Global C4 and Elastomers

Increasing uncertainties

May 2017 [Link]

Anthony Song, Director Asia Olefins, +65 6439 6188, [Link]@[Link]

2017 IHS Markit

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 Economy and Automotive

2017 IHS Markit. All Rights Reserved.

GLOBAL GDP OUTLOOK

Real GDP growth will strengthen in 2017-2018

Global growth will pick up from 2.5% in 2016 to 2.9% in 2017, led by the United States and
emerging markets.

The US economy will accelerate as capital spending growth resumes and as corporate and personal
income tax rates decrease in 2018.

The dollar will appreciate against major currencies through early 2018.

Eurozone growth will hold steady, but UK growth is expected to slow through 2018 as Brexit
negotiations amplify uncertainty and delay investment.

Chinas economic growth will slow further because of persistent imbalances in credit, housing, and
industrial markets.

2017 IHS Markit 5

Automobile production trends

Automotive Production Growth Rates

25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
11 12 13 14 15 16 17 18 19 20

World US EU China Japan

Source: IHS 2017 IHS

2017 IHS Markit

Base Energy

2017 IHS Markit

Volatility remains, but generally energy prices are stable

Short Term Energy Price Trends

160.0% 0.5

140.0% 0.45

Gas to Crude Price Ratio

120.0% 0.4
2010 = 100%

100.0% 0.35

80.0% 0.3

60.0% 0.25

40.0% 0.2

20.0% 0.15

0.0% 0.1
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Crude Oil Natural Gas Gas/Crude

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

Oil price trend higher while US natural gas remains
inexpensive
Medium Term Energy Price Trends
140% 0.45

120% 0.4

Gas to Crude Price Ratio

100% 0.35
2010 = 100%

80% 0.3

60% 0.25

40% 0.2

20% 0.15

0% 0.1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Crude Oil Natural Gas Gas/Crude

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

Petrochemical Trends

2017 IHS Markit

Crude C4 (Ethylene)

2017 IHS Markit

 Increasing complexity in the ethylene value chain

Catalytic from
Demand shocks (GDP) or
methane: Add-on vs
shifts (product substitution)
new world scale

Supply/demand from Polyolefins recycle,

NGLs and Naphtha: PE/PVC/PET
Feed switches Ethylene
Capacity / production Coal to MEG (skipping
impact EO)

Gas to methanol to
Coal to VCM (skipping
olefins
EDC)
Coal to olefins

Co-product impact: On purpose

propylene via PDH, metathesis, coal,
methanol

2017 IHS Markit

Ethylene

Low Cost Coal and Ethane Driving Investments

Incremental Ethylene Capacity 2016-2021

Rest of Asia

China

MDE/Afr

Europe

Americas

-2 0 2 4 6 8 10 12
Million Metric Tons

Naphtha & