PSCI Polyolefins Market Update · Confidential. © 2017 IHS MarkitTM.All Rights Reserved. 0 5 10 15...

Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

PSCI Polyolefins Market

Update

September, 2017

Nick Vafiadis, Vice President: Plastics

+1 281 752 3206

[email protected]

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

AGENDA

• Energy and Feedstocks

• Ethylene- and Harvey impact review

• PE ….. Global to N. Am focus

• PP

•

2


0

5

10

15

20

0

30

60

90

120

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027

Natural Gas Crude Oil Brent

Global crude oil vs. USGC natural gas

Source: IHS Markit © 2017 IHS Markit

$/B

arr

el,

Cru

de

$/ M

MB

tu, N

atu

ral G

as

)

Combination of high crude prices and stable gas is attractive for North

America chemical investments, based on natural gas and natural gas liquids

3


US NGL will be produced from both shale gas and tight oil plays, but associated

gas is generally wetter:

0.0

1.0

2.0

3.0

4.0

2010 2012 2014 2016 2018 2020

Chart Title

Permian

SCOOP

Woodford

Utica

Niobrara

Marcellus

Eagle Ford

Barnett

Bakken

NGL production from key shale gas and tight oil plays


Millio

n b

/d

4

Production increase = 7X


Energy & Feedstocks – Ethane off Natural Gas Floor

0

5

10

15

20

25

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Brent Crude NEA Naphtha USGC Propane USGC Ethane China Coal Henry Hub Gas

Co

ns

tan

t 2

01

4 D

olla

rs P

er

MM

Btu

Crude Oil - VS - Natural Gas & NGLs


Crude Oil - VS - Natural Gas & NGLs Crude Oil - VS - Natural Gas & NGLs Crude Oil - Vs - Natural Gas (Naphtha Vs NGLs & Coal)

5


Harvey Update: Ethylene Impact • 3+ weeks of business interruption impacting

more than 50% of US ethylene production

…centered in Texas.

• Limited physical damage due to wind but, a

couple of high water ongoing issues.

• Some new project start up delays. IHS

remains consistent with pre-hurricane view

……derivatives start before ethylene.

• Upward price pressure on ethylene

derivatives globally.

• N. American inventory: at minimum levels by

November.

6


Ethylene Prices, USGC

Spot prices remained below NT, but gap closes

7

15

20

25

30

35

40

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17

Ce

nts

Pe

r P

ou

nd

Net Transaction Contract Price Weighted Average Spot

Source: IHS Markit

US Net Transaction vs Weighted Average Spot

© 2017 IHS Markit


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

O 14 A J O 15 A J O 16 A J O 17 A J O 18Net Transaction Contract Price Weighted Avg. Spot

US Net Transaction vs Weighted Average Spot

Source: IHS Markit

Pri

ce

, C

en

ts P

er

© 2017 IHS Markit

No big price shifts due to the storm…………………………at this moment.

8


Evolving Ethylene Cash Cost Trends

0

400

800

1,200

U.S. Ethane WesternCanada

China CTO US GTO U.S. LightNaphtha

Northeast AsiaNaphtha

2014 2016 2021

Ethylene Cash Cost *

Do

lla

rs P

er

Me

tric

To

n

Source: IHS © 2017 IHS Notes: * Cash cost = Feed + VC + FC – co-products

~$840/ton Adv.

~$200/ton Adv.

~$315/ton Adv.


Capacity does not mean supply

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2011 2013 2015 2017 2019 2021 2023 2025 2027

North America South America West Europe CIS & Baltic StatesMiddle East Africa Indian Subcontinent Northeast AsiaSoutheast Asia Hypo Capacity Annual Demand Increase

Global Ethylene Capacity Additions vs. Demand

© 2017 IHS Markit

Millio

n M

etr

ic T

on

s

Source: IHS Markit

10


North America Ethylene Capacity Additions No surprises on what is coming, question is when and ramp up timing. Derivatives before

ethylene is the real question now.

Company Location Total Growth Derivative Startup Cracker

Dow Freeport, TX 1,500 LDPE, LLDPE, Other Q3-2017

ChevronPhillips Sweeny, TX LLDPE, HDPE Q3-2017

ExxonMobil Mount Belvieu LLDPE, HDPE Q3-2017

ExxonMobil Baytown, TX 1,500 Q1-2018

ChevronPhillips Cedar Bayou, TX 1,500 Q1-2018

Indorama Lake Charles, LA 420 Back Integrate Q1-2018

Formosa Point Comfort, TX 1,250 LLDPE, HDPE Q4-2018

Shin-Etsu Plaquemine, LA 500 Back Integrate Q1-2019

Sasol Lake Charles, LA 1,550 EOX, LDPE, LLDPE Q1-2019

Total Port Arthur, TX 1,000 2020

TOTAL/NOVA Bayport, TX PE 2020

LACC Lake Charles, LA 1,000 EOX, LDPE, LLDPE 2020

Dow Freeport, TX 500 2020

Shell Monaca, PA 1,500 LLDPE, HDPE 2022

11

12,220 MMT Current cap = 30mmt = +42%


North America Ethylene Projects “In The Press” Announced And Under Study. Ethane supply insufficient to build all of these assets.

North America Ethylene Projects

Company Location Total Growth

Ascent / Braskem West Virginia 1,000

Badlands NGL 1 North Dakota 1,500

Badlands NGL 2 “Shangri-La” 1,000

ChevronPhillips 2 Cedar Bayou, TX 1,500

CPC Taiwan TBA 1,000

Formosa St James Parish, LA 1,000

Formosa LA 1,000

Hanwha TBA 1,000

Indorama LA or TX 1,500

PTTCG/Marubeni Shadyside, OH 1,000

NOVA Geismar, LA 1,500

Exxon/Sabic Corpus Christi, TX 1,800

Total Additions 14,800


12


Operating rate

83

87

91

2011 2013 2015 2017 2019 2021 2023 2025 2027

Global Op Rate Global Op Rate (Steam Cracker)

Global Ethylene operating rates

Pe

rce

nt


Spare

Capacity

Peak sustainable industry

operating rates

13


Polyethylene

14

Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.

• Global PE demand: 5 year forecast slightly

higher (AAGR: 4.3%) due primarily to impact of

China recycle ban

• Project Outlook : continued delays in NAM and

ROW support PE price and margins

> NAM: Nova (Joffre) capacity absorbed;

domestic/export strategy – emerging player in

film market. 3.6 MMT US starts by year end.

> Europe resurgence: Margin outlook improved +

new capacity…. 1.3 MMT in 2021

> New NAM investment announcements:

Borealis/Nova/Total—650KTA, Dow—600KTA in

USGC

> Additional PE capacity expansions in China in

2023-2025 based on low crude forecast

> Hurricane Harvey disrupts production and delays

new capacity starts

Polyethylene

What’s Changed Since Last Year

15


2017 Total Global Demand = 95.8 MMT

2022 Total Global Demand = 118.0 MMT

Global Polyethylene Domestic Demand

North America

19%

South America

6%

Europe 19%

Indian Sub. 7%

Africa/ Middle East

10%

China 32%

NEA Ex China

7%

2017

© 2017 IHS Markit Source: IHS Markit

16

2017-2022 AAGR

Global 4.3%

NAM 2.7%

SAM 3.2%

WEP 1.1%

NEA 5.6 %

China 8.0 %

SEA 5.0%

AFR/MDE 4.2%

ISC 8.5%


China Drives Global PE Demand Growth

44%

45%

46%

47%

48%

49%

50%

0

5

10

15

20

25

30

2015 2016 2017 2018 2019 2020 2021

World Growth China Growth China % Annual Global Growth© 2017 IHS Markit

Millio

n M

etr

ic T

on

s

Source: IHS Markit

Ch

ina

% o

f W

orl

d Global Growth = 28.7 MMT

China Growth = 13.2 MMT


Capacity Change by Region

-2

0

2

4

6

8

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027

N. Amer. W. Europe Middle East S. Asia China Other N. Asia Other

2017 capacity view

Millio

n M

etr

ic T

on

s

Source: World Analysis Polyethylene Notes: Other Includes (S. Amer., C. Europe, Russia, Africa & Ind. Sub.)

© 2017 IHS Markit

Total Cap add (2017-22)

30.2 MMT

NAM cap add = 9.6MMT


Two periods of capacity overhang anticipated

-6

-3

0

3

6

9

12

2006 2009 2012 2015 2018 2021 2024 2027

Global Capacity Growth Global Demand Growth

Global PE Surplus Capacity

Millio

n M

etr

ic T

on

s

Source: World Analysis Polyethylene © 2017 IHS Markit

6.2 MMT 7.6 MMT

19

6.3 MMT


Global delays

25 projects

15.5 MMT

20


LDPE most oversupplied

10

12

14

16

18

20

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

LDPE LLDPE HDPE

Oversupply by resin type

Pe

rce

nt

Ove

rbu

ild


21


PE/Ethylene start times disconnected

0.0

0.4

0.8

1.2

1.6

2.0

Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

Total Polyethlene EDC + EOEG

Total Ethylene Additions Total Ethylene Additions Delay 3 Months

Global Polyethylene + other derivatives vs. Ethylene

Millio

n M

etr

ic T

on

s


4.0MMT

7.1MMT

22


What’s different this time?

80

85

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Global Polyethylene Global Polyethylene Effective Global Ethylene

PE vs. Ethylene Operating Rates

Op

era

tin

g R

ate

, P

erc

en

t


Last

downturn

affected

both

23


Regional price forecast

441

882

1323

1764

2205

20

40

60

80

100

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030

North America Net Transaction West Europe Discounted CFR China Spot

LLDPE

Ce

nts

Pe

r P

ou

nd

Source: Global Plastics & Polymers

Do

lla

rs P

er

Me

tric

To

n

© 2017 IHS Markit


Shallow trough ahead

-441

0

441

882

1323

-20

0

20

40

60

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

NAM Margin WEP Margin SEA Margin

LLDPE integrated margins

Ce

nts

Pe

r P

ou

nd


Do

lla

rs P

er

Me

tric

To

n

© 2017 IHS Markit


North America PE exports triple

China accounting for 50%+ of total

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2015 2016 2017 2018 2019 2020 2021 2022 2027South America West Europe Central Europe, CIS & BalticAfrica Middle East Indian SubcontinentNortheast Asia Southeast Asia

North America PE Exports

© 2017 IHS Markit

Millio

n M

etr

ic T

on

s

Source: IHS Markit

26


Who will supply Polyethylene demand

2016

2021

3.1 9.0

-1.5 -2.3

-2.8 -3.4

12.6 14.2

-1.0 -1.6

-2.3 -3.3

0.6

-.03

-8.4 -13.0

Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited

Polyethylene North America

July 2017


Hurricane Harvey Impact

• Approximately 60% of US PE capacity affected immediately following the storm… improvements

ensued

• Logistics disrupted: including ocean freight, rail, and trucks

• Resin shortages: push PE prices higher in August and through year end

• Wide spec prices: in spot market surge by 20 cpp

• Shortage of key raw materials: (alpha olefins) further constrain production

• New production capacity: start ups delayed avg of 30 days… facing potential ethylene

constraints

• Hurricane related production : support higher prices through the balance of 2017

• Hurricane premium: begins to roll off in Q1 2018..

• Delayed start of new capacity: and reduced ramp-up pace supports higher PE prices in

international markets.

