Polyethylene Global Overview Esteban Sagel, Director Polypropylene Foro Pemex Junio 2012 Ciudad de Mexico Today’s Presentation • Global Overview • Mexico In The Global Context • Short Term Forecast & Dynamics © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Today’s Presentation • Global Overview • Mexico In The Global Context • Short Term Forecast & Dynamics © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Polyethylene: Still The Largest Polymer PET 9% PC 2% HDPE 17% PVC 18% LLDPE 11% ABS 4% PS 5% LDPE 9% PP 25% 2012 World Polymer Demand = 211 Million Metric Tons © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Cost Position Beneficial for PE Growth Delivered Discounted Basis 2007 LLDPE 2012 PVC HDPE LDPE PP PS PET ABS 0.0 1.0 2.0 3.0 U.S. Price, Cents Per Cubic Inch © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 4.0 5.0 5 Growth Generalized, but Uneven GDP Growth, % 5.0 Demand, Million Metric Tons 100 3.5 AAGR 06-11 LDPE 0.6% HDPE 3.1% LLDPE 4.5% Tot PE 2.9% GDP 2.1% 2.0 AAGR 11-16 3.5% 5.3% 5.8% 5.0% 5.7% 80 60 0.5 40 -1.0 20 -2.5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 World GDP Growth Demand LLDPE Demand TotPE Demand HDPE Demand LDPE © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Developing World Driving Growth Northeast Asia 31% Other 28% 2006-2011 AAGR West Europe = -2.1% North America = -1.3% South America = 4.4% Northeast Asia = 6.4% Global West Europe 15% South America 6% North America 20% 2011 Total Global Demand = 76 Million Metric Tons © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. = 2.9% Developing World Driving Growth Northeast Asia 33% Other 29% 2011-2016 AAGR West Europe = 1.7% North America = 2.8% South America = 5.8% Northeast Asia = 6.5% Global West Europe 13% South America 7% = 5.0% North America 18% 2016 Total Global Demand = 97 Million Metric Tons © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 8 Capacity Continues To Grow Capacity, Million Metric Tons 10 Global Capacity AAGR 11-16: 4.0% Global Demand AAGR 11-16: 5.0% 8 6 4 2 0 -2 -4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Asia/Pacific North America Central Europe/ CIS Global Demand Change Africa/ Middle East South America West Europe © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. In Spite of Growth, Global Market Oversupplied Excess Capacity, Million Metric Tons 10.0 Excess Capacity as a % of Global Demand 14% 8.0 12% 6.0 10% 4.0 8% 2.0 6% 0.0 4% -2.0 2% -4.0 0% 2000 2002 2004 2006 2008 2010 2012 Global Excess Capacity Cumulative Global Excess Capacity Excess Capacity as a % of Global Demand © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 2014 2016 In Spite of Growth, Global Market Oversupplied Excess Capacity, Million Metric Tons 10.0 Global Operating Rate, % 90 89 8.0 88 6.0 87 4.0 86 2.0 85 0.0 84 -2.0 83 -4.0 82 2000 2002 2004 Global Excess Capacity Global Operating Rate 2006 2008 2010 2012 2014 2016 Cumulative Global Excess Capacity © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Margins To Recover; Gas Based Production Enjoys Higher Margins Dollars Per Metric Ton 1,200 (Discounted Price, Integrated Producer) 1,000 800 600 400 200 0 -200 -400 -600 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 North America West Europe Asia © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 12 North America: Advantaged Production PE Cash Cost, Cents Per Pound 80 (Integrated Producers) 75 70 65 60 55 50 45 40 35 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 North America West Europe Southeast Asia © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 13 Driver of Advantage: Shale Gas Dollars Per MMBtu 20 Gas -to-Crude-Ratio 110% 16 90% 12 70% 8 50% 4 30% 0 10% 90 92 94 96 98 00 02 04 06 08 10 12 14 Crude (WTI) Natural Gas Gas-to-Crude Ratio © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. China Will Become Increasingly Self Sufficient Domestic Demand, Million Metric Tons 30 Imports as a % of Domestic Demand 55 25 50 20 45 15 40 10 35 5 0 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 China Domestic Demand Imports as a % of Domestic Demand © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 15 Trade Will Become Very Competitive % of Middle East 40 Imports, Billion Metric Tons 2.5 2.0 35 1.5 30 1.0 25 0.5 20 0.0 15 Q1-09 Q3-09 Q1-10 China Imports Q3-10 Q1-11 Q3-11 Q1-12 Middle East as a % of China Imports © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Trade Flows to Change 11377 2897 7664 2470 -1169 -2441 -552 -1153 -5261 -6235 -1906 -2691 -1444 2011 Net Trade 372 860 -2789 2016 Net Trade (Thousand Metric Tons) © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 17 Global Prices to Tighten Up Cents Per Pound 90 Dollars Per Metric Ton 1,981 80 1,761 70 1,541 60 1,321 50 1,101 40 881 30 2006 2008 NAM LLDPE 2010 CHINA LLDPE (Spot) 2014 661 2016 Mexico LLDPE WEP LLDPE 2012 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Today’s Presentation • Global Overview • Mexico In The Global Context • Short Term Forecast & Dynamics © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Mexican Petrochemical Demand and Production Million Metric Tons 25 20 15 10 5 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Domestic Demand Production © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Polyethylene Demand in Mexico Growing Rotomolding Injection Molding Wire & Cable Blow Molding Pipe & Profile Film & Sheet AAGR Domestic Demand 11-16 = 5.5 % Extrusion Coating -6 -4 AAGR 06-11 -2 0 2 4 Mexico Growth Rate, Percent Demand Change 10-11 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 6 AAGR 11-16 