Polyolefins: North America And Polyolefins: North America And The World The World Nick Vafiadis Nick Vafiadis Director Director Polyolefins Polyolefins & PVC & PVC [email protected][email protected]FPA FPA September 24, 2009 September 24, 2009 Chicago IL U S A Chicago IL U S A Flexible Packaging Association Flexible Packaging Association Singapore Singapore Shanghai Shanghai Houston Houston New York New York London London Düsseldorf Düsseldorf Dubai Dubai Chicago, IL, U.S.A. Chicago, IL, U.S.A.
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Polyolefins: North America And Polyolefins: North America And The WorldThe World
Nick VafiadisNick VafiadisDirector Director PolyolefinsPolyolefins & PVC& [email protected]@cmaiglobal.com
FPAFPASeptember 24, 2009September 24, 2009Chicago IL U S AChicago IL U S A
Flexible Packaging AssociationFlexible Packaging AssociationSingaporeSingapore ShanghaiShanghai HoustonHouston New YorkNew York LondonLondon DüsseldorfDüsseldorf DubaiDubai
Chicago, IL, U.S.A.Chicago, IL, U.S.A.
EnergyEnergygygy
Flexible Packaging AssociationFlexible Packaging Association
WTI$/BBL
DistillatesCents Per Gallon
U.S. Crude & Distillates
120
140
320340 360 380
$
100 240260 280 300 320
60
80
160180 200 220 240
40
60
80100 120 140 160
0
20
020 40 60 80
0 0 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3
WTI Crude Regular Gasoline No 2 Oil Natural Gasoline
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U.S. Daily Ethylene Cash CostsU.S. Daily Ethylene Cash Costs
77277235 35 U.S. Daily Ethylene Cash CostsU.S. Daily Ethylene Cash Costs Dollars Per Metric TonDollars Per Metric Ton
551551
661661
25 25
30 30
331331
441441
1515
20 20
220220
331331
10 10
15 15
00
110110
0 0
5 5
Jul 10Jul 10 Jul 17Jul 17 Jul 24Jul 24 Jul 31Jul 31 Aug 07Aug 07 Aug 14Aug 14 Aug 21Aug 21 Aug 28Aug 28Purity EthanePurity Ethane Light NaphthaLight NaphthaWeighted AverageWeighted Average Coprod. Int. Lt. NaphthaCoprod. Int. Lt. Naphtha
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g gg g p pp pPropanePropane ButaneButane
Global Ethylene Capacity GrowthGlobal Ethylene Capacity Growth
160160
180180Million Metric Tons
Global ethylene capacity is forecast to Global ethylene capacity is forecast to
120120
140140
160160 approach 180 million metric tons by approach 180 million metric tons by 2015, 2015, with Asia/Pacific (including India) as the with Asia/Pacific (including India) as the largest producing region. largest producing region.
North AmericaNorth America West EuropeWest Europe Middle EastMiddle East Asia/PacificAsia/Pacific Rest of WorldRest of World
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North AmericaNorth America West EuropeWest Europe Middle EastMiddle East Asia/PacificAsia/Pacific Rest of WorldRest of World
Ethylene Capacity Additions & Closures: Ethylene Capacity Additions & Closures: Major CountriesMajor Countries 2007 to 20112007 to 2011Major Countries Major Countries -- 2007 to 20112007 to 2011
Heavy feed crackers challenged Heavy feed crackers challenged b d il i t lb d il i t l
trending upwardtrending upward Heavy feed crackers challenged Heavy feed crackers challenged
b d il i t lb d il i t lby crude oil prices vs. natural by crude oil prices vs. natural gasgas
North America ethyleneNorth America ethylene
by crude oil prices vs. natural by crude oil prices vs. natural gasgas
North America ethyleneNorth America ethylene North America ethylene North America ethylene derivative exports supported by derivative exports supported by favorable crudefavorable crude--toto--gas ratiogas ratio
North America ethylene North America ethylene derivative exports supported by derivative exports supported by favorable crudefavorable crude--toto--gas ratiogas ratio
Significant capacity reductions Significant capacity reductions are inevitableare inevitable
Significant capacity reductions Significant capacity reductions are inevitableare inevitable
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P l th lP l th lPolyethylenePolyethylene
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Since January of 09Since January of 09•• Several major resin producers were facing economic distress (Dow, LBI, Nova, Several major resin producers were facing economic distress (Dow, LBI, Nova, j p g ( , , ,j p g ( , , ,
IneosIneos etc..) and needed to take corrective action or collapse . They etc..) and needed to take corrective action or collapse . They closed closed plantsplants, , raised pricesraised prices, , controlled inventorycontrolled inventory, and took advantage of a lucrative , and took advantage of a lucrative exportexport market.market.