29


Hurricane Impact: Production Capacity

30

0%10%20%30%40%50%60%70%80%90%

100%

23-Aug 30-Aug 6-Sep 13-Sep 20-Sep 27-Sep 4-Oct 11-Oct 18-Oct 25-Oct

Ethylene SUPPLY Consumption

Ethylene Capacity Capability Ethylene Capacity Capability: 4-6 Week Event

© 2017 IHS Markit

Sh

are

US

Ca

pa

cit

y

Source: IHS Markit


48.050.052.054.056.058.060.062.064.066.068.070.0

Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 Apr-2018 Jul-2018 Oct-2018

Pre-Harvey Prices Post-Harvey Prices

North America HDPE BM Net Trans Price


Ce

nts

Pe

r P

ou

nd

31

16cpp impact by

December: +10 vs -

6 cpp


North America Polyethylene: Market Update

• YTD production: flat vs 2016 through August despite new LLDPE capacity….. due to

HDPE outages in Q1 and adjusted production due to weak demand – hurricane impact not

yet seen.

• Total sales: (ACC) Total demand growth: -1% ytd…. with domestic -1.2% and export sales

– .6%

• Tight supplies before Harvey: HDPE injection molding, LLDPE rotomolding, and HDPE

pipe resin … hurricane exacerbated imbalance.

• Pipe & Film: business strong.

• 7 cpp price increase: on the table for Sept / October …. Very likely.

• Margins: HDPE injection molding integrated ytd average = 34.6 cpp

HDPE injection molding integrated margin Q4 forecast = 40.9 cpp


US Polyethylene: Strong Growth Projected

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

-5

0

5

10

15

20

25

30

35

2012 2014 2016 2018 2020 2022 2024 2026

US Domestic Demand US Exports Total Capacity US Demand Change© 2017 IHS Markit

De

ma

nd

, M

illio

n M

etr

ic T

on

s

Source: IHS Markit

Pe

rce

nt

Ch

an

ge

, Y

OY

AAGR 17-22

Capacity change = 7.6% = 7.9 MMT

Domestic Demand = 2.6% = 1.8 MMT

Total Demand = 5.7%

Exports = 11.4% = 5.4MMT


North America - New Polyethylene Projects

2016 Total PE Capacity 20,500 KTA

Company Location Country LDPE LLDPE HDPE Resin Type TBA Startup

2016

Braskem Idesa Nanchital, Veracruz Mexico 300 (2) 750 (4) Q2 2016

Dow Seadrft, Tx United States 75 (3) Q4 2016

Nova Joffre Canada 432 (3) Q4 2016

2017

CPChem Old Ocean, TX United States 500 (4) 500 (4) Q3 2017

Dow Plaquemine, LA United States 350 (2) Q3 2017

Dow Freeport, TX United States 400 (6) Q3 2017

Dow Taft, LA United States 75 (3) Q3 2017

ExxonMobil Mont Belvieu, TX United States 1300 (3) Q3 2017

ExxonMobil Mont Belvieu, TX United States 60 (5) Q3 2017

Ineos Sasol Deer Park, TX United States 470 (4) Q4 2017

2018-2020

Formosa Point Comfort, TX United States 400 (2) Q4 2018

Formosa Point Comfort, TX United States 400 (3) Q4 2018

Sasol Lake Charles, LA United States 470 (3) Q4 2018

Sasol Lake Charles, LA United States 420 (2) Q3 2019

Exxon Mobil Beaumont, TX United States 650 (7) Q4 2019

Equistar La Porte, TX United States 500 (3) Q1 2020

Post 2021

Total/Borealis/Nova Bayport, Tx United States 625 (4, 3) Q2 2021

Shell Monaca, Pa United States 500 (3) 1000 (3, 4) Q2 2022

PTTGC Dilles Bottom, OH United States 700 (4)

Exxon Mobil Sabic JV Corpus Christi, Texas United States 1300 (7) Q2 2022

Nova Chemical TBD TBD 450 (6)

Dow US Gulf Coast United States 600 (6)

Formosa Louisiana United States 1000 (7)

Ascent (Braskem) Marcellus WV United States 500 (3) 1000 (4)

Badlands NGL North Dakota United States 600 (3) 600 (3)

Badlands NGL TBD United States 600 (3) 600 (3)

Appalachian Resin Salem Township, OH United States 275 (7)

