Global PE Nick Vafiadis Director Polyolefins North America Foro PEMEX Petroquimica 2011 Singapore Shanghai NewPetroquimica York London Düsseldorf ForoHouston PEMEX 2011 Dubai Global PE Demand Growth Key Assumptions • PE resin remains cost competitive which supports global demand growth. Global demand ~ 11 kg/capita consumption- developing economies drive growth to ~ 13 kg/capita by 2015 • LLDPE: New product opportunities continue to develop ex. Mlldpe is growing through new uses such as displacing EVA’s, and film equipment increasingly designed to accommodate LLDPE. Also stand up pouches continue to gain market share • LDPE survives as no other material duplicates properties: (autoclave)…. Extrusion coating and high EVA’s • HDPE demand benefits from reverse substitution away from high cost PP. Ex… yogurt cups, stadium cups etc…. • Environmental concerns continue to dampen global demand growth for some large use end markets such as carry out bags etc…. Foro PEMEX Petroquimica 2011 primarily Global Total PE Growth vs. GDP Percent Change, % 14 Total PE Demand Growth 10-15 = 5.4% 12 10 8 6 4 2 0 -2 -4 -6 -8 2000 2002 2004 2006 2008 2010 2012 GDP HDPE LLDPE LDPE TotPE Foro PEMEX Petroquimica 2011 2014 Uneven Demand Growth 16% 30% 7% % AAGR 10-15 NAM = 2.8 SAM = 6.0 WEP = 2.6 NEA = 7.4 World = 5.4 20% 27% Total Global Demand 2010 = 72.5 Million Metric Tons North America South America West Europe Northeast Asia Foro PEMEX Petroquimica 2011 Other World PE Demand Year Over Year World Polyethylene Demand End Use Percent Change, Year over Year 06 07 08 09 10 %AAGR '05-„10 %AAGR „10-'15 Film & Sheet 5.1 6.0 -3.9 2.8 5.8 3.1 5.3 Injection Molding 4.2 6.0 -4.8 5.0 5.6 3.2 5.6 Pipe & Profile 8.8 4.6 -2.7 0.8 6.1 3.5 5.8 Extrusion Coating 1.3 0.9 -2.0 -3.7 7.1 0.8 3.8 Blow Molding 3.5 3.4 -5.4 4.0 6.0 2.2 5.4 Wire & Cable 4.5 2.2 -0.6 0.5 5.6 2.5 3.5 Rotomolding 5.7 1.7 0.8 -0.9 6.4 2.9 5.8 Demand 5.1 4.9 - 4.8 2.3 5.6 2.5 5.4 Foro PEMEX Petroquimica 2011 Global LLDPE Supply/Demand Million Metric Tons 40 Operating Rate 100% 35 95% 30 90% 25 85% 20 80% 15 75% 10 70% 5 65% 0 60% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Demand (4.4/5.8) Total Capacity (5.2/4.4) Operating Rate Foro PEMEX Petroquimica 2011 Global HDPE Supply/Demand Million Metric Tons 50 Operating Rate 100% 40 90% 30 80% 20 70% 10 60% 0 50% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Demand (3.2/5.8) Total Capacity (4.8/3.9) Foro PEMEX Petroquimica 2011 Operating Rate Global LDPE Supply/Demand Million Metric Tons 25 Operating Rate 100% 20 90% 15 80% 10 70% 5 60% 0 50% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Demand (1.5/3.5) Total Capacity (2.0/2.7) Foro PEMEX Petroquimica 2011 Operating Rate Global Operating Rates Accelerate % Operating Rate 95 90 85 80 75 70 2005 World 2006 2007 2008 North America 2009 2010 West Europe 2011 2012 2013 Middle East Foro PEMEX Petroquimica 2011 2014 2015 Northeast Asia HDPE Cash Cost vs. Price Cents Per Pound 100 Dollars Per Metric Ton 2,640 2,200 80 1,760 60 1,320 40 880 20 440 0 Jan-07 Dec-07 