8 Mexico: Net Polyethylene Importer Net Trade, Million Metric Tons 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 South America USA Canada Mexico © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Americas 22 Where is Material Going to Come From? 2011 Middle East 1.0% 2016 Other 0.8% Middle East 6.8% Other 3.2% North America 98.3% 2011 Total Imports 1.15 MMT North America 90.0% 2016 Total Imports 1.09 MMT © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 23 Braskem Idesa: Will Help Trade Balance; New Plants in U.S. Will Continue to Compete Dow Canada Westlake Prentiss, Alta Lake Charles, LA Braskem Idesa Nova Formosa Coatzacoalcos Sarnia Point Comfort, TX Nova Sarnia Chevron Phillips Dow Nova US Gulf Coast US Gulf Coast Prentiss, Alta Shell Northeast US Thousand Metric Tons HDPE LDPE 2014 Canada 200 United States 2015 Mexico 750 300 Canada 100* United States 2016 Canada 400* 2017 United States 500* United States 300* Canada 2018 United States 500* LLDPE Startup (200) Type 2Q 2014 3Q 2014 1Q 2015 1Q 2015 4Q 2015 hypo hypo 4Q 2016 hypo 500* 300* 350* 3Q 2017 3Q 2017 3Q 2017 hypo hypo hypo 500* 2Q 2018 hypo * No firm announcements, CMAI speculation ** Sasol announced a new cracker in Lake Charles, LA (1.4 million tons per year). The startup year was not released. © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Mexico Prices To Be Competitive Dollars Per Metric Ton 2205 Cents Per Pound 100 90 1984 80 1764 70 1543 60 1323 50 1102 40 882 30 Jan-08 661 Oct-08 NAM LLDPE Jul-09 Apr-10 Jan-11 CHINA LLDPE (Spot) Oct-11 Jul-12 Mexico LLDPE © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Apr-13 WEP LLDPE Today’s Presentation • Global Overview • Mexico In The Global Context • Short Term Forecast & Dynamics © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Polyethylene Current Situation: US • Domestic Demand: -.05 % • • • • • • through April Export demand – 12.5 % through April April weakest demand month of the year Prices poised to decline Buyers purchasing on as needed basis only ExxonMobil has announced a 4 cent drop for May Further drops anticipated Million Pounds 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0 Apr-11 Jul-11 Oct-11 Domestic Demand © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Jan-12 Exports Apr-12 PE: Europe • Domestic sales down 2 percent in the first • • • • • quarter of this year compared to 2011 Most contract prices for commodity grades ended April up by approximately the increase of the ethylene contract price of €30 to €40 per metric ton = best margins of 2012 An initial settlement was agreed upon for the May ethylene contract price at €1,325 per metric ton, a decrease of €20 per metric ton compared to April. Polyethylene prices are decreasing well beyond the ethylene decrease of €20 per metric ton. June prices are forecast to go down strongly. Middle Eastern producers are likely to increase supplies to Europe as a reaction to the continuing weak demand for imports from China. 2011 (Q1) 2012 (Q1) AAGR 11-12 Thousand Metric Tons Production 2,937 2,841 0.2% Blow Molding 376 341 -2.7% Inj. Molding 424 384 -3.5% Wire & Cable 88 81 -2.8% Mono/Split 40 36 -3.7% 1,565 1,478 -1.3% Pipe & Conduit 290 263 -3.3% Rotomolding 53 50 -2.2% Coating 3 3 0.9% Extrusion 111 103 -2.1% Other 104 95 -3.1% 3,053 2,833 -2.1% Imports 750 636 1.8% Exports 599 614 4.0% Film & Sheet Dom. Demand © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 28 WEP HDPE Integrated Margin Cents Per Pound 25.0 • In 2012, the trade balance of 20.0 15.0 10.0 5.0 2006 2008 2010 2012 2014 2016 HDPE is likely to shift with the start-up of Saudi Polymers’ HDPE plants in Al-Jubail, Saudi Arabia with a combined annual capacity of 1.1 million metric tons. • The output of these new plants is expected to impact Europe as shareholder Chevron Phillips does not own polyethylene assets in Europe. • The first quarter price increases in Europe, combined with continued weakness in the Asian markets, provide incentive for more imports into Europe from the Middle East © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 29 Asia HDPE Non-Integrated Margin • Demand weakened in April and into May • Market sentiment remains bearish and • • • • • • • Cents Per Pound 8.0 trading activities are thin Sinopec and PetroChina continue 6.0 running at reduced rates due to weak demand and negative margins 4.0 PE inventories are very high at both producer and converter: Inventory at the ports is at 95% of capacity 2.0 The agricultural peak season ended in a disappointing fashion in mid April 0.0 Supplies from the Middle East are ample Further price reductions appear likely -2.0 Some converters are mixing in recycle PE in order to lower production costs -4.0 China’s Q1 PE imports reached 2.1 million metric tons, 6.5 percent higher -6.0 than Q1 2011, but about 8.7 percent 2006 lower than Q1 2010. 2008 2010 © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 2012 2014 2016 30 Conclusions • Polyethylene demand growing on global basis • Low relative cost helping • Industry globally oversupplied; demand growth and restrain in investments will help improve supply and demand balance • Light feedstock advantage will help Mexico and North America • Trade to become challenging, as China increases self sufficiency • Mexico net importer of PE; situation to remain the same even after Braskem Idesa starts up • Mexican prices to remain competitive • Global markets situation challenging in first half of 2012; depressed market sentiment to prevail in future months © 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.