•• Exports became very attractive because the recession and startExports became very attractive because the recession and start--up problems up problems delayed the impact of new MDE capacity and delayed the impact of new MDE capacity and opened the window opened the window for for competitively produced US exports. competitively produced US exports.
•• A very favorable A very favorable crude oil to nat. gascrude oil to nat. gas price ratio developed leaving US price ratio developed leaving US d ll iti d t l l b l k t A f M h USd ll iti d t l l b l k t A f M h USproducers well positioned to supply global markets. As of March, US producers well positioned to supply global markets. As of March, US
producers have been exporting record volumes to China.producers have been exporting record volumes to China.
E b k d d h d f biE b k d d h d f bi b d ib d i•• Export netbacks exceeded the returns generated from bigExport netbacks exceeded the returns generated from big--buyer domestic buyer domestic sales Some producers shipping nearly 40 % of production overseas.sales Some producers shipping nearly 40 % of production overseas.
•• The strong export market allowed producers to keep inventories low, and The strong export market allowed producers to keep inventories low, and effective operating rates high despite a very weak domestic market. As a effective operating rates high despite a very weak domestic market. As a result they have been able raise prices (13 result they have been able raise prices (13 cppcpp since Jan for PE) and improve since Jan for PE) and improve
i Th t d lik l di t i t t ii Th t d lik l di t i t t i
Flexible Packaging AssociationFlexible Packaging Associationmargins. They turned a likely disaster year into a very strong earnings year.margins. They turned a likely disaster year into a very strong earnings year.
3Q 09 and beyond3Q 09 and beyond3Q 09 and beyond….3Q 09 and beyond….•• New Chinese and MDE capacity isNew Chinese and MDE capacity is nownow beginning to impact thebeginning to impact the•• New Chinese and MDE capacity is New Chinese and MDE capacity is nownow beginning to impact the beginning to impact the
market market –– cutting export volumes, prices, and margins for US cutting export volumes, prices, and margins for US producers. Less exports will decrease US producer’s pricing producers. Less exports will decrease US producer’s pricing leverage in the domestic market. leverage in the domestic market.
•• Lower sales volumes and declining margins may lead to additional Lower sales volumes and declining margins may lead to additional plant shutdowns and increased competition for domestic resin plant shutdowns and increased competition for domestic resin
llsales. sales.
•• Resin prices: Resin prices: will be supported by somewhat higher ethylene will be supported by somewhat higher ethylene prices but producer margins will decline in 2010prices but producer margins will decline in 2010prices, but producer margins will decline in 2010.prices, but producer margins will decline in 2010.
•• PE prices PE prices will trade within a much more narrow band than seen in will trade within a much more narrow band than seen in recent quarters: little downside movement on energy and arecent quarters: little downside movement on energy and arecent quarters: little downside movement on energy and a recent quarters: little downside movement on energy and a sluggish global economy will dampen demand and keep prices / sluggish global economy will dampen demand and keep prices / margins from expandingmargins from expanding
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3Q and beyond cont3Q and beyond cont3Q and beyond cont…3Q and beyond cont…
•• Resin Imports: Resin Imports: The relative strength of the US cost The relative strength of the US cost position along with the logistics constraints position along with the logistics constraints should minimize imports into the US. should minimize imports into the US.
•• Despite the delays, the new capacity in MDE andDespite the delays, the new capacity in MDE andDespite the delays, the new capacity in MDE and Despite the delays, the new capacity in MDE and China is coming and the industry is approaching China is coming and the industry is approaching record levels of overcapacity.record levels of overcapacity.p yp y
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PE: Industry PerformancePE: Industry Performance
Total PETotal PEHDPEHDPELLDPELLDPELDPELDPEU.S. and Canada, Percent Change YTD August 2009 vs. YTD August 2008U.S. and Canada, Percent Change YTD August 2009 vs. YTD August 2008
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Export Volume Increasingly Export Volume Increasingly I t t!I t t!