Totals, 000's MT 1470 7002 6730 3200 18,402

*Processes: (1) Autoclave, (2) Tubular, (3) Gas Phase, (4) Slurry Loop (5) Slurry Stirred Tank (6) Solution (7) To Be Announced


2017 Expansions

3.5 MMT by year end • Chevron Phillips – Old Ocean, TX

– Two reactors producing 1MMT Traditional HDPE

products plus LLDPE Metallocene Film

• Exxon Mobil – Mont Belvieu, TX

– 1.3 MMT – Unipol Metallocene Gas Phase for export

• Dow – Freeport, Tx and Plaquemine, LA

– 350 KTA Tubular LDPE in LA

– 400 KTA Dow Solution LLDPE focused on

Metallocene film

Ineos/Sasol

• Deer Park, Texas

• 470 KTA Innovene S Bimodal - HMW film and

pressure pipe

• Blow molding, Injection Molding, and HMW film

markets expected to see significant pressure in HDPE

– All 2017 Q3 – Q4


PE/Ethylene New Capacity Disconnect

36

0

200

400

600

800

1000

1200

Ja

n-1

6

Ma

r-16

Ma

y-1

6

Ju

l-16

Se

p-1

6

Nov-1

6

Ja

n-1

7

Ma

r-17

Ma

y-1

7

Ju

l-17

Se

p-1

7

Nov-1

7

Ja

n-1

8

Ma

r-18

Ma

y-1

8

Ju

l-18

Se

p-1

8

Nov-1

8

Nova Ineos SasolChevron Phillips DowExxon SasolFormosa Ethylene Additional Production

PE vs. Ethylene Production Additions

© 2017 IHS Markit

MM

LB

S

Source: IHS Markit

2.2 billion lbs


North America PE exports triple

China accounting for 50% of total

0.01.02.03.04.05.06.07.08.09.0

2015 2016 2017 2018 2019 2020 2021South America West Europe Central Europe, CIS & BalticAfrica Middle East Indian SubcontinentNortheast Asia Southeast Asia

North America PE Exports

© 2017 IHS Markit

Millio

n M

etr

ic T

on

s

Source: IHS Markit

37


PE margin contribution declines

-10

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Ethylene Margin From Ethane Cracking (cpp PE) PE Contract Margin - LLDPE Non Integrated

US LLDPE Chain Margins

Source: IHS Markit

Ce

nts

Pe

r P

ou

nd

© 2017 IHS Markit

38


Premiums for Metallocene and LDPE Erode

50

55

60

65

70

75

80

85

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18

Ce

nts

Pe

r P

ou

nd

LDPE GP LLDPE C4 LLDPE C6 LLDPE Metallocene

Jan 2018: new

Metallocene

production

Oct 2018:

Formosa LDPE

startup

North America Net Transaction Prices


39


Reduction of Big Buyer Premium for HDPE

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May-18Big Buyer Domestic Premium HDPE Net Transaction

North America HDPE BM Price vs Big Buyer Premium (Netback domestic minus Netback CFR China)


Cen

ts P

er

Po

un

d

Pre

miu

m, C

en

ts P

er

Po

un

d


China Recycle PE Market Update

• 2016 PE recycle market size: 4.3MMT; Recycle imports: 2MMT; Recycle market share of

total PE =14%

• National Sword Campaign : Feb 2017, crack down on illegal imports of “foreign trash”;

inspection on all major ports, ~3 months delay on imports; local environmental department

investigation of factories—import license suspended if violation recorded during the last two

years; shutdown of factories not meeting codes

• Scrap Ban : mid-July 2017, announced through WTO, ban (by year end 2017) on plastics

scrap imports—including PE, PP, PS, PVC, PET etc.. Complete ban possible by 2018-2020

• Implication: loss of 700-800KT PE scrap imports in 2017, 800KT~1.2MMT in 2018;

• Potential outcome: increase on virgin resin demand; relocate recycle facilities to Southeast

