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Vision 2010Vision 2010New OrleansNew Orleans

SingaporeSingapore ShanghaiShanghai HoustonHouston New YorkNew York LondonLondon DsseldorfDsseldorf DubaiDubai

PolypropylenePolypropylenePolypropylene

Bob DennettBob DennettSenior ConsultantSenior Consultant -- PolyolefinsPolyolefins

[email protected]@cmaiglobal.com

PREDATORPREDATOR PreyPreytoto ??

Vision 2010

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Mill ion Metric TonsMillion Metric Tons

Global Polypropylene Demand GrowthGlobal Polypropylene Demand Growth

Discovery & IdentificationDiscovery & Identification

Product RealizationProduct Realization

ProductProduct

EvolutionEvolution

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PP Realization

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Current & Future for PolypropyleneCurrent & Future for Polypropylene

Propylene SituationPropylene Situation

Polypropylene SupplyPolypropylene Supply

Polypropylene DemandPolypropylene Demand

Global Trade & EconomicsGlobal Trade & Economics SummarySummary

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Propylene Supply ProfilePropylene Supply Profile -- UniqueUnique

Steam Cracker or

Olefin Plant

Steam Cracker or

Olefin PlantEthaneEthane

PropanePropaneOther propylene consumers:Other propylene consumers:

acrylonitrile, propylene oxide, acrylicacrylonitrile, propylene oxide, acrylicacid, oxoacid, oxo--alcoholsalcohols

PG & CGPG & CG

PropylenePropylene

MarketsMarkets

Propane to LPGPropane to LPG

Cumene, OligomersCumene, Oligomers

IsopropanolIsopropanol

FCCFCC

UnitUnit

AlkylationAlkylation

UnitUnit

IsobutaneIsobutane

High Octane AlkylateHigh Octane Alkylate

GasolineGasoline

Other Fuel UsesOther Fuel Uses

Purification

Splitter Unit

Purification

Splitter Unit

Refining IndustryRefining Industry

Chemical IndustryChemical Industry

GasGas

OilOil

RGRG

PropylenePropylene

MarketMarket

CrudeCrude

OilOil

MotorMotor

GasolineGasolineMotorMotor

GasolineGasoline

NaphthaNaphtha

EthyleneEthylene

& Olefins& Olefins

PolypropyleneUnit

Polypropylene

Unit

InjectionInjection

Molding,Molding,

Fibers,Fibers,

FilmsFilms

Other

Technologies

Other

Technologies

Propane DehydroPropane Dehydro

MetathesisMetathesis

OtherOther

CrudeCrude

UnitUnit

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WorldWorldWorld

2008 PG/CG Propylene Supply/Demand2008 PG/CG Propylene Supply/Demand

SupplySupply DemandDemand

Production =Production =

72.7 Million Metric Tons72.7 Million Metric Tons

Domestic Demand =Domestic Demand =

72.0 Million Metric Tons72.0 Million Metric Tons

OthersOthers

7%7%

Stm. CrackersStm. Crackers

63%63%

FCC/SplittersFCC/Splitters

30%30%

OthersOthers

3%3%

Acrylonit rileAcrylonit rile

8%8%

CumeneCumene4%4%

Acryl icAcryl ic

Ac idAc id

4%4%

Oxo Alc.Oxo Alc.

7%7%

PropylenePropylene

OxideOxide

8%8%

PPPP

66%66%

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Chemical & Polymer GradeChemical & Polymer Grade

Propylene SupplyPropylene Supply

Stm.

Crackers56%

44%44%

Stm.

Crackers

58%58%

9%9%

OnOn--PurposePurpose

33%33%

Stm.

Crackers

63%29%29%

OnOn--PurposePurpose

8%8%

Stm.

Crackers59%

18%18%

OnOn--PurposePurpose23%23%

2009 Estimates2009 Estimates

22%22%


Stm.Crackers

73%

Stm.

Crackers60%

FCC/FCC/

SplittersSplitters

38%38%


FCC/FCC/

SplittersSplitters

FCC/FCC/SplittersSplitters

FCC/FCC/

SplittersSplitters

FCC/FCC/

SplittersSplitters

FCC/FCC/

SplittersSplitters

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What about U.S. PROPYLENEWhat about U.S. PROPYLENE

Supply Today?Supply Today? Derivative operating rates reduced withDerivative operating rates reduced with

weak demand.weak demand. Steam cracker production reduced by 1/3Steam cracker production reduced by 1/3

with light feedslates and shutdowns.with light feedslates and shutdowns.

Refinery production reduced by 8 to 10Refinery production reduced by 8 to 10

percent with lower refinery rates.percent with lower refinery rates.

