An ICIS pricing Presentation
Salmon Aidan Lee 李沭福李沭福李沭福李沭福
Senior Editor
Asia Paraxylene & Terephthalic Acid
ICIS pricing
To Rise Up, Look Down:To Rise Up, Look Down:The growing importance of The growing importance of
downstream markets on PX pricingdownstream markets on PX pricingKorea & Japan, October 2008Korea & Japan, October 2008
An ICIS pricing Presentation
TodayToday’’s Agendas Agenda
Disclaimer: All information from www.icis.com, www.icis.com/pricing and ICIS affiliated units. ICIS
pricing accepts no liability for commercial decisions based on information given in this presentation.
The view(s) expressed herewith are those of the presenter alone and does not necessarily represent
the view(s) of ICIS, Reed Elsevier, Reed Business or any affiliated units.
• The Energy Factor on PX• Energy, Aromatics and PX• PX and the downstream markets• Watershed years for Asian PTA and PX sectors• The PTA and polyester rebellions• The start of the PX Dilemma• The PTA (and PX) Nightmare• PX vs PTA vs Polyester: Must we all fight?• The need for a long-term solution• Conclusions
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The Energy Factor on PXThe Energy Factor on PX
• For a long time, single most-important factor in determining PX
pricing in Asia and globally
• Most PX (and aromatics) producers are oil companies
• Aromatics (toluene and xylene) used in gasoline blending, thus close
association with energy price trends
• US Gulf a major production base of PX
• Asia’s major PX producers all oil companies
• Asia’s use of naphtha as the cracking feedstock; naphtha’s close link
to energy price trends
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Energy & Aromatics: WeEnergy & Aromatics: We’’re Familyre Family
• Price trend graph on naphtha, toluene, xylenes and PXTrend follows energy prices
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Downstream: Lady in WaitingDownstream: Lady in Waiting
• PX in short supply in Asia since 1990s
• Tight supply worsened from 2006 as more PTA starts up
• PTA and downstream markets influence on PX was there, but never
superseding energy trends
• Main reason was PTA and polyester still generally healthy enough to
accept high PX
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PX & downstream: WhoPX & downstream: Who’’s boss?s boss?
PX, PTA & Fibres: to each his own
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2006: Watershed Year for PTA2006: Watershed Year for PTA
• Rise of Chinese PTA producers
• Rise of Chinese way of doing business
• Loss of competitiveness of other Asian PTA producers
• PTA overcapacity & oversupply become reality
• Asian PTA makers start making losses for first time ever
• PTA sellers buy highest-price PX, sell lowest-priced PTA
• Trouble started to brew
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New PTA CapacitiesNew PTA Capacities
Yisheng I&II, Ningbo 1300K
Hualian Sunshine, ShaoxingNo1-3, 1800K; No4 (TBC)
Siam Mitsui, Map Ta Phut 500K
NPC I&II,Iran 350K
IOC, India 550K
Polyprima, Indonesia (debottlenecking)
OPC, Pudong600K
Ningbo MCC 600K(I); 1000KT(II)
FCFC, Ningbo 600K
Liaoyang, 530K
Indorama, Map Ta Phut, 700K
XLP, Zhangzhou, 1500K
YPC, Nanjing 600K
RIL, Hazira 640K
Jinan Zhenghao, Shandong 500K
BP Zhuhai II, 900K; No3 (TBC)
MCC India II 800K
Tuntex Thailand (debottlenecking)
Dalian 1500K
Yizheng III, 1000K
Hanbang, Jiangyin 600K
Sinopec Jinshan 700K
Tae Kwang, Ulsan 650K (500K)
FCFC, Loong-der400K
XLP, Xiamen (debottlenecking)
Jialong, Shishi 600KT
BP Taicang (TBC)
Chongqing Fuling, 600K
Three TBC projects: Xiang Sheng, Cifu & Yuan Dong
Tongkun/KP, Zhapu (TBC)
Samnam, Qingdao (TBC)
Samsung Petchem, Korea (TBC)
IOC India 560K
ONGC India TBC
RIL India 1000K
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PTA: The Downstream RebelsPTA: The Downstream Rebels
PTA no longer follows PX
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Polyester: The Earlier RebellionPolyester: The Earlier Rebellion
• Serious polyester overcapacity since 2003, margins squeezed by
feedstock costs and stiff competition
• Rebelled against feedstock producers
• Caused sharp price decline every few months
• Since 2006, PTA sandwiched between polyester & PX
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PTA & Polyester: Downstream RulesPTA & Polyester: Downstream Rules
• Graph to show how polyester brings about price crashes of PTA
between Jan 2004 and Dec 2006