Asia countries; bolsters prime resin prices

41


Bonus Prime Resin Demand Results from Scrap Ban

0

5

10

15

20

25

0

10,000

20,000

30,000

40,000

50,000

2000 2005 2010 2015 2020

PEVirgin Demand Recycled Total Recycled Market Share，%

China PE Recycle vs. Prime Demand

© 2017 IHS Markit

Th

ou

sa

nd

Me

tric

To

ns

Source: IHS Markit

Pe

rce

nt

42


Polyethylene: Near to Medium Term Market Trends (2017-2022)

• Hurricane Harvey impact supports PE prices and margins through Q1 2018

• Oversupply conditions (2018 – 2019) and increasingly competitive regional production

economics impact price and margins; PE prices trend towards global parity.

• Project delays and PE/C2 disconnect support PE margins

• China recycle ban bolsters virgin resin demand and supports higher operating rates

• Metallocene capacity wave reduces price spread over commodity grades: LDPE and

LLDPE affected

• N. America domestic premium declines as new players (Shell, Sasol) seek domestic

market share

Increasing C6 competition pressures C4 market as well as existing C6 market

• US LDPE capacity increasing by more than 35% in 2017-2020

43


Polypropylene

44


Global PP Capacity Additions: Tight Market Developing

-1

0

1

2

3

4

5

6

7

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27North America South America West EuropeAfrica/Middle East Indian Sub. ChinaSoutheast Asia Central Europe/CIS Global Demand Change

Millio

n M

etr

ic T

on

s

Regional PP Capacity Additions

Source: IHS © 2017 IHS Markit

Millio

n M

etr

ic T

on

s

Regional PP Capacity Additions

Source: IHS Markit


Very high operating rates required to meet demand through 2022

70

80

90

100

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

World NAM WEP MDE NEA

Regional operating rates

© 2017 IHS Markit

Op

era

tin

g R

ate

, %

Source: World Analysis Polypropylene

46


• 40% of global demand by 2027

(2012 = approx 30.%)

• 50% annual demand growth for

each of next 5 years

0% 50% 100%

2012

2017

2022

2027

China West Europe North America

Indian Sub. Rest of the World

Global share of PP demand by region PP demand share by region

Source: World Analysis Polypropylene © 2017 IHS Markit

China taking the “Dragon’s” share!


Time to find new markets near term other than China!

0

1

2

3

4

5

6

2015 2016 2017 2018 2019 2020 2021 2026

Middle East Northeast Asia Southeast Asia Europe North America Other

PP imports to China

Millio

n M

etr

ic T

on

s

Source: World Analysis Polypropylene © 2017 IHS Markit


2017

2022

Million Metric Tons

1.3

1.1

0.03

- 0.4 - 0.4 - 0.2

1.0

0.1

- 1.1 - 1.3

- 0.9

-0.6 - 0.6

.01

- 0.9

3.8 3.1

- 2.8

- 0.9

- 1.3 - 0.9

- 0.1

Russia, Africa, and India grow in significance!