Nov-08 Oct-09 NAM Integrated Total Cash Cost China HDPE Spot 0 Sep-10 Aug-11 Jul-12 NAM HDPE Disccounted WEP HDPE Discounted Foro PEMEX Petroquimica 2011 NAM PE Prices Cents Per Pound 100 Dollars Per Metric Ton 2,205 90 1,984 80 1,764 70 1,543 60 1,323 50 1,102 40 882 30 Jan-07 661 Oct-07 Jul-08 LDPE GP Apr-09 Jan-10 Oct-10 HDPE BM Jul-11 Apr-12 LLDPE C4 Foro PEMEX Petroquimica 2011 Global HDPE Non-Integrated Margins Dollars Per Metric Ton 549 Cents Per Pound 25 15 329 5 109 -5 -111 -15 -331 -25 -551 -35 Jan-07 -771 Dec-07 Nov-08 NAM Oct-09 WEP Sep-10 Aug-11 SEA Foro PEMEX Petroquimica 2011 Jul-12 Global PE Capacity Additions Million Metric Tons 10 8 7 Global Capacity AAGR 10-15: 3.7% Global Demand AAGR 10-15: 5.4% 5 4 2 1 -1 -3 -4 2005 2006 2007 2008 2009 2010 2011 Asia/Pacific Africa/ Middle East Central Europe/ CIS South America Global Demand Change 2012 2013 2014 2015 North America West Europe Foro PEMEX Petroquimica 2011 Polyethylene Capacity Changes NAM Company WEP kta Company MDE kta Company 1Q-10 Borealis BEL HD (200) HD/ Borealis SWE LL (90) SABIC UK LD 400 NEA / SEA / ISC Yansab KSA HD 400 Sinopec/SABIC JV Sharq KSA HD 400 Qatofin QAT LL 450 2Q-10 GFR HD 250 Borealis SWE LD 350 SABIC NET LD (120) Bangkok PE Panjin Eth. THA HD 250 CHI HD 300 HD/ IND LL x 125 Zhenghai Ref. CC CHI LL 450 MOC THA LL 300 3Q-10 Indian Oil Baotou Shenhua CNOOC & Shell Gail LG Chem 4Q-10 HD/ LL 600 THA LD 300 TPE CNOOC & Shell Indian Oil HD/ Borouge UAE LL 600 CHI PTT Chem Haldia LBI Net kta Increase kta Company 2,935 THA HD 400 CHI LD 75 IND HD 300 HD/ IND LL 350 HD/ CHI LL 300 CHI HD 75 IND LL 50 2,355 KOS HD 1,065 40 Polimeri Nova CAN LD x 60 Eur. FRA LD 260 Q-Chem II QAT HD 350 Amir Kabir IRN LD 300 970 Foro PEMEX Petroquimica 2011 Polyethylene Capacity Changes MDE NEA / SEA / ISC 4Q-11 3Q-11 2Q-11 1Q-11 Company Kayan kta Company SAR HD 400 0 ExxonMobil ExxonMobil SIN SIN HD/LL LL 650 650 1,300 Zhongyuan Evolue Japan CHI JAP LL LL 60 50 110 NEA / SEA / ISC Company 1Q-12 Net Increase 400 MDE 4Q-12 3Q-12 2Q-12 kta QAPCO Llam PC kta Company kta Net Increase QAT IRN LD HD 250 300 Hanwa Chem. Sichuan PC KOS CHI LD HD/LL 30 600 Saudi Polymers SAR HD 1100 Qilu PC Fushun PC CHI CHI HD HD/LL 250 450 2,530 Fushun PC CHI HD 350 800 Honam PC KOS HD 210 210 0 Foro PEMEX Petroquimica 2011 Middle East Improves PE Operating Rates, % 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 Middle East Saudi Arabia Iran 2011 Kuwait 2012 2013 2014 2015 Qatar Foro PEMEX Petroquimica 2011 United Arab Emirates N. America View Foro PEMEX Petroquimica 2011 NAM PE Demand Growth Key Assumptions North America is a mature market: anticipating growth approximating GDP levels Production growth driven by feedstock advantages from shale gas Exports remain competitive and support high op rates and help maintain producer margins Demand loss due to down-gauging mostly complete with little potential for future impact Flexible packaging continues to displace rigid applications Reverse substitution from higher cost materials like PP (increases demand