SPE SPE - - ABC ABC - - October, 2009 October, 2009 Singapore Singapore Shanghai Shanghai Houston Houston New York New York London London D D ü ü sseldorf sseldorf Dubai Dubai Howard Rappaport Howard Rappaport Global Business Director Global Business Director Plastics Plastics [email protected][email protected]SPE SPE – – ABC ABC October, 2009 October, 2009 Economy > Energy > Feedstocks & Polymer Markets Economy > Energy > Feedstocks Economy > Energy > Feedstocks & Polymer Markets & Polymer Markets
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SPE SPE -- ABC ABC -- October, 2009October, 2009SingaporeSingapore ShanghaiShanghai HoustonHouston New YorkNew York LondonLondon DDüüsseldorfsseldorf DubaiDubai
Howard RappaportHoward RappaportGlobal Business Director Global Business Director
Raw Material PricesRaw Material PricesOperating CostsOperating Costs
Supply/DemandSupply/DemandEconomyEconomyUtilization RatesUtilization RatesLoss of Available Capacity (outages)Loss of Available Capacity (outages)Inventory Trends (resin, finished goods, etc.)Inventory Trends (resin, finished goods, etc.)Exports / Imports Exports / Imports
Other DynamicsOther DynamicsPerception / Anticipation of New CapacityPerception / Anticipation of New CapacityDesire for Market ShareDesire for Market SharePrices of Competitive MaterialsPrices of Competitive MaterialsMarket Leadership Market Leadership Market Momentum Market Momentum Natural Disasters / Political TurmoilNatural Disasters / Political Turmoil
Any of theseAny of thesefactors can,factors can,and willand willinfluence influence priceprice……
SPE SPE -- ABC ABC -- October, 2009October, 2009
Global Plastics Consumption 2009Global Plastics Consumption 2009
SPE SPE -- ABC ABC -- October, 2009October, 2009
Wood
Aluminum
PET
Glass
PVC
Steel
PS
LL/LDPE
Paper
ABS
HDPE
Plastics Compete with Other Plastics & Traditional Materials…
PP
Concrete
SPE SPE -- ABC ABC -- October, 2009October, 2009
EnergyEnergy Base ChemicalsBase ChemicalsPlasticsPlastics
Volatile Energy Prices Impact The ChainNon-DurablesNon-Durables
ConsumersConsumers RetailRetail
Energy Price Fluctuations
SPE SPE -- ABC ABC -- October, 2009October, 2009
ECONOMYECONOMY& ENERGY& ENERGY
SPE SPE -- ABC ABC -- October, 2009October, 2009
Reality Check-When the
Consumer stops…
Reality Check-When the
Consumer stops…
… it all grinds to a halt!… it all grinds to a halt!
ConsumerConsumer
Retail Retail Finished Finished GoodsGoods
CompoundsCompounds
PetrochemsPetrochems
EnergyEnergy
SPE SPE -- ABC ABC -- October, 2009October, 2009
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
90 92 94 96 98 00 02 04 06 08 10 12 14
Economic Growth Comparison
World N. America S. America W. Europe SE Asia NE Asia
Forecast
Percent (%) Change
SPE SPE -- ABC ABC -- October, 2009October, 2009
Positive Factors
Risks & Threats
Higher Crude Oil
Prices
Low Consumer & Business Spending
Geo-politics
Reduced Capital & Foreign
Investment
Government Rescue & Spending
Financial & Monetary Policies
Business & Consumer
Expectations
Low
Inflation
SPE SPE -- ABC ABC -- October, 2009October, 2009
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
08 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 09 Feb Mar Apr May Jun Jul
U.S. Daily Ethylene Cash CostsU.S. Daily Ethylene Cash Costs Dollars Per Metric TonDollars Per Metric Ton
U.S. Daily Ethylene Cash CostsU.S. Daily Ethylene Cash Costs
SPE SPE -- ABC ABC -- October, 2009October, 2009
Middle East Ethylene Capacity Middle East Ethylene Capacity Additions 2008Additions 2008--20092009
SPE SPE -- ABC ABC -- October, 2009October, 2009
ForecastForecast
SPE SPE -- ABC ABC -- October, 2009October, 2009
U.S. Ethylene ConclusionsU.S. Ethylene ConclusionsOversupply and weak demand result in a long marketOlefins markets clearly in the trough, margins squeezedHeavy feed crackers challenged by crude oil prices vs. natural gasNorth America ethylene derivative exports supported by favorable crude-to-gas ratioSignificant capacity reductions are inevitable
