PTT Aromatics and Refining PCL 3Q/2010 ANALYST MEETING November 16, 2010 at Sofitel Centara Grand Bangkok PTT Auditorium, PTT Head Office
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PTT Aromatics and Refining PCL
3Q/2010 ANALYST MEETING
November 16, 2010 at Sofitel Centara Grand Bangkok
PTT Auditorium, PTT Head Office
2
Agenda
1. 3Q/10 Financial Results
2. Market Outlook
3. Business Strategies
This presentation has be prepared by PTT Aromatics and Refining Public Company Limited (the “Company”) and the information contained in this presentation isintended solely for your personal reference only. In addition, such information contains projections and forward-looking statements that reflect our current views withrespect to future events and financial performance. Furthermore, it contains information which are base on the Company’s data collections and analysis with thirdparties references. These views are based on assumptions subject to various risks and uncertainties.
No assurance is given that future events will occur, that projections will be achieved, or that our assumptions are corrects. The Company proscribes theredistribution, duplicate, and/or either disclosure of this presentation in whole or in part without the written permission of the Company and the Company accepts noliability whatsoever for the actions of third parties in this respect. The Company does not undertake to revise forward-looking statements to reflect future events orcircumstances.
3
3Q/10 Financial Results
4
3Q/10 Financial Highlights
1. Accounting GIM increased to 3.44 USD/BBL, higher 20% QoQ
2. Crude oil continuously increased in September, contributing to stock gain (Net LCM) of 0.22 USD/BBL
3. Baht appreciation in 3Q/2010 contributed to foreign exchange gain of 989 million Baht from foreign currency debt
4. Intermediate products exchange (HVGO/Hydrowax) continued to generate profits
5. A net profit of 695 million Baht was registered in 3Q/10, increasing 2.3 times QoQ
5
60
65
70
75
80
85
90
95
100
US$/BBL
Oil and Aromatics Prices Movement in 3Q/10
• Slower-than-expected economic recovery pressured oil price in July to August
• Expected QE2 and higher oil demand growth of 2.2 MBPD for 2010 supported oil price in September
• Growing economy especially in emerging countries coupled with seasonal demand supported higher prices of jet and diesel
• FO spread is supported by increased demand for power generation in Middle East and China
• Aromatics price was bottomed out in July
• Higher trend from August was caused by
- Increasing of oil prices
- Strong Aromatics derivatives demand for new year and winter season
- Iran has been sanctioned, resulted in shortage feedstock for Aromatics producer
- New PTA supply of 2 million tons in 4Q/10 will continue to support PX price
Jet
Diesel
Dubai
Condensate
BZ
PX
FO
400
500
600
700
800
900
1,000
1,100
1,200
1,300
US$/TON
6
12% 15% 15% 13% 14%
52% 51% 51% 52% 52%
36% 34% 34% 35% 34%
3Q/09 2Q/10 3Q/10 9M/09 9M/10
Heavy Distillate Middle Distillate Light Distillate
57% 59% 59% 57% 59%
27% 30% 28% 30% 29%
16% 11% 13% 13% 12%
3Q/09 2Q/10 3Q/10 9M/09 9M/10
Paraxylene Benzene Others
510 431498
1,3881,427
154 156 165 152 154
109 93110
100 104
3Q/09 2Q/10 3Q/10 9M/09 9M/10
Crude Condensate
Intake/Production
Petroleum Products
PTTAR Total Intake
M.BBL 24.22 22.69 25.28 68.78 70.32
Unit : KBD
Aromatics Products
13%
263 249275
252258
210 200223
202 208
• Total intake increased from intermediate products exchange (HVGO/Hydrowax), contributing to higher jet/diesel production and additional benefit of 87 million Baht
• BTX utilization 86% , increased 10% QoQ as AR2 resumed normal operation after its turnaround in June
Unit : KBD Unit : KTON
7
5.42 4.793.15
4.51 4.83
-0.06
0.03
0.08
1.380.02
0.51
-1.94
0.22
1.92
-0.49
3Q/09 2Q/10 3Q/10 9M/09 9M/10
Market GIM Hedging Stock gain/loss net LCM
Gross Integrated Margin (GIM)
GIM
3Q/09 2Q/10 3Q/10 9M/09 9M/10
Dubai Spread (US$/BBL)
Jet 7.3 11.7 12.9 8.6 11.3
Diesel 7 11.3 12.4 7.6 10.9
FO (2.8) (6.5) (4.6) (4.5) (4.6)
Condensate Spread (US$/BBL)