for HDPE) Foro PEMEX Petroquimica 2011 PE Demand: Negative to Positive Rotomolding Wire & Cable Blow Molding Extrusion Coating Pipe & Profile Injection Molding Film & Sheet -5 0 5 10 Growth Rate Percent 15 AAGR 05-10 Demand Change 09-10 AGGR 10-15 (-2.7%) (AAGR 7.8%) (2.8%) Foro PEMEX Petroquimica 2011 20 U.S. Trade Trends Million Metric Tons 6 Percent 40 5 35 3 30 2 25 0 20 -2 15 -3 10 -5 5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Imports Exports Production as a % of Exports Foro PEMEX Petroquimica 2011 Thousand Metric Tons 40 Exports 20 Mexico PE Trade 0 -20 -40 -60 -80 -100 -120 Imports -140 Jan-09 Apr-09 Jul-09 LDPE Oct-09 Jan-10 Apr-10 Jul-10 LLDPE Foro PEMEX Petroquimica 2011 HDPE Oct-10 Jan-11 Mexico PE Trade Thousand Metric Tons 400 Exports 200 Thousand Metric Tons 0 -200 0 -400 -200 -400 -600 -600 -800 -800 -1,000 -1000 -1,200 -1200 -1,400 -1400 -1600 Imports -1,600 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 HDPE LLDPE LDPE Net Exports Foro PEMEX Petroquimica 2011 U.S. PE Bags Imports Percent 100% Billion Units 70 90% 60 80% 50 70% 60% 40 50% 30 40% 30% 20 20% 10 10% 0 0% 1Q-04 4Q-04 3Q-05 2Q-06 1Q-07 4Q-07 3Q-08 2Q-09 1Q-10 4Q-10 China Share of Total World China Foro PEMEX Petroquimica 2011 High Density Polyethylene International Spot Arbitrage Opportunities 2012 (US$/Metric Ton) Integrated Cash Costs vs. Contract and Spot* Prices N.W. Europe 409 •Cost:1430 $/ton 87 Del: 1904 $/ton 243 U.S. Gulf Cost:1017 $/ton Del:1543$/ton 224 316 N.E. Asia* Middle East* 147 Cost: 217 $/ton CFR: 1485 $/ton Cost: 1468 $/ton CFR: 1400 $/ton 367 97 433 Inter-region trade flows / arbitrage movements Inter-region arbitrage movement limited / closed Logistics & Import Tariffs Foro PEMEX Petroquimica 2011 •~ Linear Low Density Polyethylene International Spot Arbitrage Opportunities 2012 (US$/Metric Ton) Integrated Cash Costs vs. Contract and Spot* Prices N.W. Europe 409 Cost:1471 $/ton Del: 1859 $/ton • U.S. Gulf Cost:1093 $/ton Del: 1653 $/ton 224 87 243 316 Middle East* 147 • 433 Inter-region trade flows / arbitrage movements Inter-region arbitrage movement limited / closed Cost 2247 $/ton CFR: 1480$/ton N.E. Asia* Cost:1520 $/ton CFR: 1345 $/ton 367 97 Logistics & Import Tariffs Foro PEMEX Petroquimica 2011 •~ Low Density Polyethylene International Spot Arbitrage Opportunities 2012 (US$/Metric Ton) Integrated Cash Costs vs. Contract and Spot* Prices N.W. Europe Cost: 1527 $/ton Del: 2063 $/ton 415 U.S. Gulf 90 345 Cost:1098 $/ton Del:1962 $/ton 295 329 Middle East 150 Cost: 248 $/ton Del: 1790 $/ton 453 Inter-region trade flows / arbitrage movements Inter-region arbitrage movement limited / closed N.E. Asia Cost: 1564 $/ton Del: 1660 $/ton 106 Logistics & Import Tariffs Foro PEMEX Petroquimica 2011 373 LDPE New Math = New Life Then •Obsolete, replaced by LLDPE •High cost, low volume plants •Minimal investment in new capacity Foro PEMEX Petroquimica 2011 LDPE New Math = New Life Now •“Specialty status” •Tight supply globally •Expanding margins •EVA driving demand •Limited capacity build