Downstream brings down PTA
Downstream ignores PTA
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2007: Start of PX Troubles2007: Start of PX Troubles
• Rising energy and naphtha prices
• PTA producers start to cut back on operating rates
• Occasional drop in demand for PX
• Downstream flexes muscles over influence of PX price trends
• Breakdown of the Asian contract price system
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PTA & PX: Vicious Cycle since PTA & PX: Vicious Cycle since
20062006PTA ops resume
PX price fall
Temp PX supply glut PTA ops
cut
Squeezed PTA
margins
High PX prices
Tight PX supply
PTA overcapacity
PTA margins return
Vicious cycle
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2008: Watershed Year for PX2008: Watershed Year for PX
• Record-high energy and naphtha prices
• Squeezed margins for PX producers
• Failure to transfer costs to PTA sector
• Asian PX producers make losses for the first time
• Massive cutbacks on PX ops not a viable option
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PX: Lost Control Over PX: Lost Control Over
DownstreamDownstream
PX loses control over downstream trends
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The Reality for PX ProducersThe Reality for PX Producers
• Polyester & PTA overcapacity not necessarily a boon to PX sellers
• Squeezed – or lack of – margins “moving from downstream to
upstream”
• Energy prices may correct downwards but still high
• Double whammy necessitates recognition of “The Power of
Downstream”
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PX Looks Down: Some actionsPX Looks Down: Some actions
• Japanese producers start to understand polyester & downstream
• Western producer hangs on to ACP system, tries to find consensus
with PTA and polyester sectors
• Korean producers increase participation in open-market trading to
get their views across
• Some producers look to more spot price-related formulae to hedge
against uncertainties
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The Years of NightmaresThe Years of Nightmares
• 2006: Beginning of the “PTA Nightmare”
• 2007: Intensification of the “PTA Nightmare”
• 2008: Start of the “PX Dilemma”
• 2009: The “PX Dilemma Becomes a Nightmare”?
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2009: The PX Nightmare?2009: The PX Nightmare?
• Based on assumption that PX will go into oversupply
• Based on assumption that new PTA capacities will be delayed
PX market to flip from sellers’ to buyers’market in 2009
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New PX CapacitiesNew PX Capacities
TPPI No1 (550K) & No2, Indonesia
Zhuhai, China (TBC)
Qingdao Lidong, China 700K
Zhenhai, China 650K
FCFC No3, Taiwan 700K
IOC, India 400K
RIL, India (debottlenecking)
Liaoyang, China 450K
Yangzi, China (debottlenecking)
Sinopec Tianjin, China
(debottlenecking)
ExxonMobil, Japan(debottlenecking)
Japan Energy, 420K
Thai PX, Thailand (debottlenecking)
ASMB, Malaysia (debottlenecking)
Borzouyeh, Iran 750K
CNOOC/Kings Grp, China 800K
ExxonMobil, Thailand (debottlenecking)
Sinopec/ExxonMobil/Saudi Aramco, China 700K
Kuwait Aromatics, 820K Sinopec Jinling 600K & Jinshan 600K, China
SK Energy,China (TBC)
Fujia Dahua,China 800K
Ras Tanura, Saudi Arabia 460K
S-Oil, Korea 900K
Sinopec Luoyang 450K, China
PetroChina Urumqi, China, 1000K
Dragon Grp, China 800K
PetroChina Sichuan, China 600K
Sinopec Hainan, China 600K
GPPC-led Kuokuang, Taiwan 800K
Jurong Aromatics, Singapore 800K
PTT Thailand 616K
PetroVietnam 480K
Essar & Hindustan, India (TBC) Aromatics Oman, 900K
Takreer AbuDhabi, 800K
Total/Saudi Aramco, Saudi Arabia (TBC)
ONGC Mangalore, India 905K
IOC, India, 3 lines 2220K
RIL, India 2600K
Cepsa/Hyundai Oilbank, Korea 600K
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PTA PTA vsvs PX: PX wins 2006PX: PX wins 2006--0808
•PTA ~ 2005 to mid-2008:
– 16 new lines (excluding debottleneckings)
– Average capacity of 546K tonnes/year
•PX ~ 2005 to mid-2008:
– Only eight new lines (excluding debottleneckings)
– Average capacity of 561K tonnes/year
•Based only on new PTA capacities 2005 to date*:
– Another 5.85 million tonnes/year of PX needed
– But only 4.49 million tonnes/year* added
•Balance possible perhaps only in end-2009* On annualised basis; not counting debottleneckings
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PTA PTA vsvs PX: PTA wins in endPX: PTA wins in end--2009?2009?