PX 448 321 295 499 345
BZ 243 242 197 141 259
5.87
Acct GIM
2.88
3.44
7.81
4.36
Unit : US$/BBL
Cost (US$/BBL) 30 Sep 10 31 Dec 09
Crude 76 77
Condensate 78 75
Petroleum Products 80 79
Aromatics Products 108 106
• Market GIM accounting for 2,532 million Baht, decreased 43% YoY and 28% QoQ mainly from weaker aromatics spread
• Net Stock gain of 171 million Baht
• Hedging gain of 62 million Baht
Ending Inventory(Million BBL)
30 Sep 10 31 Dec 09
Crude 4.05 3.81
Condensate 1.26 1.43
Petroleum Products 1.62 1.47
Aromatics Products 0.44 0.46
Total 7.36 7.17
8
1.171.74
1.38 1.29 1.45
0.87
1.03
0.81 0.910.91
3Q/09 2Q/10 3Q/10 9M/09 9M/10
OPEX Interest
EBITDA & Net Profit
• OPEX 1,105 million Baht, slightly increased YoY due to certain additional cost such as maintenance and repair cost of AR1
• Net interest expense decreased to 651 million Baht due to lower interest bearing debt
Unit: US$/BBL
Total Intake (Million BBL)
24.22 22.69 25.28 68.78 70.32
Cash Cost
Cash Cost , EBITDA & Net Profit
3,909
943 1,674
15,825
6,794
1,708
(516)
695
7,664
2,536
3Q/09 2Q/10 3Q/10 9M/09 9M/10
EBITDA Net ProfitUnit: US$/BBL
2.04
2.77
2.192.20
2.36
FX (Baht)
34.10 32.52 31.78 34.81 32.45
9
96,265 95,919
8,814 8,976
49,530 42,878
60,317 59,186
35,948 36,733
22,155 16,585
1,840 1,842
34,349 33,427
Unit: M.THB
Balance Sheets
Balance Sheets
Financial Ratio Loan Breakdown
USD 24% THB
76%
Floating rate 58%
Fixed rate42%
Equities
Current Liabilities
Long Term Liabilities
Other Liabilities
PPE
OtherAssets
CurrentAssets
147,773
As of 31 Dec 2009 As of 30 Sep 2010
154,609
30 Sep 10 31 Dec 09
Current ratio ≥ 1 1.3 1.4
Non-Current Liabilities to Equity Ratio
≤ 2 0.9 1.0
Long Term Liabilities (required to fund Fixed Assets) to Equities Ratio
0.6 0.6
As of 30 Sep 10
• Current assets declined by 13% mainly from Tax refund
• Non-current assets slightly decreased from lower PPE of 346 million Baht
• Total liabilities declined by 6% due to debt payment by cash flow from operation and tax refund
10
CAPEX for 2010-2014
Future CAPEX is expected to be financed primarily by cash flow from operation.
Unit : MUS$
Project
Cost 2010 2011 2012 2013 2014 '10 -'14
Comitted projects
1 Upgrading Project Phase II (DHDS project) 220 111 66 177
2 Production south DCS upgrading 10 10 10
3 Vapor Recovery Unit (VRU) 15 9 9
4 Mercury Recovery Unit 14 3 3
5 New Facility for Biodiesel 3 3 3
6 Minor plant improvement project 9 1 10
Subtotal Continuous Projects 144 67 212
Contingent & Enviromental related Projects
7 PTT Phenol (BPA Project) 43 11 11
8 Dredging Jetty 3 2 1 3
9 Environmental (VRU-AR2/3, CRS unit) 16 14 2 16
10 ADIP revamp + Thermocouple replacement 3 1 4
11 Contingency Budget 30 20 20 20 20 112
Subtotal New Projects & Enviromental Projects 60 24 20 20 20 146
Total Invesment Projects 205 92 20 20 20 358
Operating Expense
12 Equipment and Material 8 4 5 6 6 29
13 Catalyst 35 40 42 41 43 201
Subtotal Operating Expense 43 44 47 47 49 230
Unit : M.US$
11
Market Outlook
12
-5
-4
-3
-2
-1
0
1
2
3
2Q (%) 3Q (%)
United States 1.7 2.0
Euro Area 1.0 0.4
China 10.3 9.6
Japan 1.9 3.9
Global Economic Outlook
• China and Europe continue to register significant growth in 3Q/10 although slightly lower than last quarter.
• IMF revised GDP forecast in October to reflect the stronger than expected recovery.
• Global industrial output still keep a positive momentum in 3Q/10.
Source: IMF (Oct 10), Reuters
2010F (%) 2011F (%)
World 4.8 4.2
United States 2.6 2.3
Euro Area 1.7 1.7
China 10.5 9.6
India 9.7 8.4
Middle East and N. Africa 4.1 5.1
IMF Global GDP Forecast
Global GDP 2010
Source: Reuters
Euro Industrial production (%MoM)US Industrial output (%MoM) China Industrial output (%YoY)
-5
-4
-3
-2
-1
0
1
2
0
5
10
15
20
25
13
Financial Flow will remain the major factor
CFTC Managed Money Net long position
Source: Reuters
Source: CFTC weekly report, JBC Source: Bloomberg, Standard Chartered Research
Federal Reserve Balance Sheet (M. USD)
WTI
EUR/USD vs. WTI
EUR/USD
• Surplus liquidity and weakening USD were major factors driving up equity, and commodity markets.