35%35%39003900
Important!Important!U.S./Canada ProductionU.S./Canada Production, Million Pounds, Million Pounds Exports, Percent of ProductionExports, Percent of Production
HDPE Film Resin Demand July YTDHDPE Film Resin Demand July YTDHDPE Film Resin Demand July YTDHDPE Film Resin Demand July YTD
HDPEHDPE Percent ChangePercent ChangeFilm 12 Mils and BelowFilm 12 Mils and Below --2.12.1
Packaging FilmPackaging Film --8.38.3Food Packaging FilmFood Packaging Film --1.31.3NonNon--Food Packaging FilmFood Packaging Film --15.015.0
NonNon--Packaging FilmPackaging Film 0.60.6Retail BagsRetail Bags --2.82.8Trash and Can LinersTrash and Can Liners 10.410.4Other NonOther Non--Packaging FilmPackaging Film --28.028.0
LDPE Film Resin Demand July YTDLDPE Film Resin Demand July YTDyy
LDPELDPE Percent ChangePercent Change10 310 3Film (12 Mils and Below)Film (12 Mils and Below) --10.310.3--8.78.7--1 61 6
Film (12 Mils and Below)Film (12 Mils and Below)Packaging FilmPackaging FilmFoodFood Packaging FilmPackaging Film --1.61.6NonNon--Food Packaging FilmFood Packaging Film --22.322.3NonNon--Packaging FilmPackaging Film --14.914.9
PEPE TakeTake--AwaysAwaysPE PE TakeTake AwaysAways•• PE prices less volatile through 2010 than in PE prices less volatile through 2010 than in
t tt trecent past.recent past.•• YTD margins stronger than expected due to YTD margins stronger than expected due to
robust exports capacity shutdowns / turndownsrobust exports capacity shutdowns / turndownsrobust exports, capacity shutdowns / turndowns robust exports, capacity shutdowns / turndowns and unusual producer market / production and unusual producer market / production disciplinediscipline
•• NAM PE cost advantage strong NAM PE cost advantage strong vsvs other regions other regions ex. MDEex. MDE
•• Despite delays and shutdowns unprecedentedDespite delays and shutdowns unprecedented•• Despite delays and shutdowns, unprecedented Despite delays and shutdowns, unprecedented oversupply conditions will drive down operating oversupply conditions will drive down operating rates and margins beginning 4Q 09.rates and margins beginning 4Q 09.
•• The cycle trough is expected from 4Q 09 The cycle trough is expected from 4Q 09 -- 2010, 2010, global recovery evident by 2011global recovery evident by 2011
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MarketsMarketsGasGas--toto--OlefinsOlefins
OthersOthers
U.S. PROPYLENEU.S. PROPYLENECurrent SituationCurrent Situation
Key PointsKey PointsKey PointsKey Points•• Derivative operating rates reduced with weak Derivative operating rates reduced with weak
d dd ddemand.demand.•• Steam cracker production reduced by 1/3 with Steam cracker production reduced by 1/3 with p yp y
move to light move to light feedslatesfeedslates and shutdowns.and shutdowns.•• Refinery production reduced by 8 to 10Refinery production reduced by 8 to 10•• Refinery production reduced by 8 to 10 Refinery production reduced by 8 to 10
percent with lower refinery rates.percent with lower refinery rates.I t i lI t i l•• Inventories lowInventories low
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Lately: Energy & Scarcity Driving PP Lately: Energy & Scarcity Driving PP PricesPrices
70708080WTI Crude OilWTI Crude Oil Price,Price, U.SU.S. Dollars . Dollars Per BarrelPer Barrel HD and PP Price, Cents Per PoundHD and PP Price, Cents Per Pound
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Unprecedented New Capacity Unprecedented New Capacity I t tI t tInvestmentsInvestments
99PP, Million Metric TonsPP, Million Metric Tons
667788 ForecastForecast
445566
112233
--110011
20092009 20102010 20112011 20122012 20132013 20142014North AmericaNorth America South AmericaSouth AmericaAsia/PacificAsia/Pacific West EuropeWest Europe
C. Europe/CISC. Europe/CISAfrica/Middle EastAfrica/Middle East
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Asia/PacificAsia/Pacific West EuropeWest Europe Africa/Middle EastAfrica/Middle East
Why Not Exports from Middle East?Why Not Exports from Middle East?yy4.04.0
View as of October 2008View as of October 2008PP Capacity Changes, Million Metric TonsPP Capacity Changes, Million Metric Tons
PolypropylenePolypropylene ConclusionsConclusionsPolypropylene Polypropylene -- ConclusionsConclusions•• PP price climb seems to be reaching a PP price climb seems to be reaching a p gp g
tipping point.tipping point.•• Overcapacity looming; effects areOvercapacity looming; effects are•• Overcapacity looming; effects are Overcapacity looming; effects are
different depending on the geographydifferent depending on the geographyD d d d t b i b lD d d d t b i b l•• Demand recovery needed to bring balance Demand recovery needed to bring balance to the marketto the market
•• Prices in North America to remain Prices in North America to remain elevated elevated
•• Polypropylene Polypropylene –– no longer cheap?no longer cheap?
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