Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Asian Olefins Update Asian Olefins Update
Chemical Market Associates, Inc.SingaporeLarry Tan
Director, Asia Olefins [email protected]
Presented to the Raw Materials Committee (APIC 2004)
Kuala LumpurMay 20, 2004
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
State of Asia Petrochemical Industry• In midst of economic recovery • Global petrochemical markets
recovering from past poor profitability• Slow additions on new olefins capacity
till 2005• Asia crackers operating at higher cost
structure than 1990s• Competition from low cost Middle East
suppliers intense
• Dysfunctional pricingSource: Getty Images
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Asian Petchems Mired in Oversupply Since 1997
Asian Petchems Mired in Oversupply Since 1997
Weighted Average Earnings Before Interest & Tax
-100
-50
0
50
100
150
200
250
300
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
PlasticsMethanolChloralkaliAromaticsOlefins
“Reinvestment” Margin
Dollars per Ton
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
• Olefins Supply / Demand Overview
• China’s Impact on the Market • Update on Chinese Crackers
Investments• Issues Arising• Future Propylene Supply
Sources • Dysfunctional Contract Pricing
Mechanism in Asia
• Olefins Supply / Demand Overview
• China’s Impact on the Market • Update on Chinese Crackers
Investments• Issues Arising• Future Propylene Supply
Sources • Dysfunctional Contract Pricing
Mechanism in Asia
Asia Olefins UpdateAsia Olefins Update
Source: Getty Images
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
NE Asia Net Ethylene Equivalent Trade Imports To Exceed 8 Mil Tons by 2008
NE Asia Net Ethylene Equivalent Trade Imports To Exceed 8 Mil Tons by 2008
-9-8-7-6-5-4-3-2-101
98 99 00 01 02 03 04 05 06 07 08
Million TonsNet Exports
Net Imports
PolyethyleneEthyleneGlycol
VinylsOthers
StyrenicsNet Trade
Ethylene Net Equivalent Trade
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
SE Asia Ethylene Supply TighterSE Asia Ethylene Supply Tighter
-2
-1.5
-1
-0.5
0
0.5
1
98 99 00 01 02 03 04 05 06 07 08
Million Tons
Net Exports
Net Imports
PolyethyleneEthyleneGlycol
VinylsOthers
StyrenicsNet Trade
Ethylene Net Equivalent Trade
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
What About Propylene in Asia?
“Short, Shorter, Very Short!”
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
NEA Short Propylene Derivatives But To Long Propylene After 2004
NEA Short Propylene Derivatives But To Long Propylene After 2004
Propylene Acrylonitrile Polypropylene Others Net Trade
Million Tons
-4-3.5
-3-2.5
-2-1.5
-1-0.5
00.5
1
98 99 00 01 02 03 04 05 06 07 08
Net Exports
Net Imports Propylene Net Equivalent Trade
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
SE Asia Has Huge Propylene DeficitSE Asia Has Huge Propylene Deficit
Propylene Acrylonitrile Polypropylene Others Net Trade
-1.2-1
-0.8-0.6-0.4-0.2
00.20.40.6
98 99 00 01 02 03 04 05 06 07 08
Million Tons
Net Exports
Net Imports Propylene Net Equivalent Trade
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Why is China So Important Why is China So Important to Industry?to Industry?