• Non commercial volume has direct influence to WTI price .
• 2nd wave of Quantitative Easing by FED will increase liquidity another 600 billion USD over next 8 months and put more pressure on USD.
• Weak USD could lead to further shift of capital from USD assets to oil commodity.
14
Global Oil Demand Outlook
• IEA expect oil demand growth at 2.34 mbpd
this year. This will bring total oil demand for
2010 to 87.32 mbpd, the highest at all time.
• Global oil demand will continue to increase
around 1.0-1.5 mbpd in the next few years.
• Capacity growths from OPEC and Non-OPEC
are expected to be lower than demand
growth, OPEC spare capacity will be tighter.
Source: IEA, Nomura (Oct 2010)
Global Demand Growth will Out Pace Supply Growth
Global Demand Growth 2010 - Forecast Changes (mbpd)Analysts
WTI Price US$/bbl
2010 2011 2012
1 Barclays 85.0 106.0
2 BNP Paribas 80.0 86.0 95.0
3 Deutsche Bank 78.3 80.0 85.0
4 EIA 78.0 83.0 -
5 Goldman Sachs 80.5 98.5 -
6 JBC Energy 77.5 80.8 95.4
7 JP Morgan 78.5 82.5 -
8 Societe Generale 78.2 85.2 95.0
Mean 78.6 83.8 87.1
Source: Reuters – October 10 poll from 29 Analysts
IEA +2.34 mbd
EIA +2.0 mbd
OPEC +1.3 mbd
Nov 10 revision
Source: IEA, EIA, OPEC and JBC (Nov2010)
JBC +1.49 mbd
15
• Strike in France caused 1.2 mbpd of refining capacities to go offline.
• The disruption open arbitrage window from Asia to western market and improve Asian margins.
• Though the strike is over it still takes time for these refineries to resume and l current inventory level is decline significantly.
• China distillate demand is expect to grow strongly in 4Q/10.
• Extra demand from Asian games and Government mandated a power supply cut forced Chinese plants to rely on diesel fired generator.
• Increased domestic retail prices could shift refiners focus to domestic market.
Asian Refinery Margins Bounce Back Strongly
Blocked40 Crude Tankers20 Product Tankers
Strong Chinese distillate demand growth (kbd)
Source: Goldman Sach
Source: Reuters
Singapore Products Margins 2010 ($/bbl)
Source: JBC
16
• IMF forecast global GDP growth in the next 5 years to be at a very healthy level just above 4.5%. Asian region will lead all growth.
• Asia Pacific and Middle East is projected to Oil demand growth almost 1 mbpd in the next 5 years about half of the demand growth will come from middle distillate.
• East of Suez refinery will see a breathing room in the next 3 years as demand growth will outpace capacity additions.
Asia Pacific and Middle East Balance Projection
Long Term - Global Oil Demand/Supply Outlook
Source: FACTSSource: IEA Medium term report (July 2010)
Strong Middle Distillate Demand Expectation (mbd)
Global Oil Demand Growth (kbd)
Source: IEA
17
Strong PX Demand Recovery
• Continued economic growth in India and China support strong demand for PX derivatives.
• Market is expected to build polyester inventory to its normal level quickly as year end, seasonal demand is approached.
• Price of Cotton, a competitor to polyester, surged to highest level in 15 years due to environment disasters and reallocation of land for bio-fuel plantation.
Sources: CMAI
Fabric Sale in China
Polyester Fiber Inventory Cotton VS. Polyester Price
18
• Iran sanction by UN forced the
country to redirect reformate from
Aromatics production to gasoline
substitution in place of imported
gasoline.
• Over 1 MTPA of Aromatics supply
disappeared from the market.
• This situation in Iran is expected to
prolong.
• Unplanned shutdown of plants due to
technical problems occur at the same
time caused PX price to rise sharply
in October and November.
• China Fujia 0.8 MTPA.
• Iran IPCC 0.7 MTPA.
• Oman Aromatics 0.8 MTPA.
Paraxylene World
Market size in 2010 28.8 Million Tons
Avg. demand growth 2009 – 2013
6.3%
Avg. operation rate2009 – 2013
81%
Tighten Supply from PX Capacity Losses
Source : FACTS, PTT PIM Group
Iran Aromatics Production Effect from Sanction
19
• No PX additional capacity in 4Q/10.
• PTA capacity addition in 2011 will out pace additional PX capacity.
• Healthy downstream spread can absorb higher PX price.
