Global Chemical Industry Outlook: Emerging...

© 2018 IHS Markit. All Rights Reserved.

NALO 4th Quarter Update / November 2017

© 2017 IHS Markit. All Rights Reserved. © 2018 IHS Markit. All Rights Reserved.

Global Chemical Industry Outlook: Emerging Trends Presentation at Indian Petrochem 2018

Mumbai, India

01 November 2018

Sanjay Sharma Vice President, IHS Markit Chemical Consulting – Middle East and Indian Sub-continent Email: [email protected]



Global Chemical Industry: Emerging Trends

2

• Changing Competitive Landscape: global competitive landscape has changed and continue to change with shale gas, coal based chemicals, advantaged feedstock limitation in Middle East and oil companies focus on chemicals

• Mobility trends and Refinery/Petrochemical Integration: expected changes in the fuel mix and competitive advantage of integration driving higher level of refinery/petchem integration

• India Chemical Industry: Multiple projects in the pipeline. Will all of these project materialize?

• Plastics recycling: a fast emerging issue that is expected to influence the industry during the 2020s

• Oil companies push to build chemical portfolio: Opportunity or a disruption for the chemical industry?



Presentation Contents

• Global Economy & Energy Outlook

• Global Industry Trends & Outlook

• India Chemical Industry Outlook

• Conclusions

3



Global economic growth is gradually eroding

• Global economic growth is expected to slow from 3.3% in 2017 to 3.2% this year, 3.1% in 2019, and 2.9% in 2020.

• Trade tensions between the United States and China are escalating. On the positive side, the United States, Canada, and Mexico have agreed to a revised North American trade treaty.

• Europe’s growth is slowing in response to higher oil prices, euro appreciation, and weakening global trade dynamics.

• China’s growth will be slowed by US tariffs, deleveraging, and excess industrial capacity. Government stimulus will provide some offsetting support.

• India’s growth is expected to average 7.2% annually from 2018 to 2023.

• Emerging markets that depend heavily on external finance, including Turkey, Argentina, and South Africa, are under stress.

4



Global output growth will slow in 2019 and 2020

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2012 2013 2014 2015 2016 2017 2018 2019 2020

Pe

rce

nt C

ha

ng

e

Real GDP

Global Real GDP

Source: IHS Markit © 2018 IHS Markit

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Asia-Pacific will account for more than half of global real GDP growth from 2017 to 2027

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North America 17.2%

Other Americas 5.1%

Western Europe 11.1%

Emerging Europe 5.7%

Asia-Pacific 53.4%

Middle East & North Africa

4.9% Sub-Saharan Africa 2.6%

Percent of world real GDP growth, 2017–27


Notable contributions: China 29.8% United States 14.3% India 9.3%



Fear of too little supply is supporting crude oil prices

7

• Supply-side risks from new US sanctions on Iran and declines in Venezuelan output have pushed the price of Brent crude oil above USD80/barrel.

• Iranian oil exports fell from 2.3 million barrels/day (MMb/d) in the second quarter of 2018 to 1.8 MMb/d in the third quarter and are expected to settle at 1.1 MMb/d in the first quarter of 2019.

• As Iran’s output has fallen, Saudi Arabia’s has risen to near an all-time high, leaving a thin margin of spare capacity.

• Delays in the construction of new pipelines have slowed US production growth. As bottlenecks are relieved, US crude oil production will rise from 10.8 MMb/d in mid-2018 to 13.9 MMb/d in late 2020.

• Growth in world oil demand is expected to remain robust at 1.5 MMb/d in 2019 and 2020. The risk to the demand forecast remains on the downside.



0

25

50

75

100

125

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2000 2004 2008 2012 2016 2020 2024 2028

Dollars

/barr

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Current US dollars 2017 US dollars

After a 2018 surge, crude oil prices will be restrained by rising US supply

8

Price of Dated Brent crude oil








• Conclusions

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-5

0

5

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15

20

25

30

95 97 99 01 03 05 07 09 11 13 15 17 19 21 23

Million M

etr

ic T

ons

North America South America West Europe Middle East

Indian Subcontinent Northeast Asia Southeast Asia

Annual Capacity Change- Total Basic Chemicals (Ethylene, Propylene, Butadiene & Methanol)

© 2018 IHS Markit Source: IHS Markit

Low Energy Price NAM Gas Price

Rise

Crude Price Hits $100 Crude Price Collapse

Feedstock advantage & domestic demand remains two important drivers for regional capacity additions

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Over the past 10 years, dramatic changes have altered the global petrochemical landscape

• China has made advances in coal to chemicals technology and has also become more self-sufficient

‒ Despite domestic capacity increase, Asia/China remains a big importer

‒ Asia/China is the largest market and continues to grow. It is also the most competitive market

‒ Asia/China remains an important market for GCC producers, but is now one where they must increasingly fight US and local participants for market share

Key Implication for India

Middle East producers expected to push more products to markets like India

• The North American shale gas revolution was a game changer that provided low cost ethane to the US petrochemical industry

‒ North America changed from a net importer to a competitive net exporter

‒ New output flows from North America to Europe and Asia/China have been created

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New capacity build concentrated mainly in North America and Northeast Asia…

3,520

4,938

1,961

1,352 1,056

----

2018 2019 2020 2021 2022 2023

North America

309 204

----

440 440

1,000

Middle East 1,889

2,300

4,791

4,025

6,725

530

Northeast Asia

1,085

---- ---- ----

900

300

India

Ethylene Firm Capacity Addition, ‘000 tons

2018 2019 2020 2021 2022 2023

World 7295 8072 7742 8077 9871 3230

NAM 3520 4938 1961 1352 1056 -

NEA 1889 2300 4791 4025 6725 530

MDE 309 204 - 440 440 1000

India 1085 - - - 900 300

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Key factors contributing to the loss in competitiveness of Middle Eastern petrochemicals players