Oversupply and weak demand Oversupply and weak demand result in a long marketresult in a long marketOlefins markets clearly in the Olefins markets clearly in the trough, margins squeezedtrough, margins squeezedHeavy feed crackers challenged Heavy feed crackers challenged by crude oil prices vs. natural by crude oil prices vs. natural gasgasNorth America ethylene North America ethylene derivative exports supported by derivative exports supported by favorable crudefavorable crude--toto--gas ratiogas ratioSignificant capacity reductions Significant capacity reductions are inevitableare inevitable
Total PETotal PEHDPEHDPELLDPELLDPELDPELDPEU.S. and Canada, Percent Change YTD July 2009 vs. YTD July 2008U.S. and Canada, Percent Change YTD July 2009 vs. YTD July 2008
--13.513.5 --11.411.4
--9.89.8
PE: Industry PerformancePE: Industry Performance
SPE SPE -- ABC ABC -- October, 2009October, 2009
PE Demand Year Over YearPE Demand Year Over YearU.S./Canada Polyethylene DemandU.S./Canada Polyethylene Demand
Percent Change, Year over YearPercent Change, Year over Year %AAGR %AAGR %AAGR%AAGREnd UseEnd Use 20052005 20062006 20072007 20082008 20092009 '04'04--'09'09 '09'09--'14'14
Top Global PE Top Global PE Producers 2013Producers 2013
8,913
8,407
6,748
5,735
5,210
8.47
7.99
6.41
5.45
4.95
TotalTotal 35,01335,013 33.2633.26
Global Producer Market ShareGlobal Producer Market Share
CompanyCapacity
(-000- MT)% Capacity
Dow Chemical
ExxonMobil
LyondellBasell
SABIC
Chevron Phillips
Top Global PE Top Global PE Producers 2008Producers 2008
7,932
7,165
5,313
4,200
3,253
9.91
8.95
6.64
5.25
4.06
TotalTotal 27,86227,862 34.8134.81
Share
SPE SPE -- ABC ABC -- October, 2009October, 2009
North America PE Chain MarginsNorth America PE Chain Margins
ForecastForecast
SPE SPE -- ABC ABC -- October, 2009October, 2009
PE TakePE Take--AwaysAways•• PE prices less volatile through 2010 than in PE prices less volatile through 2010 than in
recent past.recent past.•• YTD margins stronger than expected due to YTD margins stronger than expected due to
robust exports, capacity shutdowns / turndowns robust exports, capacity shutdowns / turndowns and unusual producer market / production and unusual producer market / production disciplinediscipline
•• NAM PE cost advantage strong vs other regions NAM PE cost advantage strong vs other regions ex. MDEex. MDE
•• Despite delays and shutdowns, unprecedented Despite delays and shutdowns, unprecedented oversupply conditions will drive down operating oversupply conditions will drive down operating rates and margins beginning 4Q 09.rates and margins beginning 4Q 09.
•• The cycle trough is expected from 4Q 09 The cycle trough is expected from 4Q 09 -- 2010, 2010, global recovery evident by 2011global recovery evident by 2011
Propylene & PP Propylene & PP –– Key Points Key Points •• Propylene industry in transition; moving from byPropylene industry in transition; moving from by--product to product to ““own own
productproduct””•• Propylene & PP no longer cheap; must compete based on Propylene & PP no longer cheap; must compete based on
features rather than pricesfeatures rather than prices•• Oversupply expected in the next few years; same issues to be Oversupply expected in the next few years; same issues to be
faced as in the ethylene/PE industryfaced as in the ethylene/PE industry•• However, no region enjoys a marked cost advantage versus However, no region enjoys a marked cost advantage versus
others. Trade to become very competitiveothers. Trade to become very competitive•• Asian imports saved the first half of the year for producers; asAsian imports saved the first half of the year for producers; as
new projects start up in second half of the year, market to movenew projects start up in second half of the year, market to moveto oversupplyto oversupply
•• Prices to be sustained by higher energyPrices to be sustained by higher energy
SPE SPE -- ABC ABC -- October, 2009October, 2009
Propylene Supply SourcesPropylene Supply Sources
Other Technologies
Steam Cracker or Olefin Plant
Ethane Ethane PropanePropane Other propylene consumers: Other propylene consumers:
