyer in Asia but demand will fall as new plants start up.

� China's textile and garment exports weakening as Europe/US demand falls. Exports rose a mere 3% year on year in 2012 to $260 billion, the second lowest level of growth in 20.

Acrylonitrile: Dwindling demand

16

� In China: Overcapacity continues to dampen demand. Total capacity 12.7 million mt/year, imports stabilize

� Six new PP plants started up in 2012, total capacity 1.55 million mt/year

� Structural problem: PP homo/raffia grade makes up 50% of Chinese market. Mainly produced by small-to-medium sized companies which lead to intense competition, oversupply. Run rates at less than 70% and losses intensify as propylene prices rise

� China domestic price more than Yuan 500/mt ($80/mt) cheaper than imports since November 2012, resulting in lower demand for imported PP. Market watchers expect similar price gap in 2013.

� East China: PP price fell 16.5% between September 2012 and January 2013, from Yuan 12,100/mt to Yuan 10,100/mt

Chinese PP: Oversupply, low domestic price

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� In Europe : PP market dragged down by a slump in automotive demand, which has fallen to its lowest level in 17 years. European new passenger car sales dropped 8.2% in 2012 to 12.05 million units, the lowest since 1995, latest data from European Automobile Manufacturers' Association (ACEA) showed.

� The 8.2% contraction was the steepest fall on record since 1993 when car demand slumped 16.9%, with major markets Germany, France, Italy and Spain all reporting decreases. December saw sales plunge 16.3% year on year to 799,407 units, continuing the downward trend that started 15 months ago.

� Converters expect their deliveries to customers in the auto segment to weaken significantly this year as car manufacturers scale down operations in Europe amid shrinking demand and overcapacity.

Eurpean PP: Hanging on automobiles

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0.00 1.00 2.00 3.00 4.00 5.00

2008

2009

2010

2011

2012

China PP Homo imports stabilizing (million mt)

China demand stabilizes as production rises

19

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

2008

2009

2010

2011

2012

US PP Homo Exports (million mt)

US PP homo exports falling

20

� Ethylene 2013: Rebound on naphtha, European demand

� Derivatives: PE demand weak, MEG faces challenge as MTO-based MEG starts up

� Propylene 2013: Prices rising but derivatives hurt

� Derivatives: PP still in the red, ACN struggling

� Butadiene 2013: A seemingly good year

� Derivatives: New synthetic rubber drives C4 demand

21

Agenda

Roller coaster ride for Butadiene

22

� Feb 22: Asian butadiene at $2,100/mt FOB Korea

� Prices up 44% from 2012 low of $1,455/mt FOB Korea on Dec 7

� China imports up 47% in 2012 to 344,828 mt

� Prices rally on start up of new butadiene rubber plants in China:

2012: Lanxess JV 30l000 mt/year nitrile butadiene rubber

Keyuan Petrochemicals: 70,000 mt/year SBS

Q1: Sinopec Maoming: 100,000 mt/year BR

Zhejiang Transfar: 100,000 mt/year BR

Q2: YPC-GPRO (Nanjing): 100,000 mt/year BR

PetroChina Sichuan: 150,000 mt/year BR

What drives Butadiene? Strong demand

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South Korean producers using LGP for feed as naphtha surges� Feb 1: Lotte Chemical using 10% LPG as feedstock for Daesan steam

cracker to cope with rising naphtha costs. Cracker capacity: 1 million mt/year of ethylene, 500,000 mt/year of propylene, supplies crude C4 feedstock to a 150,000 mt/year butadiene extraction unit at the same location. The change in feedstock will lower production of butadiene. Loss of C4 = 600-800 mt/month

� March 1: YNCC to use 10% butane for No. 1 and No. 2 naphtha-fed steam crackers. No. 1: 860,000 mt/year of ethylene, 450,000 mt/year of propylene; No. 2: 580,000 mt/year of ethylene, 280,000 mt/year of propylene; No.: 3 470,000 mt/year of ethylene, 240,000 mt/year of propylene. No butane will be used in the No. 3 cracker. The three supply crude C4 feedstock to a 240,000 mt/year butadiene extraction unit. Loss of C4 = 600 mt/month

� March 1: Samsung Total to use 10% butane as feedstock for Daesancracker, which can produce 1 million mt/year of ethylene, 600,000 mt/year of propylene and 114,000 mt/year of butadiene

� Thailand’s Bangkok Synthetics to cease butadiene supply (140,000 mt/year) as BSTE will start a new 50,000 mt/yar solution-SBR plant jointly with Japan’s JSR in 2013

,

What drives Butadiene? Tight supply

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Butane vs Naphtha

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Butadiene tracks natural rubber

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ABS margin hurt by rising SM

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• The Bulls:� Change to lighter feedstocks an unstoppable trend so

butadiene will surge on tight supply, strong demand.

� China will continue to be biggest importer in the region as more synthetic rubber plants start up.

• The Bears: � Current prices unrealistic especially since natural rubber is

on down trend. Prices will crash as China’s synthetic rubber plants will be delayed.

� US butadiene demand falling. 2012 total imports at 640,834 mt, down 142,000 mt or 18.2% from 2011.

What’s ahead for Butadiene

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500000

1000000

1500000

2000000

2500000

Ethylene Propylene Butadiene

2010

2011

2012

China olefin imports 2010-2012

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0

500

1000

1500

2000

2500

3000

3500

4000

4500

Ethylene Propylene Butadiene

2010

2011

2012

US olefins imports

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THANK YOU

CHUA Sok Peng

Managing Editor, Asian Petrochemicals

February 2013