January 2014 - Global Propylene & Derivatives 2014 · Acrylonitrile is a colorless liquid organic...

transcript

January 2014

Acrylonitrile - Agenda

•Intro to CCC

•What is AN/How is AN manufactured

•Who makes AN

•Where is AN used

•Global Supply/Demand

•Cost to build / Barriers to build (reinvestment grid)

•Regional Conversion Cost history and impact of regional investment

•Lack of US Reinvestment/the why?

•Conclusions: US Future – no change

The massive dislocation of regional manufacturing costs from 2005-2013 has eliminated opportunistic investment in acrylonitrile and major derivatives with the next major downstream investments only

to come AFTER a demonstrated advantage in US feedstock cost position

Company Overview

Cornerstone Chemical Company is a market-leading North American producer of critical intermediate and specialty chemicals

Headquarters: Waggaman, Louisiana

Employees: 475

Market Position:

Acrylonitrile 1 of 3 producers in North America

Melamine Sole producer in North America

Sulfuric Acid Leading merchant producer in the Gulf of Mexico region

Capacity:

Acrylonitrile 525 million lbs (240 kMT)

Melamine 170 million lbs (75 kMT)

Sulfuric Acid 1.7 billion lbs (850 kMT)

200-acre facility on an 820-acre site located on the Mississippi River approximately 20 miles from New Orleans, LA

Highly integrated operation with synergistic production processes and two on-site customers / producers of downstream products

$1.5B+ Replacement Value

1952 1993 2011

What is AN / How is it made

Acrylonitrile is a colorless liquid organic compound formed from the catalytic ammoxidation of propylene utilizing technology invented by Sohio in 1957.

Chemical Symbol

Chemical Reaction

2CH3-CH=CH2 + 2NH3 +3O2 → 2CH2=CH-C≡N + 6H2O

Block Flow

Propylene

Ammonia

Acrylonitrile

1.1 lbs

0.5 lbs

CO/CO2

Who makes AN?

Data from PCI Acrylonitrile

• Global Capacity is led by the 5 top producers which together account for nearly 70% of capacity

• Global leaders Ineos and Asahi alone represent more than 25% of the market

• Despite the small number of large producers, global price levels are presently dictated by the spot market, often through sales by small marginal producers

• Global Capacity is concentrated in the Asia region at almost 60%

• US is a large production source, primarily due to the legacy of cost advantaged propylene and strong derivative demand

China20%

Other AP24%

Japan11%

Eastern Europe5%

Western Europe14%

South America2%

United States24%

2013 CAPACITY GEOGRAPHY

Asia Capacity

2013 GLOBAL CAPACITYKILOTONS

Global Trade Flows (2013)

US: +551KT

Japan: +91KT

EU: +179KT

LA: -21KT

ME: -260KT

Other Asia: +14KT

CHN: -554KT

Summary of End Markets (2013)

Raw Materials Products and Intermediates Applications

Propylene

Ammonia

Acrylonitrile

ABSStyrene

Butadiene34%

Automotive, electronics, appliances,

construction

Competing products: Polycarbonate, PVC, PP

Garments, carpets, fabric

Competing product: Polyester

Water treatment, EOR, fracking

Competing product: Specialty Water Treatment

Nylon 6,6 (carpet, automotive)

Competing product: Polyester or PP (also

Invista route via BD vs. AN)

Automotive Rubber

Competing product: Natural Rubbers

Carbon Fiber

Aerospace, automotive, wind

Competing product: Aluminum/Steel

Automotive, mining, etc.

Regional Breakdown of Majors

ABS and AF Represent 66% of Demand with 70% ofthe consumption in Asia (45% of Global Demand)

2013 PROJECTED GLOBALACRYLONITRILE END USE

Acrylic Fiber

ABS/SAN

Acrylamide

Adiponitrile

NB Copolymer

Carbon Fiber

5.5MMT

23%36%

ACRYLIC FIBER (AF)1.8MMT OR 32% OF GLOBAL DEMAND

Asia Ex Chn China Americas Europe/Africa

ACRYLAMIDE (AMD)0.7MMT OR 13% OF GLOBAL DEMAND

ACRYLONITRILE-BUTADIENE-STYRENE (ABS)1.9MMT OR 34% OF GLOBAL DEMAND

80%83% 84%

87% 86% 88% 90%

75%80%

77% 75%72% 71% 74% 75%

78%81% 83% 84%

6% 5% 8%2% 5% 2% 4% 5%

7% 5% 8% 6%2% 3% 0% 0% 1% 2%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