Inventories lowInventories low Tight supply/demand globally is improvingTight supply/demand globally is improving

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Cracker shutdowns decreaseCracker shutdowns decrease

propylene productionpropylene production Middle East utilizingMiddle East utilizing

advantaged lightadvantaged lightfeedsfeeds

High cost naphthaHigh cost naphtha

crackers in Westcrackers in WestEurope and Asia willEurope and Asia willstruggle with lowstruggle with lowmarginsmargins

North AmericaNorth Americaalready rationalizingalready rationalizinghigh cost unitshigh cost units

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Refinery Propylene SituationRefinery Propylene Situation Refiners increase dieselRefiners increase diesel

production flexibility asproduction flexibility as

gasoline requirementsgasoline requirementsdeclinedecline

Limited investment forLimited investment forFCC units in NorthFCC units in North

America and WEPAmerica and WEP Propylene from refinersPropylene from refiners

will stagnate or decreasewill stagnate or decreasein developed regionsin developed regions

Developing regions supplyDeveloping regions supplyincreasing with newincreasing with newrefineries.refineries.

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Cents Per PoundCents Per Pound

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What is the U.S. PROPYLENEWhat is the U.S. PROPYLENE

Longer Term View ?Longer Term View ?

Demand gradually improves with economicDemand gradually improves with economic

recoveryrecovery..housing and automobiles?..housing and automobiles? Business economics may force some steamBusiness economics may force some steam

cracker and refinery closures; further decreasingcracker and refinery closures; further decreasingcapacitycapacity

New PDH unit in 2010 may not be theNew PDH unit in 2010 may not be thelastlast..current and projected economics are good...current and projected economics are good.

Prices remaining higher than ethylene or at best atPrices remaining higher than ethylene or at best at

parity.parity. All derivative unit operating rates impacted byAll derivative unit operating rates impacted by

continued new capacity in Middle East and Asia.continued new capacity in Middle East and Asia.

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ForecastForecast

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Million Metric Tons

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Propylene ConclusionPropylene Conclusion

Global SuppliesGlobal Supplies increasingincreasingwith new unit startups inwith new unit startups inMiddle East and AsiaMiddle East and Asia

The Middle EastThe Middle East will emergewill emergeas a global propyleneas a global propylenesupplier (derivatives)supplier (derivatives)

Alternative technologiesAlternative technologies forforpropylene are here to staypropylene are here to stay

Propylene pricesPropylene prices will bewill beimpacted by onimpacted by on--purposepurposepropylene; equal value, butpropylene; equal value, butmore likely greater onmore likely greater onaverage versus ethyleneaverage versus ethylene

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What is the Current Story for U.S.What is the Current Story for U.S.

Polypropylene ?Polypropylene ? PP domestic demand in U.S. and Canada hasPP domestic demand in U.S. and Canada has

been bad; lowest levels since 2001been bad; lowest levels since 2001

The poor demand resulted from higher relativeThe poor demand resulted from higher relativepolymer prices (P/E ratio unfavorable) and thepolymer prices (P/E ratio unfavorable) and theeconomic downturneconomic downturn

Exports were strong in the 1Exports were strong in the 1stst

9 months of 2009,9 months of 2009,but the high price of propylene has brought muchbut the high price of propylene has brought muchof the exports to a haltof the exports to a halt

Resin producers did an excellent job in optimizingResin producers did an excellent job in optimizing

inventory build in 2009 and inventories have beeninventory build in 2009 and inventories have beenkept around 30 days saleskept around 30 days sales

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PolypropylenePolypropyleneNorth America, Percent Change 2009 vs. 2008North America, Percent Change 2009 vs. 2008

-125Inventory change

MM LBS . YTD 200982.9

Avg. Op. Rate- YTD 09

--3.03.0Total SalesTotal Sales30.530.5Exports (est.)Exports (est.) --7.57.5Domestic SalesDomestic Sales--1.21.2Total SupplyTotal Supply

--18.318.3ImportsImports--1.01.0ProductionProductionPPPP

Sources: ACC, Plastics Division; Govt Trade DataSources: ACC, Plastics Division; Govt Trade Data

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PP: Demand And Exports AffectedPP: Demand And Exports Affected

by High Pricesby High Prices

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Regardless of Exports, Domestic DemandRegardless of Exports, Domestic Demand

BadBad How Are Producers Coping?How Are Producers Coping?

Discipline!Discipline!

Only producing whatOnly producing whatis going to beis going to be

consumedconsumed

Limiting inventoryLimiting inventorybuild upbuild up

Controlling feedstockControlling feedstock

purchasespurchases

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Global Plastics Consumption 2009Global Plastics Consumption 2009

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Film & SheetFilm & Sheet

23%23%

Injection MoldingInjection Molding

35%35%

Pipe & ProfilePipe & Profile3%3%

Blow MoldingBlow Molding1%1%

FiberFiber

16%16%

RaffiaRaffia

15%15%

OtherOther7%7%

2009 World PP Demand = 44.4 Mil lion Metric Tons2009 World PP Demand = 44.4 Mill ion Metric Tons

Versatili ty Differentiates PP From Other Polymers

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Polypropylene Moving ForwardPolypropylene Moving Forward ..