Foro PEMEX Petroquimica 2011 NAM: LDPE ISSUES Numerous 2010 outages created shortage Most units are old and running at capacity Price delta developed (sustainable?) New Capacity likely Metallocene now cheaper / Converters blending more LLDPE Autoclave premium ? ? Supply / Demand eases in 2011 Foro PEMEX Petroquimica 2011 PE Take-Away‟s Hindsight: Energy shift, start up delays, export options, and unplanned outages transform would-be trough to record profits for US resin producers – expansions likely Demand: Global growth dependant on emerging economies – N.Am growth near gdp Price: increasingly tied to global naphtha price trends, and spot Asia export options – unplanned outages remain the wildcard Margins: US - Remain strong (integrated and non-integrated) New capacity: in MDE and China will be absorbed – less dramatic impact on pricing and margins Caution: Rapid increases in crude oil price could kill demand and resin prices could fall as in 2008 Foro PEMEX Petroquimica 2011 Polypropylene Foro PEMEX Petroquimica 2011 Polypropylene‟s New Paradigm From 2008 High cost High price Reduced demand growth rate Improved profitability, in spite of apparent global loose supply and demand balance Foro PEMEX Petroquimica 2011 P/E Ratio: Fundamental Shift Propylene to Ethylene Price Ratio 1.6 1.4 1.2 1.0 0.8 0.6 0.4 00 01 02 03 04 North America 05 06 07 West Europe 08 09 10 11 Southeast Asia Foro PEMEX Petroquimica 2011 12 PP Shifts from Inexpensive To Expensive PVC 2010 2005 LLDPE HDPE PS PET LDPE PP ABS 0.0 1.0 2.0 3.0 Cents Per Cubic Inch Foro PEMEX Petroquimica 2011 4.0 5.0 Prices Volatile Price Ratio, Cents Per Pound 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 Jan-2009 Aug-2009 Mar-2010 Oct-2010 May-2011 Dec-2011 Jul-2012 PP Spot Export North America/PS High Heat Net Trans. North America PP Spot Export North America/HDPE Disc. Contract North America Foro PEMEX Petroquimica 2011 ACN and Production Impact PGP Price ACN, $/Ton 3,000 C3, Cents per Pound 90 2,500 75 Cracker Turnarounds December C3 Production Issues + High Cotton Prices + High ACN Prices Extreme TX Weather + Refinery Turnarounds + High ACN Prices 2,000 1,500 60 45 1,000 30 500 15 0 Jan-09 0 May-09 Sep-09 Jan-10 ACN Asia May-10 Sep-10 PGP NAM Foro PEMEX Petroquimica 2011 Jan-11 North American Prices: One Notch Above The Rest Dollars Per Metric Ton Cents Per Pound 120 2,640 100 2,200 80 1,760 60 1,320 40 880 20 440 Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Northeast Asia PP Spot West Europe PP Discounted Price North America PP Spot Export North America PP Discounted Price Foro PEMEX Petroquimica 2011 Polypropylene More Expensive Price, Cents Per Pound 100 Price Ratio 2.0 75 1.5 50 1.0 25 0.5 0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 PS High Heat Net Trans North America PP Spot Export North America PS/PP Price Ratio Foro PEMEX Petroquimica 2011 Volatility Affecting Demand Cents Per Pound 110 N. Am PP Demand & Exports, Billion Pounds 1.7 1.6 100 1.5 90 1.4 80 1.3 70 1.2 1.1 60 1.0 50 Sep-10 Nov-10 Domestic Demand