ABS Capacity Utilization

Global ABS Capacity (MT) Global ABS Demand (MT) Utilization (%) Growth Rate

Forecast

79% 79%76% 76% 77%

70% 70% 70%66%

80%83% 85% 83%

89% 89% 88% 89% 89% 90% 89% 89%

3% 5% 6% 5% 2% 4% 4%

9% 10% 12%6% 7%

15%9% 8% 7% 9% 6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

AMD Capacity Utilization

Global AMD Capacity (MT) Global AMD Demand (MT) Capacity Utilization (%) Growth Rate (%)

Forecast

85% 84% 86% 89% 91% 89% 90%86%

88% 86% 87% 83% 86% 87% 88% 89% 89% 90% 90% 91%

-3% -3% -1%-5%

-1%-7%

2% 0% 1%-5%

0% 0% 0% 0% 0% 0% 0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Acrylic Fiber Capacity Utilization

Global AF Capacity (MT) Global AF Demand (MT) Utilization (%) Growth Rate

Forecast Period

Growth and Capacity Utilization of Majors

• AF: A 25% reduction in capacity due to high cost position relative to competitive products, no growth anticipated, now only specialty product

• ABS: Growth slowing with the Chinese economic conditions, butadiene cost and availability, product content/size

• AMD: High global growth due to technology improvements/fracking

Growth Rate – Major Elements of Demand

• AF: No growth, however product performance limits downside from current levels• ABS: Growth tied to global economic growth rates, primarily electronics, appliances,

and automotive demand growth rates• AMD: High growth potential due to rapid growth of fracking applications

Share of demand by Big 3 remains ~80% over forecast period

-4%5% 3% 3% -1% 0% 0%

8% 6%-2% 2% 2% 3% 5% 4% 4% 3% 4% 3%

83%87% 88% 86% 86% 85% 85% 84% 82% 84%

81% 80% 80% 79% 79% 78% 78% 77% 77% 77% 77%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

AN Growth Rate

AF ABS AMD Growth Demand Share

US Customer Differentiation

• US growth is Adiponitrile (global demand for nylon 6,6) and AMD (fracking) however fracking is only 20% of the base with tremendous overhang of overall capacity

• Driver for US investment in capacity by 2018 relies on predictable and sustainable raw material advantage

2013 PROJECTED GLOBALACRYLONITRILE END USE

Acrylic Fiber

ABS/SAN

Acrylamide

Adiponitrile

NB Copolymer

Carbon Fiber

5.5MMT

48%4%4%

2013 PROJECTED NORTH AMERICAACRYLONITRILE END USE

Acrylic Fiber

ABS/SAN

Acrylamide

Adiponitrile

NB Copolymer

Carbon Fiber

0.8MMT

US Supply and Demand

• US market is totally disconnected from global market– US exports ~40% of capacity

– US demand by AF is 0. Demand for ABS is <10% of capacity versus global share of 70%

• First Speculative Capacity in 2018, however FEED for that facility would need to begin by 2015

50% 49% 50% 48% 47%

41%39% 38%

33%29% 28%

34% 34%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Domestic Demand

Acrylic Fiber ABS/SAN Adiponitrile Acrylamide NB Copolymer

Carbon Fiber P Other Production Export

Exports

Forecast Period

Given the US Cost advantage to come, who will build?

… and what barriers exist to prevent future build out.

Investment Decision Criteria

• What are the barriers to construct capacity?

• How does the regional conversion cost differential impact decisions?

• Does China have plans?

Barriers to Construction

Permits Regulatory environment for AN and co-products

Waste Treatment

Technology Limited Availability (Ineos, Asahi, Ascend, Sinopec, maybe Dupont)

Capital $1500 per ton, M$450 for World Class

Raw Materials Propylene and Ammonia Globally challenging to transport (source proximity)

HCN Outlet Must have an economic offtakeAlternative to fuel or flare is a non-starter

Energy Units are ExothermicLong steam in reactors and pollution control

Outbound Logistics

AN transport heavily regulatedIn China, for example, no river transport on Yangtze

Large quantities of hazardous effluent

AN investment decisions are complicated, Existing or new facilities must meet ALL criteria for success

Raw Material Cost

Propylene

Ammonia

Acrylonitrile

The massive dislocation of regional manufacturing costs from 2005-

2013 has eliminated opportunistic investment in acrylonitrile and major derivatives with the next major downstream investments

only to come AFTER a demonstrated advantage in US

feedstock cost position

Geographies of AN demand will drive incremental production into the lowest cost regions, with the largest

component of cost = Propylene

Regional Raw Material Cost

Propylene Global

Step change in Asian economic advantage in early 2007 due to investment in crackers outpacing derivative units.

Since recovery in ‘09, US shift to ethane clearly shows with relative price point and volatility

Hurricane Impact (US)

Ethane Preference (US)

Qtly to Monthly (EU)

Naptha crack > demand (AP)

Regional Raw Material Cost

-$0.30

-$0.20

-$0.10

Propylene Differences and Export Spread

US/EU Diff US/AP Diff Spread

US Disadvantaged

US Advantaged

High Utilization Period

US spread over inputs disappears in 2007 as Asia lengthens feedstock propylene availabilityProfitability in 2010 and 2011 is demand driven despite feedstock disadvantage

The China to Come

Expected Rationalization- Japan Inc. : Current Cracker Rationalization Process will also result in AN casualties. Asahi cracker announced to shut down, limiting propylene (current AN capacity of 790KT expected to fall by 260KT)

- Europe: Exposed naptha feedstock cost and geographical challenges, ~300KT at risk

- Taiwan/Korea: Heavy export reliance, ~800KMT of capacity under heavy threat of China to come

- China Capacity: Exports not expected, industry believes 75% cap utilization a likely outcome

Existing Capacity Expansion Capacity Timing Approval Technology Propylene HCN

Anquing 80 130 2013 Y Sinopec Purchased MMA

Wanda 0 130 12.2014 Y Sinopec Purchased MMA

SECCO 260 260 1Q2015 Y Sinopec PDH/Steam Cracker MMA

Shenghong 0 260 4Q2015 Y DuPont MTO ?

Hali Chemical 0 130 2015 ? ? ? ?

Ineos Bohai 1355 260 4Q2016 N Ineos PDH MMA

1170 KMT

Wanda II 130 130 2017 N Sinopec

CPDC 300 0 2017 N

Qinghua 0 300 After 2017 N

Dazhou 0 200 After 2017 N

Jiangsu 0 100 After 2017 N

Yangkou 0 200 After 2017 N

Tieshan 0 260 After 2017 N

Pingluo 0 300 After 2017 N

Kuytan 0 100 After 2017 N

1590 KMT

2012 Global Capacity 6359 KMT 43% Increase in Global Capacity if all built

Relocate Taiwan Plant to China

Probable Capacity

Possible Capacity

1019 1019 10191124

12061289 1311

23392534 2599

79% 79% 78%83% 83% 86%

128%132% 129%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Capacity (KMT)

PetroChina Daqing PetroChina Lanzhou PetroChina Fushun PetroChina Jilin

Sinopec Jinshan Sinopec Qilu Sinopec Anqing Sinopec Secco

Sinopec Wanda Sinopec Shenghong Shangdong Haili Ineos Tianjin

China Capacity/Demand

-- - 2 8

39 59 40 66

101 54 128 75 53 48 65

141 154

151 158

132 61 78

78 120 139

143 142

113 122

125 145 216

316 325

451 453

521 552

589 550

100 100 100

2005 2006 2007 2008 2009 2010 2011 2012 2013A(Jul)

2014 2015 2016 2017 2018

China Imports (KMT)

Other Thailand Japan US Taiwan Korea

US Investment Likelihood?

Limited… at best.

• #1 REASON: HISTORICAL BEHAVIOR OF US PROPYLENE PRODUCERS = Risk

•#2 Global Supply: US is structurally long and is not in need of additional AN capacity

•#3 Global Demand: AF cannot compete with Polyester so largest use has no growth

•#4 Reinvestment is complicated and expensive: to be successful one must also have a use for HCN and energy balance. Waste handling is a consideration

•#5 Strategic entities have sold AN units due to poor historical performance, current US producers will only invest given certain and predictable returns

The Focus of AN production remains in Asia, NOT the US

Conclusions

North America• AN manufacturing has migrated toward private ownership over the last 10 years due to poor

return on investment.

• US propylene producers have been content to “let the market determine the survivors” rather than support local production in the International marketplace due to the extremely tight market during the period in which ethane crackers went “light”

• The recent history on propylene pricing in the US (since 2003) shows a market marked byvolatility and one that frequently disconnects (and at times significantly disconnects) from the International comparative indexes

… as a result

Globally• The two largest end uses for AN are ABS Plastic and Acrylic Fiber, with the former dependent

on a Chinese recovery and the latter permanently reset as a specialty niche player with poor growth potential

• China engaging in a wave of investment over the next 5 years which will necessitate another global restructuring in AN production

Producers will manufacture for local demand with the US focusing on the growing AMD segmentNo major capacity will be constructed in the USA unless a major structural advantage appears in the USA

January 2014 - Global Propylene & Derivatives 2014 · Acrylonitrile is a colorless liquid organic...

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