• Relative lower oil prices have led to cost advantage of GCC producers over competitors to significantly decrease (vs. a $100+ oil/bbl environment)

Low oil price

1

Reduction in cost advantage

Reduction in investment economics and IRR

The Middle East is no longer the prime investment destination

• Increasingly limited availability of new ethane supplies which - Increases the capital cost for new crackers in the region, and - Further reduces cost advantage of local products

• Re-pricing of feedstock

Shift towards cracking of heavier

feedstock

2

• Place an additional tariff burden on exports

Lack of participation of GCC in trade

agreements

3

• Emergence of US shale gas and Chinese coal as key raw materials for petrochemicals

• Reduction of cost position of competitors in these two regions

Change in competitive landscape

4

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Plastics recycling is a critical issue faced by the global chemical industry

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0

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80

120

160

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2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Million M

etr

ic T

ons

Demand Reduction Global Demand (Base Case) Global Demand (Scenario Case)

Potential Impact of Increased Recycling on Polyethylene Demand - Scenario








• Conclusions

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Increasing polymers demand and limited capacity additions leading to rise of imports

0

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10

15

20

25

2017 2018 2019 2020 2021 2022 2023

Million M

etr

ic T

ons

PE PP Polystyrene PVC

Major Polymers Demand in India

8.5%


• Per capita plastic consumption in India stands at 10kg which is far less as compared to global average of 40 kg providing abundant opportunities to the plastic manufacturers.

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India expected to remain net importer for major derivatives

-12000

-10000

-8000

-6000

-4000

-2000

0

2000

4000

MEG PP PE PVC

India Net Trade (PE, PP, MEG and PVC)

Exports

Imports

Thousand M

etr

ic T

ons


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Maintaining a reasonable trade balance will require massive investment

Note: Capex estimate high level, indicative of the trend

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2017 2019 2021 2023 2025 2027 2029 2031

Total Demand Total Deficit Total Capex Required, $ Bn

India : Opportunity and Capex Requirement (PE, PP, MEG and PVC)


Mil

lio

n M

etr

icT

on

s

Ca

pe

x R

eq

uir

ed

, $

Bn

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Firm capacity additions in India 2018 Onwards…

Project Products Capacity, ‘000 tons Start up

Reliance Industries-Jamnagar

Ethylene, LLDPE, LDPE, MEG

1500 cracker capacity 2018

DCW-Tuttcorin PVC 150 2018

Indian Oil - Paradip PP 700 2019

BPCL Kochi – Acrylics Project

Crude Acrylics Acid 160 2019

Glacial Acrylics Acid 47 2019

Butyl Acrylates 180 2019

Ethyl Hexyl Acrylates 10 2019

HMEL – Petchem Project-Bhatinda

Ethylene, HDPE/LLDPE, PP,

Butene-1 1200 cracker capacity 2022

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Projects under consideration (1/2)

Project Products Capacity, ‘000 tons Expected Start up

Ratnagiri Refinery and Petrochemical Complex Limited (RRPCL)

$44 bn Investment 1.2 million BPD

18 million tons Petchem Integrated Refinery/Petchem Project

2025+

GAIL/HPCL – Proposed Petchem Project (AP)

Ethylene (derivatives not finalized)

1000 Not Known

Chemplast Sanmar-Cuddalore

PVC Company is planning to triple its capacity of suspension PVC to 1 million metric tons in 5-10 years

Not Known

Chemplast Sanmar-Puducherry

CPVC

Kem One and Chemplast Sanmar have agreed to establish Kem One Chemplast, a 50-50 JV to manufacture chlorinated polyvinyl chloride.

Not Known

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Projects under consideration (2/2)

Project Products Capacity, ‘000 tons Expected Start

up

IOCL-Paradip

Paraxylene-PTA 1200 Approved by board

MEG 360 Approved by board

HPCL – Rajasthan government (Balmer )

Refinery/Petrochemical Integrated Complex – 9 Mmtpa crude

2022 – not in IHS firm caps data yet

BPCL - Kochi Propylene Derivatives Project – Polyols/PG/MEG Approved by board

Taiwan CPC Paradip petchem plant

CPC Corp has proposed to invest $6.6 billion in a petrochemical project in Paradip

Not Known

Taiwan CPC Naphtha Cracker Plant in Gujarat

Proposed investment of around USD 6.0 Billion to set up naphtha cracker plant in Mundra SEZ in Kutch in

Gujarat

Not Known

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Challenges exist, but not insurmountable with policy and planning

• Create feedstock advantage with scale, integration and innovation

• Develop globally competitive industry which can withstand periods of low margins and competition

• Build globally competitive industry clusters: competitive business model and robust governance model

• Fosters innovation by funding/supporting core research activities

• Policy support for efficient regulatory framework, incentives, public investment: innovation/technology access, infrastructure, financial incentives, ease of doing business, skill development

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• Conclusions

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Conclusion

• Economic outlook trending higher. 2017 growth rate fastest since 2010, expect to sustain in 2018 and 2019

• Long term Brent price expected to average slightly lower than $70 per barrel (constant dollar)

• Extended upcycle in global chemical markets – robust

demand, tight supply and strong profitability

• Trends to watch – Mobility changes, refinery/petrochemical integration and plastics recycling

• Traditional growth models for the chemical industry are being challenged

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