Melamine Outlook Sietse van der Sluis Director Research & Technology DSM Melamine September 2006 MelaminebyDSM TM Content 1 • Who are DSM and DSM Melamine ? • How is the (future) global supply – demand balance ? • What is the costs position of all melamine plants in the world ? • For whom is there a future in melamine? • How to make a small fortune in melamine ? MelaminebyDSM TM Who is DSM? 2 DSM, a globally active ‘multi-specialty’ chemical company • Leadership positions in ~75% of product portfolio • Innovation driven, R&D spend ~ € 300 million • Financially sound, solid balance sheet • Net debt ~ € 0.5 billion Life Science Products Industrial Chemicals Key data Sales : ~ € 8 billion EBITDA: ~ € 1 billion EBIT: ~ € 0.5 billion MelaminebyDSM TM Nutritional Products Performance Materials DSM’s key end markets Automotive/ Transport 9% Performance Materials Other 4% 18% Industrial 15% Chemicals 3 Pharma 20% Life Science Products 63% Food & Feed 34% E & E 6% Building & Construction 11% MelaminebyDSM TM Who is DSM Melamine ? • The world’s no. 1 melamine producer • • • • Workforce 400 employees Global headquarters in Sittard, The Netherlands Sales office in the USA, DSM Melamine Americas (DMA) Two operating companies with production sites • • DSM Melamine Europe DSM Kaltim Melamine • Proprietary low cost technologies • Plans to build a new 120 kt plant in China • The only producer with a global presence • Innovative • Excellence in services (logistics, technical service, new development) • Total market share around 20% • Preferred supplier at global customers MelaminebyDSM TM 4 DSM Melamine: building on global leadership 5 DSM Melamine Europe The Netherlands 150 kt China 120 kt • Production JV ended and replaced by first class logistic system able to supply globally, competitively, while maintaining sales office MelaminebyDSM TM DSM Kaltim Melamine Indonesia 60 kt 60% owned JV with 2 local partners - confidential - What is the outlook for global supply and demand ? 6 Trendline based on announced projects 101% 95%92% 100% 91% 89%90%88%86% 86% 86% 85% 85% 84% 60% 1200 40% GUR (%) 80% 1800 600 20% 0 0% 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 melamine volume (kt) 2400 supply (ctp) MelaminebyDSM demand TM global utilisation rate (%) Main projects: • creep • Adnoc 80 kt • Qafco 60 kt • Trinidad 60 kt • China 300kt MelaminebyDSM TM demand 20 11 20 10 20 09 20 08 20 07 0 600 20 06 800 20 05 200 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 800 20 04 400 20 03 demand 20 02 0 20 00 400 melamine volume (kt) 600 20 01 Americas: +8% melamine volume (kt) 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 Europe: + 3% 20 00 20 12 20 11 20 10 20 09 20 08 20 07 20 06 600 20 05 800 20 04 20 03 20 02 20 01 20 00 melamine volume (kt) 800 20 03 20 02 20 01 20 00 melamine volume (kt) Demand forecast per geographic region 7 China: +11% 600 400 200 200 0 demand APAC: +2% 400 200 0 demand 2001 2004 2008 What is the cost position of all melamine plants in the world ? 8 Cash cost delivered in Europe: determined by technology, energy costs, capacity, transportation costs, labour, material costs Cost of production (USD/T) 1700 MelaminebyDSM TM 0 0 200 400 600 800 Cumulative capacity (kT) 1000 1200 1400 1600 Two most competitve technologies of DSM Melamine Gas phase technology: SLP technology: - Economy of scale (120 kt) - Lower energy usage - simple process MelaminebyDSM TM 9 Low cost producers are the winners Cold Flu 10 Pneumonia Death 1600 1400 Marging above cash costs 1200 Cost of production (USD/T) Market price 1000 800 600 400 200 0 0 200 400 600 800 1000 1200 1400 Cumulative capacity (kT) Total O.O.P. cost Demand DSM MelaminebyDSM TM 1600 New competitive plants will lower the market price and will induce cash loss of the marginal player 11 1700 Market price old Market price new 0 0 200 400 600 800 Cumulative capacity (kT) MelaminebyDSM TM 1000 1200 1400 Demand 1600 New plants with expensive technology will generate 12 cash losses 1700 Cold Flu Pneumonia Death Cost of production (USD/T) Market price 0 0 200 400 600 800 Cumulative capacity (kT) MelaminebyDSM TM 1000 1200 1400 Demand 1600 Will cheap gas change the profitablity of melamine manufacturing ? gas Furnace & steam generation urea Merchant market @ market price melamine Cheap gas: • Urea will be sold against local market prices to the melamine plant. • Reduction in the gas price for utlilities and energy will result in a lower cash cost for production of melamine. •Transport of melamine to the melamine markets will consume a great deal of the margin. MelaminebyDSM TM 13 How to make a small fortune in melamine ? 1. Start with a big fortune 2. Invest it in the wrong melamine technology, scale or at the wrong place 3. Sooner than you want you will have a small fortune ! Think, before acting: • • • • • • Do you have the right technolgy ? Do you have the right partner ? Do you have the right location ? Do you have the right scale? Do you have the right market knowledge? Do you have the right view on the prices? MelaminebyDSM TM 14