Petrochemicals

Petrochemicals

Perspectives from india px/pta market

19th Sept’14

2

Petrochemicals

India – in ancient times, was a significant participant,

even a mother market, in three of the greatest trade

routes of all time – The Silk Road, The Spice Route and

The Incense Route!

Trade on these routes was a significant factor in the

development of the civilizations of China, India, Persia,

Europe and Arabia.

India’s Past History!

Petrochemicals

India – An Enigma

India, given its vastness, diversity and special demographics always

throws up questions as to how Industry would evolve.

Vastness, diversity and demographics are strengths and not weaknesses.

Fundamentals of India stronger than ever before.

India’s needs are different and a long term player needs to focus on and

address these special needs.

Focused attention is needed for what we in India call Roti, Kapda aur

Makaan; Food, Clothing and Housing.

Petrochemicals play a most significant role in all of these three broad

areas

Agriculture, Packaging, Infrastructure, Detergents, Health Care,

Synthetic Fibre and Water Management are key sectors for India

4

Petrochemicals

India - Demographics

Source:India Census 2011

17.5% of World

Population in 2.4% of

World’s Land Area

Population 1.2 Billion

(Growth 1.25%)

Average Age (26.5 Yrs)

Urban (31.3%) Growth (2.9%)

Rural (69%) Growth (1.08%)

Median Age (25.1 Yrs)

Petrochemicals

India – Megatrend

Population Growth and Shifting Population Centers.

Population growth in India has stabilized at around 1.25%; urban

growth is almost 3% whereas rural growth is just over 1%.

Increased urbanization demands improvement in – infrastructure;

power, water, roads, buildings and transportation.

Another major trend; producing food remotely and transporting it to

the consumption center – agricultural, packaging and transportation

efficiencies need to be achieved.

Urbanization would lead to other sub-trends – consumerism, health

care and recycling

Urban per-capita consumption of fibres, even at today’s level, is 5

times that of rural consumption.

Petrochemicals

Drivers of Growth – Indian Textiles

Favorable demographic/ low median age.

Large base of domestic consumers

Rising disposable income

Speedy urbanization

Informed, fashion aware, customers of all

season

Increased Govt. outlay /Pvt. Investment in

infrastructure.

Favorable Govt. policies & initiatives

Projected high growth on Industrial &

Technical Textiles

Best alternative to China as supply base

Petrochemicals

50% 50%

India - Regional Imbalance

8%

22%

32%

1980 2000 2010 2020 2040

West of the

Kanpur-

Chennai line

East of the

Kanpur-

Chennai line

Chennai

Kanpur

Source: Gurcharan Dass – Marbella, Spain

India Turning Middle Class

The Kanpur-Chennai Line

Petrochemicals

31%

22%

26%

21%

Population Vs Petchem Demand

9 Source: IOCL Analysis

21%

11% 47%

21%

Demand

Population

Regional Imbalance -

Increase Manufacturing

Capacity in North &

East

•Opportunity in the Northern Sector

Petrochemicals

Opportunity - East Indian Trading Zone

•Outlined Shape is home to 300

million people in 3 countries!

•Young Population – Av Age 27

yrs

•Low per capita consumption of

Fibres – scope for growth

•Adequate supply – new plants

•Borders and Trade Opening up

via Road and Rail routes

•Future growth hotbed & beyond

to Myanmar

Petrochemicals

Opportunity - North Indian Trading Zone

•Outlined Tear Drop Shape is

home to 800 million people in 3

countries!

•Youngest Population – Av Age 25

yrs

•Low per capita consumption of

Fibres – scope for growth

•Adequate supply – new plants

•Borders and Trade Opening up

via Road and Rail routes

•Future growth hotbed

Petrochemicals

World Scenario of Polyester Polymer

China produces almost 68% of global production & 73% of total Asia fibre output.

Over capacity will progressively slow down the utilization rate to 70%

There is/ will be cancellation or delays in start up of proposed expansion in Asia & ME.

Cost escalation at the downstream and apparel interface, release of dramatic high stock of cotton are factors which may impact polyester production in China

Fig. in TMT

66%

68%

70%

72%

74%

76%

78%

80%

82%

0

20

40

60

80

100

120

2012 2013 2014 2015 2016

MM

T

Production Capacity Utilisation

Petrochemicals

Growth Potential of Polyester Textiles

Lower Fibre consumption, poised for growth − Indian per capita consumption 5 Kg, far below

world average of 12 Kg, China – 19 Kg.

India’s consumption, Ratio of Cotton: MMF is 60:40 − Likely to fall in line with Global ratio of 35:65

(Cotton:MMF)

− Ratio in China is 20:80 (Cotton:MMF)

Cotton per capita consumption stagnant − 65% of incremental demand Globally in favor

of Polyester

Petrochemicals

Cotton production trend of world & China, India, Pakistan reached stagnancy − World 25 to 27 MMTPA

− China, India, Pakistan – 15 to 16 MMTPA

Cotton price volatility & upward swings globally in favor of Polyesters

Polyester, the most economical fibres for textile industry.