Polypropylene is no longer cheap:Polypropylene is no longer cheap:

-- must compete based on properties and featuresmust compete based on properties and features

rather than pricesrather than prices-- may see some reverse polymer substitutionmay see some reverse polymer substitution

Oversupply also expected for the next few years;Oversupply also expected for the next few years;

producers faced with low operating rates orproducers faced with low operating rates orrationalizationrationalization

No region enjoys a marked cost advantage versusNo region enjoys a marked cost advantage versus

others. Trade to become very competitiveothers. Trade to become very competitive

NonNon--tariff barriers likely to delay arrival of significanttariff barriers likely to delay arrival of significant

quantities of imported resins into North Americaquantities of imported resins into North America

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North AmericaNorth America South AmericaSouth America

Asia/Paci ficAsia/Paci fic West EuropeWest Europe

C. Europe/CISC. Europe/CIS

Africa/Middle EastAf rica/Middle East

ForecastForecast

Capacity: How Much is too Much?Capacity: How Much is too Much?

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20022002CapacityCapacity ShareShare

CompanyCompany (000's MT)(000's MT) %%

BasellBasell 62076207 16.7016.70

BP ChemicalBP Chemical 22422242 6.036.03

Sinopec GroupSinopec Group 21062106 5.675.67

ExxonMobilExxonMobil 17721772 4.774.77

ATOFINAATOFINA 17121712 4.614.61BorealisBorealis 14001400 3.773.77

Reliance IndustriesReliance Industries 12001200 3.233.23

DSMDSM 985985 2.652.65

Formosa PlasticsFormosa Plastics 980980 2.642.64

PetroChinaPetroChina 880880 2.372.37TotalTotal 1948419484 52.4352.43

Total CapacityTotal Capacity 3715937159

Top Global Polypropylene Producers/MarketersTop Global Polypropylene Producers/Marketers

(Based on Estimate of Marketed Capacity)(Based on Estimate of Marketed Capacity)

20142014CapacityCapacity ShareShare

CompanyCompany (000's MT)(000's MT) %%

LyondellBasellLyondellBasell 72587258 10.3010.30

Sinopec GroupSinopec Group 50505050 7.177.17

SABICSABIC 37303730 5.295.29PetroChina GroupPetroChina Group 44134413 6.266.26

Reliance IndustriesReliance Industries31953195 4.544.54

ExxonMobilExxonMobil

27502750 3.903.90Borealis/BorougeBorealis/Borouge

27152715 3.853.85Total PCTotal PC

26352635 3.743.74

IneosIneos

22732273 3.233.23Formosa PlasticsFormosa Plastics

19101910 2.712.71TotalTotal 3592935929 51.0051.00

Total CapacityTotal Capacity 7045170451

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World Polypropylene Demand by RegionWorld Polypropylene Demand by Region

10.4%10.4%

4.5%4.5%

6.5%6.5%

8.5%8.5%

7.9%7.9%

5.1%5.1%

6.2%6.2%

2.7%2.7%

7.0%7.0%

3.6%3.6%

2009 Total Demand = 44.4 Mil lion Metric Tons2009 Total Demand = 44.4 Mil lion Metric Tons

2014 Total Demand = 58.0 Mil lion Metric Tons2014 Total Demand = 58.0 Mil lion Metric Tons

Global PP Growth Rate = 5.5%Global PP Growth Rate = 5.5%

% AAGR, 2009% AAGR, 2009--1414

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% AAGR, 2009% AAGR, 2009--1414

Total Domestic Demand Growth Rate = 3.6%Total Domestic Demand Growth Rate = 3.6%

2009 Domestic Demand = 6.5 Mil lion MT2009 Domestic Demand = 6.5 Mil lion MT

2014 Domestic Demand = 7.7 Mil lion MT2014 Domestic Demand = 7.7 Mil lion MT

3.83.8

4.04.0

3.13.1

3.43.4

3.63.6

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Where is Production and Consumption?Where is Production and Consumption?

WorldWorld

North AmericaNorth America

West EuropeWest Europe

Middle EastMiddle EastAsiaAsia

OthersOthers

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PeakPeak

ForecastForecast

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Mill ion Metric TonsMillion Metric Tons

XX

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SummarySummary Strategic IssuesStrategic Issues Overcapacity is here to stayOvercapacity is here to stay

Profitability will sufferProfitability will sufferCan North America do well? Isolation &Can North America do well? Isolation &

discipline keydiscipline key

Cost correction (P/E ratio) helps long termCost correction (P/E ratio) helps long termdemand growth prospects of industrydemand growth prospects of industry

However, PP no longer a cheap polymerHowever, PP no longer a cheap polymer

New trade patterns emerging; tradeNew trade patterns emerging; tradeexpected to be very competitiveexpected to be very competitive

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In An Oversupply Situation 2009In An Oversupply Situation 2009--20112011

Plastics Sales RepPlastics Sales Rep

BB

UU

YY

EE

RR

SS

InventoryControlInventoryControl

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HoustonHoustonHouston

LondonLondonLondon

SingaporeSingaporeSingapore

DubaiDubaiDubai

New YorkNew YorkNew York

ShanghaiShanghaiShanghai

DusseldorfDusseldorfDusseldorf

THANK YOU !Contact any CMAI location to assist in your

petrochemicals and plastics market analysis

THANK YOU !Contact any CMAI location to assist in your

petrochemicals and plastics market analysis

CHEMICAL MARKET ASSOCIATES, INC.

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