• World’s fastest-growing market• Capturing 20-30% of investments• Becoming world’s factory
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
China’s Demand & Supply Growth Has Major Impact Globally
China’s Demand & Supply Growth Has Major Impact Globally
Global Cumulative Growth Demand
(2003 – 2013)PropyleneEthylene
SEA8%
RNEA4%
ROW73%
China15%
China24%
ROW61%
RNEA5%
SEA10%
Global Cumulative Capacity Expansion
(2003 – 2013)PropyleneEthylene
SEA8%
RNEA5%
ROW69%
China18%
China27%
ROW54%
RNEA8%
SEA11%
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
China Has Large Per Capita GDP Growth Potential
China Has Large Per Capita GDP Growth Potential
2003
China USA JapanJapan ThailandThailand S. KoreaS. Korea
Population, Mil 1,303 294 128 63 48
GDP*, Bil US$ 1,354 10,455 4,790 137 514
GDP* / Capita, US$ 1,040 35,570 37,500 2,180 10,700
• 2000 US$ Source: Getty Images
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Location 2003 % GDP
China’s Economic Growth Faster Than Rest of World
China’s Economic Growth Faster Than Rest of World
Annual Growth Rate (%)
– China– Taiwan– S. Korea– Japan– SEA Totals– India
– North America– Western Europe
• World
4.11.01.514.52.01.7
35.525.7100
2003 2003-2008
7.55.05.02.85.27.3
4.12.73.8
9.13.22.52.64.37.5
3.00.82.7
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
China Captures Foreign InvestmentChina Captures Foreign Investment
2002 Data
Mfg - 74%
Services - 12%
Real Estate/ Const. - 4%
Wholesale/ Retail - 4%
Agriculture/Food - 4%
Others - 2%
China - 8%ROW - 80%
Germany - 6%US - 5%
Japan - 1%
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Startup Status of New Ethylene Capacities and Expansions China / Taiwan
Formosa PC(Mai Liao: 1200 kta)
Company Startup TimingQilu PC 3Q ‘04BASF-YPC 1Q ’05BP-SECCO 2Q ’05Maoming PC Mid ’05Daqing PC 4Q ’06Lanzhou PC Mid ‘06Shell / CNOOC Mid ‘06Formosa 4Q ’06Fujian PC (ex-ExxonMobil) ~ ’10
Projects in Planning StageSinopec (800 kta, Wuhai) ~ ’10Zhenhai, Zhejiang (1,000 kta) ~ ’08-’10Shanghai 2nd Cracker (1,000 kta) ~ ’08-’10
BASF/Yangzhi PC(Nanjing; 600kta)
BP/SECCO(Shanghai; 900 kta)
Fujian PC / Aramco / Sinopec(Fujian; 800 kta)
Shell/CNOOC(Nanhai; 800 kta)
Maoming PCMaoming, +420 kta
Daqing PCDaiqing, +320 kta
Qilu PCShandong, +270 kta
Lanzhou PCGansu, +360 kta
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Ethylene Capacity Additions in China/ Taiwan CouldReach +7.5 Mil Tons by 2010
Qilu PC BASF-YPC BP-SECCOMaoming PC Daqing PC Lanzhou PCShell / CNOOC Formosa Fujian PC (Ex-ExxonMobil)Sinopec Zhenhai
0
2
4
6
8
3Q-04 1Q-05 2Q-05 3Q-05 4Q-05 1Q-06 2Q-06 3Q-06 4Q-06 2008 2009 2010
Mil Tons Per Year
5.7
7.5
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Sufficient Naphtha To Satisfy Ethylene Demand Growth?
Data suggest it is sufficient– +5.7 - 7.5 mil tons per year of NEA ethylene
capacity (by 2010) – Need +2.4 million barrels of crude / day – But Asia Pacific’s 20 million BPSD needs to be
expand by 12% (by end 2010)
Food for thought– Heavy fuels cracking and condensate splitters
opportunistic supply steps – Most big JV projects in China based on local
feedstocks• Some have feedstock flexibility
– Can port facilities handle imports of long haul ships ?
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Can China Handle Large Olefins Volume Imports?
Import Quantity Outlook— About 500 – 600 kta olefins import needed for
demand growth— Could grow to 600 - 900 kta if demand growth
is higher — Is this operationally feasible? Import facilities
could limit demand growth ?
Import Capability Overview— Currently can handle up 350 kta— New facilities raise capability to ~650 kta
• Dahua, Cangzhou (new SM terminal) in 2H ’04• Tianjin Dagu, Tianjin (VCM plant) in 1H ’05• Hebei Cangzhou (VCM plant) in 2H ‘05
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Re-Investment Cash Margins
Ethylene Margins Peak During ‘04-’06Ethylene Margins Peak During ‘04-’06
0
50
100
150
200
250
300
350
400
450
98 99 00 01 02 03 04 05 06 07 08
Dollars Per Ton
NAM Ethane NAM Light Naphtha WEP Naphtha SEA Naphtha
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Today’s Global Propylene MarketToday’s Global Propylene Market
SupplySteam Crackers
67%
Propane Dehydro.
2%
Others1%
FCC/Splitters30%
57.6 Million Metric Tons
Demand
Acrylonitrile10%
Propylene Oxide7%
Polypropylene64%
Others7%
Oxo Alcohols
8%
Cumene4%
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Today’s Asia Propylene MarketToday’s Asia Propylene Market
Supply
19.8 Million Metric Tons (in 2003)
DemandPolypropylene
68%
OxoAlcohols
7%
Cumene4%
PropyleneOxide
4%
Others5%
Acrylonitrile12%
Steam Crackers71%
FCC/Splitters
25%Dehydro4%
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Middle East / Asia Inter-Dependence
New M.E. Ethylene CapacityNew Asia Ethylene Demand New Asia Propylene Demand
New M.E. Propylene Capacity
3.0
2.0
1.0
0.0
1.0
2.0
3.0
4.0
1990 1995 2000 2005 2010
Million Metric Tons
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
How Will Propylene Supply Grow?