Growing presence of Global Brand & Pvt. Label − Preference of fibre mix in favor of Polyesters

Per capita consumption of PET in India

− 0.55 Kg against world avg. of 2.67 Kg growing rapidly.

Growth Potential of Polyester Textiles…cont/-

Petrochemicals

Growth Potential of Polyester Textiles…cont/-

High growth in non woven, Polyester will play major role − 0.1 Kg/capita now to 4.0 Kg per capita by 2050.

Mill level consumption of polyester stands at 40% & expected to increase to 70% by 2030.

Petrochemicals

Indian Petrochemicals Market – Fibre/

Fibre Intermediates

Unprecedented growth during last few years.

Growth mainly catalyzed by limited availability of cotton.

Similar growth is likely to follow in near terms.

Double digit growth, 10-12% is likely.

3930 4297

5723

9363

14406

2036 2297 3168

4927

7270

0

2000

4000

6000

8000

10000

12000

14000

16000

2012-13 2013-14 2016-17 2021-22 2026-27

PTA Glycol

Projected Consumption Growth

(KTA)

Petrochemicals

Indian Polyester Textile

India polyester to experience growth more than world avg. (10% for staple fibre, 7.4% for filament)

India’s total fibre production to grow from 9% of world output in 2012 to 11.6% of total world output by 2020.

Integrated Textile Manufacturing to consolidate, non integrated manufacturers struggle.

60%

65%

70%

75%

0

20

40

60

80

100

120

2013 2014 2015 2016

TM

T

Production Capacity Utilisation

Petrochemicals

PTA - Supply Demand – World Scenario

Effective PTA capacity growth between 2012 – 2018 : 34.9 MMT

Global utilization to dip sharply in 2013-14 & onwards to as low as 70% only to recover at the end of decade.

Asia with 68% global production of which China alone is 48%, will add 30 MMT capacity between 2012-2018.

Supply overhang in Asia due to regional demand growth is only 18 MMT against 30 MMT addition.

China will be net exporter of PTA. Korea , China & Taiwan combine to chase net export of 1.6 MMT.

60%

65%

70%

75%

80%

85%

0

20

40

60

80

100

2013-14 2014-15 2015-16 2016-17 2017-18

MM

T

Capacity Production Demand Utilisation Rate

Petrochemicals

PTA- Domestic Supply Demand

Domestic Market to remain in shortfall in short/long term.

Recent incorporation of ADD on imports of PTA to benefit domestic suppliers.

Prolonged suppressed PX-PTA spread likely to impact operating rates of non integrated units like MCPI.

All fig. in TMT

0

1000

2000

3000

4000

5000

6000

7000

8000

2013-14 2014-15 2015-16 2016-17 2017-18

Production Availability Demand

RIL 1st plant 1200 TMTPA (Comm. in Q3 14-15)

JBF plant 1200 TMTPA– full operation 1/3 in DTA area

RIL 2nd plant 1200 TMTPA (Comm. in 17-18)

RIL 1st plant 1200 TMTPA capacity - full operation

JBF plant 1200 TMTPA (Comm. In Q2 2016) located in SEZ- Cater to their overseas units

Petrochemicals

MCPI, Haldia:

1280 TMTPA

IOC, Panipat:

553 TMTPA

RIL, Hazira :

2100 TMTPA

PTA -Domestic Market Producers

Imports by Polyester Industry (2013-14) – 967 TMT

RIL , Dahej: 1200 TMTPA

(Comm. in Q4 14-15)

RIL, Dahej : 1200

TMTPA (Comm. in

17-18).

JBF , Mangalore:

1200 TMTPA (SEZ)

Polyester hub: 86% of total polyester capacity

6% of total polyester capacity

7% of total polyester capacity

Year PTA imports

(TMT)

2011 -12 709

2012 -13 625

Petrochemicals

MEG - Supply Demand – World Scenario

Global Plant operating rate 85%

China constitutes 66% of Asia consumption & 48% of global consumption.

MEG capacity expansion to accelerate in 2016-17.

Coal based MEG production lead to output uncertainty in Asia

Shale gas MEG to be targeted at Asia market & can be potential game changer.

0

5

10

15

20

25

30

35

40

2013-14 2014-15 2015-16 2016-17 2017-18

MM

T

Production Demand

Petrochemicals

MEG- Domestic Supply Demand

Domestic Market to remain in shortfall

Global Plant operating Rate 82%, Major plants are Gas based (COP advantage)

0

500

1000

1500

2000

2500

3000

3500

13-14 14-15 15-16 16-17 17-18 18-19 19-20

Production Capacity Demand

RIL plant 750 TMTPA (Comm. In 16-17)- 300

TMTPA for captive

consumption

Petrochemicals

IGL, Kashipur:

120 TMTPA

IOC, Panipat:

325 TMTPA RIL, Hazira :

525 TMTPA

MEG -Domestic Market Producers

Imports by Polyester Industry (2013-14) – 893 TMT

RIL , Nagothane

& Vadodara – 75

TMTPA

RIL, Gandhar : 200

TMTPA

RIL , Jamnagar:

750 MMTPA (Comm. In 16-17) –

Gas based

Year MEG imports

(TMT)

2011 -12 667

2012 -13 693

Petrochemicals

Import of PTA & MEG in India

Impact of ADD on PTA import

Imports – Uneconomical

Integrated players will try to increase export participation - Resulting import of chips,

POY having no ADD

Imports started downstream

Growth of textile will be affected with high cost raw material & competition with RIL in

down stream.