World PX Capacity Increase By Quarter (KTA)
Future PX Capacity/Demand Balance
Source : PCI, CMAI, PTTAR update as of Nov - 10
World PTA Capacity Increase By Quarter (KTA)
PX Price and Spread (US$/Ton)
Sources: PTTAR
Source : PCI ,CMAI, PTTAR update as of Nov - 10
20
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Mil
lio
n C
ars
High BZ Demand from growing economy
Source : Reuters, China Association of Automobile Manufacturers
China’s Automobiles Sales rose 27% YoY in Oct
China’s retail sales rose 18.6% YoY in Oct• Economic recovery will revive a lot
demand for BZ derivatives.
• Car and Retail sales in China continue
to grow at a very high rate.
• BZ spread should be able to remain
healthy due to the return of demand in
the emerging markets.
Automotive required 38% BZ derivative
Refrigerator required 64% BZ derivative
T.V. required 86% BZ derivative
0
5
10
15
20
25
%YoY
Source : Reuters
Polymer Demand Rapid Growth (Index)
Sources: TOTAL APIC 2010
21
Future BZ Capacity/Demand Balance
• No BZ additional capacity in 4Q/10.
• Strong Polymer market will result in higher demand for BZ.
• Styrene margin improving will support BZ price due to robust demand from China.
• BZ supply will be tighten due to changing in Olefin feedstock to lighter feed and Olefin Naphtha crackers run cut.
World BZ Capacity Increase By Quarter (KTA)
Benzene Price and Spread (US$/Ton)
Sources: PTTAR
Source : PCI, CMAI, PTTAR update as of Aug - 10
Benzene World
Market size in 2010 40.3 Million Tons
Avg. demand growth 2009 – 2013
3.6%
Avg. operation rate 2009-2013
74%
22
Brighter Outlook for Phenol and Nylon Chain
-
500
1,000
1,500
2,000
2,500
3,000
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
$/tonSpread : CPL-CX CPL : SE Asia CX : SE Asia
• Phenol global demand is expected to grow by 4.7% during 2009 – 2014.
• Demand in Northeast Asia grew 7.4 %from 2004 – 2009 and anticipated to continue growing 6.5% during 2009 –2014.
• The capacity in North America and West Europe will be under utilized compared to NE Asia due to weak demand and tight feedstock supply.
• Caprolactam global demand grew by 2.7% from 2002-2007.
• World economic crisis in late 2008 slashed down Nylon demand, many caprolactam plants out of service and never restart.
• Expected caprolactam demand growth by 3.1% during 2011 – 2015 mainly from China.
• Caprolactam is tight now and will reach critical in 2015 without new capacity.
Phenol Value Chain (US$/ton)
Nylon Value Chain (US$/ton)
-
500
1,000
1,500
2,000
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
$/ton Phenol Margin Phenol : SE Asia BZ: SE Asia
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Sources: PTTAR
23
Business Strategies
24
DIVERSIFICATION
BUSINESS
SYNERGY AMONG
PTT-GROUP
SOCIAL & ENVIRONMENT
RESPONSIBILITY
PEOPLE
OPERATIONAL EXCELLENT
SYSTEM
Strategic Directions
25
DHDS
AR2 EIPPX up
30KTA to 570KTA
CrackerUpgraded low value feedstock
Green Diesel
Alternative Fuel
PTT Group- Off gas upgrading- H2 Management
Nylon ChainBZ Value
Chain
1995 – 2010
Sustainability2011 – 2013 Asset Utilization & Synergy
2014++ New Business
AR3 Revamp
PX up 45KTA to 700KTA
PTA/PETBusiness
PX Value Chain
Secure & Alternative Condensate
Maximize Unit Utilization
AR3
AR2
AR1
- SPRC Synergy-Nearby Petrochemical Company- Off GasUpgrading
- Power Consolidation- Group Procurement- Co-loading & SWAP- PTT LNG Cooling Duty- PTT Energy Solution- Zero Unplanned S/D
Continuous Plan for Business Opportunities
PTT Group- Jet / Diesel
Our Strategic Roadmap 2010 - 2015Goal: Top Quartile ROIC in Asia within 2020
26
Environmental Issue Update
1. EURO IV Clean Fuel Project
2. Vapor Recovering Unit and Bio Diesel Project
3. Production Efficiency Improvement Project for Aromatics Complex I (AR2)
• The Ministry of Natural Resources and Environment issued a notification with a list of project types which may cause severe impacts to the local community in terms of health, environment and natural resources on August 31, 2010.
• The Administrative Court has rendered a judgment of the case on September 2, 2010, resulting in discontinuation of the temporary suspension of 74 out of 76 projects.
• Two projects are required to follow the requirement stipulated in Article 67(2) of the Constitution BE 2500.
• PTTAR projects can proceed according to the original plan.
PTTAR Projects
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