• End-2009 to 2010: new PTA capacities starting up…
� Fujian Jia Long: 600K *
� Dragon Group / Xiang Lu: 1.5m *
� Jiangyin Hanbang: 600K *
� Yisheng Dahua (Dalian): 1.5m *
� Chongqing Fuling: 600K *
� FCFC Loong-der: 400K *
� MCC India: 800K *
� Total: 6m tonnes/year *
* On annualised basis; not counting debottleneckings
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PTA PTA vsvs PX: PTA wins in endPX: PTA wins in end--2009?2009?
• End-2009 to 2010: New PX capacities starting up…
� Total: 17.55m tonnesyear*
� ExxonMobil / Sinopec and
affiliates in Fujian: 800K*
� Petrochina Chengdu: 600K*
� Jinling Petchem: 600K*
� Oman: 900K*
� Takreer Abu Dhabi: 800K*
� Kuwait : 820K*
� Cepsa / Hyundai: 850K*
� S-Oil: 900K*
� Shanghai Petchem: 600K*
� Urumqi Petchem: 1m*
� CNOOC Huizhou: 800K*
� Fujia Dahua: 700K*
� Dragon Group: 800K*
* On annualised basis; not counting debottleneckings
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PTA PTA vsvs PX: postPX: post--20102010
• At least ten more PTA lines planned with capacities 600K-1.5m
tonnes/year each
• At least 15 more PX lines planned
• BUT…
� Will all the lines come onstream as planned?
� If no, will PX market flip into sellers’ market again?
� What about polycondensation, when oversupply recurs and
squeezes PTA margins from bottom again?
� What would be the consequence for PX and the reactions?
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PTA PTA vsvs Polyester: PTA keeps losingPolyester: PTA keeps losing
•End-2007, approx 21-22m* polycondensation capacity in
China
� needs around 19.5m* of PTA
•End-2007, around 43-44m* of PTA capacity worldwide
(38-39m* in Asia, including around 10.6m* in China)
�China satisfies >50% of own PTA needs
�Rate of PTA capacity increase faster than polyester
capacity increase
�Imported PTA facing more competition from local Chinese
PTA (price, taxes, geographical / logistical etc advantages)
*calculated in tonnes/year and on an annualised basis
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PX & downstream: CanPX & downstream: Can’’t we all win?t we all win?
Oversupply in PX may not last beyond two years;
oversupply of PTA may not last beyond two years;polyester capacities also expected to keep increasing
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The Need for LongThe Need for Long--term Solutionterm Solution
• Buyers and/or sellers’ markets no longer last long
• Downstream factors as important as upstream factors in PX pricing
• Holistic approach should be the way to go
• Long-term solution:
� Downstream and upstream voices need to be heard
� ACP system may collapse, but should preferably be preserved
for stability and sustainability with modifications
� Own reality check every 1-2 years by each sector
� References to price mechanism which shows the real market
situation
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ICIS: Part of the SolutionICIS: Part of the Solution
� More than 25 years of experience in petrochemicals
� Global reach, including China, Singapore & India in Asia
� Editor has 8 years of experience watching this chain
� Prices used by biggest corporations in Taiwan, China and rest of
the world
Independent & thus fair
Rigorous & thus accurate
Experienced & thus trustworthy
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ConclusionsConclusions
• What worked previously for PX producers may no longer work
• Focus only on energy sector not wise, broad-based, holistic
approach needed
• Recognition of “The Power of the Downstream”
• Recognition of changed market dynamics & the Rise of China
• ICIS could be part of this solution
• Concerted and pragmatic efforts from all sectors needed to find
long-term solution
…because petrochemical plantsare for the long term
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Some wise wordsSome wise words……
Know thyself and thy enemy;Know thyself and thy enemy;
A thousand battles, a thousand victoriesA thousand battles, a thousand victories
Sun TzuSun Tzu
知己知彼
知己知彼
百戰百勝
百戰百勝
孫子
孫子
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Thank You
謝謝
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