With ADD in place & CFR IMP, MCPI will be more costly among three. PX-PTA

spread will be additional pressure.

RIL, once new PTA commissioned, is in more advantageous position to cater WR

market (70% of total), compared to MCPI/IOCL

Already many unit are closed down or under CDR like Alok Inds/

Rajashree/Modern Petrofils/ Raj Rayon/ Nakoda Ltd., Impact of ADD will adversely

impact their attempt to recover.

Emerging situation also deter future investment in this sector.

Petrochemicals

P- Xylene Outlook

Global Capacity growth projected at 8.2% during 2013 to 2018. A large portion is additional reform based investment with new condensate refinery configuration With new global capacity coming on stream , avg. utilization would dip sharply from peak of 89% in 2013 to 79% by 2015. Demand for P-Xylene in China from 6.1 MMT in 2012 to 12 MMT in 2017 will dominate P – Xylene trade. Enhanced demand will be met by Korean/ ME net exports (Korea from 1.4 to 5 MMT & ME from 1.9 to 4.5 MMT by 2017) Competitive dynamics will put pressure on merchant Xylene based production.

60%

65%

70%

75%

80%

85%

90%

95%

0

10

20

30

40

50

60

2012 2013 2014 2015 2016

TM

T

Capacity Production Consumption Utilisation

Petrochemicals

P- Xylene Outlook - India

-20

-10

0

10

20

30

40

50

60

2012-13 2013-14 2014-15 2015-16 2016-17

TM

T

Production Demand Imports Exports

P Xylene domestic demand to grow significantly in 2014-15 ( commissioning of RIL

PTA plant.

Capacity addition by OMPL 460 KT each in 14-15 & 15-16 ( 920 KT). Majority of

capacity will be supplied to upcoming PTA plant at Mangalore SEZ

RIL to double its Paraxylene capacity by 2016-17 at Jamnagar ( 2150 KTA. MMTPA)

By 2016-17, India become net exporter of PX by approx. 0.8 MMT.

Petrochemicals

Eastern India – Opportunity Knocks

Source: IOCL Analysis

Potential for

PX/PTA Unit –

Indian Oil

Paradip

Petrochemicals

Spread Data (Naphtha/PX/PTA/MEG)

USD/MT

For FY 11-12, FY 12-13 & FY 13-14 – PTA quotes is CFR China

For Apr –July’14 – PTA quotes is CFR India

-50

0

50

100

150

200

250

300

350

400

Avg (11-12)Avg (12-13)Avg (13-14) Apr-14 May-14 Jun-14 Jul-14 Aug-14

Naphtha-PTA Spread Naphtha - PX spread

PX-PTA Spread MEG -Naphtha Spread

Petrochemicals

IndianOil - Current Presence in Petrochemicals

India’s Second Largest Petchem Playeralue addition to downstream business

• Polyethylene

• Poly-propylene Polyolefins

• PTA

• LAB Aromatics

Surfactant F/s • MEG

• DEG

• TEG Glycols

Pro

du

cts

pro

file

LAB at Gujarat

($ 185 Million)

o 120 TMTPA capacity

plant commissioned in

2004

o 24% capacity of the

Indian industry

PX/PTA at Panipat

($682 Million)

• 553 TMTPA PTA

capacity plant

commissioned in 2006

• 14.3% capacity of the

industry

Polymer/Glycol

(Naphtha Cracker at Panipat)

($2585 Million)

Commissioned in 2010

Polymer

1250 TMTPA Capacity

19.2% Capacity of the Industry

Glycol

325 TMTPA Capacity

25 % Capacity of the Industry

Export: LAB to 21 countries, Polymer to 50 countries & Glycols to 12

countries

Petrochemicals

Current Presence in Petrochemicals

Indian Synthetic Rubber Ltd (ISRL)

JV PARTNERS:

IOC;

M/s Taiwan Synthetic Rubber Corp (TSRC);

M/s Marubeni, Japan

Feedstock:

Styrene and Butadiene

Capacity :

120TMTPA

Start of Operation:

December 2013

Petrochemicals 31

Initiatives Planned for Future Growth

DEVELOPMENT OF PCPIRs (PETROLEUM, CHEMICALS &

PETROCHEMICALS INVESTMENT REGIONS)

• PCPIR approved at Paradip with IndianOil as Anchor tenant

• IndianOil to set up Polypropylene Unit & Ethylene derivative

Complex based on propylene & ethylene availability from

Refinery FCC

• Accelerated development of downstream petrochemical industry

for polymer processing like packaging, fibre & filament,

automotive, health care & personal care

• Creation of employment opportunities

• Impetus to petrochemical demand growth in Eastern India

where petrochemical consumption is the lowest.

Petrochemicals

C S Shankar

General Manager (Petrochemicals Marketing)

IndianOIl Corporation Ltd