Jan-11 Exports Mar-11 May-11 Jul-11 PP Homopolymer Discounted Price NAM Foro PEMEX Petroquimica 2011 In Spite of Higher Costs, Demand to Grow Injection Molding 5.2% Film & Sheet 5.8% Raffia 2010 2015 7.3% Fiber 5.1% Other 4.0% Pipe & Extrusion 5.0% Blow Molding •2010-2015 Average Annual Growth Rate, Total Demand: 5.6% 4.9% 0 5 •%: 2010 to 2015 Average Annual Growth Rate 10 15 20 Global Demand, Million Metric Tons Foro PEMEX Petroquimica 2011 25 Global PP Market Outlook Demand/Capacity, Million Metric Tons 90 Operating Rate, % 94 80 92 70 90 60 88 50 86 40 84 30 82 20 80 10 78 0 76 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Demand (3.9/5.6) Exports (6.8/1.3) Total Capacity (6.1/4.5) Imports (6.8/1.3) Operating Rate Foro PEMEX Petroquimica 2011 Investments Begin To Slowdown PP Capacity Increases, Million Metric Tons 6.0 2005-2015 5.0 Average Annual Growth 4.0 Demand 3.0 2.0 1.0 0.0 -1.0 2005 2006 2007 Northeast Asia Southeast Asia North America South America 2008 2009 2010 2011 Middle East CIS & Baltic States West Europe 2012 2013 2014 2015 Indian Subcontinent Africa Central Europe Foro PEMEX Petroquimica 2011 Transitional Economies Driving Growth Per Capita Consumption, Kg/person 25 2.6% 2015 Population, Billions 2.0 20 1.6 6.6% 15 1.2 10 0.8 5.7% 5 11.2% 0 0.4 0.0 West Europe •%: 2010-2015 Demand Average Annual Growth Rate South America 2010 North East Asia ISC Population 2015 Foro PEMEX Petroquimica 2011 North America PP Market Outlook Demand/Capacity Million Metric Tons 12 Operating Rate, % 92 10 90 8 88 6 86 4 84 2 82 0 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Domestic Demand 1.9/2.5 Total Capacity -0.8/-0.8 Operating Rate Exports 22.9/-22.2 Imports 2.9/0.5 Foro PEMEX Petroquimica 2011 Latin America Consumption by Country Brazil 5.4% Mexico 5.4% Argentina 2010 2015 3.8% Colombia 6.5% Venezuela 2010-2015 Average Annual Growth Rate, Total Demand: 5.5% 5.8% Other 3.7% 0.0 %: 10-15 Average Annual Growth Rate 0.5 1.0 1.5 Consumption by Country, Million Metric Tons Foro PEMEX Petroquimica 2011 2.0 Latin America Consumption by End Use Injection Molding Film and Sheet 5.3% 6.6% Fiber 2010 2015 5.4% Other 5.2% Raffia 3.8% Blow Molding Pipe and Extrusion 6.2% 4.7% 0 %: 10-15 Average Annual Growth Rate 2010-2015 Average Annual Growth Rate, Total Demand: 5.6% 0.5 1 1.5 Consumption, Million Metric Tons Foro PEMEX Petroquimica 2011 2 Mexico PP Trade Thousand Metric Tons 200 Exports 100 Thousand Metric Tons 0 -100 0 -100 -200 -200 -300 -300 -400 -400 -500 -500 -600 -600 -700 -800 -900 -700 Imports -800 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Polypropylene Net Exports Foro PEMEX Petroquimica 2011 Conclusions North American demand growth and capacity closures improves operating rates Exports to suffer, but will reach a balanced level Spreads/margins to expand only marginally; propylene plus contracts expected to remain in place as long as volatility rules market Long term prices line up after propylene capacity and imports help balance propylene market Foro PEMEX Petroquimica 2011