+3.4M Metathesis+1.8M PDH
+8.2M Steam Cracker
+9.3M Refinery
Million Metric Tons
50
55
60
65
70
75
80
85
2003 2004 2005 2006 2007 2008 2009 2010
2003 Base
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Where Is Global Propylene in the Future?
Where Is Global Propylene in the Future?
20102003
Steam Cracker59%
Refineries33% Dehydro
3%Metathesis & Others
5%
80.3 Million Metric Tons
Steam Cracker67%
Refineries30% Dehydro
2%Metathesis & Others
1%
57.6 Million Metric Tons
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
What is Asia Doing About Propylene Shortage?
Metathesis projects– Mitsui Chemicals, 140 kta propylene, middle ‘04
startup at Osaka, Japan – BP/ SECCO, 160 kta propylene, 2Q 2005 startup at
Shanghai, China– Others:
• Sumitomo Chemicals in Chiba, Japan• PCS, Singapore (200 kta; 2006)• Formosa PC, Kaohsiung, Taiwan (250 kta; end 2005)• Nippon Oil, Kawasaki Japan (150 kta; 2005)
Maximizing feedstock flexibility– Shell Nanhai cracker designed to crack heavy
feedstocks as well
Others – Deep Catalytic Cracking (Formosa PC)– Methanol-To-Olefins plant (Yihua Group planning to
build one in Inner Mongolia)
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Global Contract Prices Consistently Above Spot Prices in Long Market
• Spot prices are opportunistic sales
– In a long market, this is a last desperate seller’s price
• Pipeline suppliers committed capital to improve supply logistics
– Justifies a premium to spot price
• Asia contracts tied wholly to spot prices at disadvantage for sellers
– Buyers extract value from supply chain offering
• Dysfunctional pricing methodology
– 97% of contract business “influenced”by 3% of spot trade !
Ethylene Price Comparison*
300350400450500550600
USGC Europe Korea Taiwan Thailand
NEA Spot Price
NEA Spot Price
SEA Spot Price
Spot Price
$/ton
* 2002-2003 averages
Contract
Spot
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Global Contract Prices Consistently Below Spot Prices in Tight Market
* 2002-2003 averages
Contract
Spot
Propylene Price Comparison*
300350400450500550600
USGC Europe Korea Taiwan Thailand
Spot Price
Spot PriceNEASpotPrice
SE Asia Spot Price
NEASpotPrice
• In short markets, this is a last desperate buyer’s price
• Pipeline buyers give assurances of steady offtakes
– Justifies a discount to spot price
• Asia contracts tied wholly to spot prices at disadvantage to buyers
– Buyers not getting value for steady long term supply commitments
• Same dysfunctional methodology– Spot volumes represent around 2 % of
total Asia capacity (2003)
$/ton
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Summary• East Asia requires 900 kta of
monomer imports (from ‘03 –‘08)
• Demand and supply growth mainly in China & Taiwan
• China’s demand growth has large impact globally
• NE Asia to add 5.7 - 7.5 million tons of ethylene capacity by 2010
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
Summary• Issues arising
– Refining capacity needs to expand by about 12% by 2010 to supply the naphtha feedstock
– Chinese olefins import facilities could potentially limited demand growth
• Propylene supply tight and steam crackers loose “market share” in future
• Asia needs to price olefins based on longer term fundamentals
Asia Petrochemical Industry Conference - 2004Houston London Singapore Dubai
A High Growth Region Needs Re-Investment EconomicsA High Growth Region Needs Re-Investment Economics
• CMAI to launch a new Asia Olefins Market Report in 3Q 2004
• Focus on more analysis of fundamental factors
– Cash costs– Derivatives’ margins– Dynamics of contract & spot
markets– Short term supply / demand– Arbitrage opportunities– International markets– Spot market
Fortnightly
Little Some Lots
Extend of Analysis
Market Report Frequency
Monthly
CMAI (Asia Olefins)
Company “I”Company “P”
CMAI (in MMR)
Company “D”
Companies “T”, “PC”, “N” etc
Weekly
None
Red - New ServiceWhite - Existing Service
Competitors’ Segmentation