5.3

- 2.9

- 2.3

2.3

2027

- 1.1


Global PP Prices - Prices to Increase with Oil and Margin gain

0

500

1000

1500

2000

2500

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

NAM Net Transaction NEA Spot Avg. CFR China WEP Disc Contract

Regional PP Homopolymer Price


Do

lla

rs P

er

Me

tric

To

n


Global Non Integrated Margins

-440

-220

0

220

440

660

-20

-10

0

10

20

30

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

NAM Current WEP Current SEA Current

Cents Per Pound Dollars Per Metric Ton PP Non Integrated Margins

© 2016 IHS

Ce

nts

Pe

r P

ou

nd

Source: IHS

Do

lla

rs P

er

Me

tric

To

n


Integrated margins for “on purpose” propylene to PP are strong

0

200

400

600

800

1,000

WesternCanada PDH to

PP

US PDH to PP China CTO toPP

China MTP toPP

China PDH toPP

Middle EastPDH to PP

WEP PDH toPP

2011 2016 2021

PP margins by producer

Do

lla

rs P

er

Me

tric

To

n



Polypropylene North America

53


Hurricane Harvey Impact: Polypropylene

• . 60% of NAM PP capacity affected by the storm

• Expectation of ~300 million pounds of lost September production

• All but one plant back up by September 10

• Wide spec market peaked up 15 to 20 cpp

• Imports to increase in Q4

• 3 cent margin enhancement likely….by October

• Propylene volatility expected to hurt demand post recovery

54


55

0%10%20%30%40%50%60%70%80%90%

100%

23-Aug 30-Aug 6-Sep 13-Sep 20-Sep 27-Sep 4-Oct 11-Oct 18-Oct 25-Oct

Sh

are

US

Ca

pa

cit

y

PGP/CGP SUPPLY RGP SUPPLY Consumption

Propylene Capacity Capability


5 Week impact

for C3 and PP


48.0

52.0

56.0

60.0

64.0

68.0

72.0

76.0


Pre-Harvey Prices Post-Harvey Prices

North America PP Homopolymer Net Trans Price


Ce

nts

Pe

r P

ou

nd

Harvey impact =

11cpp

56


Short Term Highlights

–Domestic demand: down 5.3% through August and will not recover by year end.

–Producer domestic sales: through August are up 1.4% per ACC data. Difference due to

decline in 2017 import levels, down 41% through August (IHSM estimate)

–PP production: through August is off by 1.5% compared to prior year.

–Recent demand recovery: in May/June coupled with multiple supply disruptions led to

margin increase announcements for August of 3 cpp.

–Hurricane Harvey likely to support margin: near term though structural challenges for

the market exist for 2018

57


North America PP Imports (combined homo and impact) – repeat of 2016 unlikely

0

100

200

300

400

500

600

700

2010 2012 2014 2016 2018 2020 2022 2024 2026

KOS BRA SAR GFR SIN COL FRA JAP ISR Rest of the world Forecast

© 2017 IHS Markit

Th

ou

sa

nd

Me

tric

To

ns

Source: IHS Markit

58

IHS Estimates


North America PP Producer Cash Cost Margin Comparison

-100

100

300

500

700

900

1,100

0

10

20

30

40

50

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Non-Integrated Producer Margin Integrated RGP Producer Margin

Integrated PDH Producer Margin

Ce

nts

Pe

r P

ou

nd

Source: IHS © 2017 IHS Markit

D

oll

ars

pe

r to

n

Source: IHS Markit


No major change in PP competitiveness versus other plastics

60

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

2006 2007 2008 2010 2011 2013 2014 2015 2017 2018 2020 2021 2023 2024 2025

PS HDPE PP PET

North America Plastic Prices North America Plastic Prices

© 2017 IHS Markit

Ce

nts

pe

r p

ou

nd

Source: IHS Markit


Company When Location Capacity

Debottlenecks 2016-18 Various 400

Formosa 2019 Point Comfort, TX 250

Braskem 2020 La Porte, TX 450

Inter Pipeline 2020+ Alberta, Canada 520

Canada Kuwait

Petrochemical Co. 2020+

Alberta, Canada

550

Hypo plant 2020+ ? 500

New NAM capacity on paper but limited

steel in the ground


62

0200400600800

1,0001,2001,4001,6001,800


NAM-China Spread NAM Net Transaction NEA Spot Avg. CFR China

Regional PP price


Do

lla

rs P

er

Me

tric

To

n

© 2017 IHS Markit

North America price closely tied to Asia


Polypropylene Near Term Key Takeaways North America

Demand

• Slow start due to spike in propylene pricing but currently forecasting strong second half of the year but

can’t reach positive territory (this is for domestic demand including imports). Operating rates remain

high through 2023

Production

• Down so far and unlikely to be able to take advantage of increased production capacity

Inventories

• Were balanced to tight prior to Harvey for some segments; will take a few months to recover from

Harvey

Pricing

• Prices will be affected by Harvey spike in monomer plus margin; volatility will lead to decline with

imports setting an upper bound on commodity markets

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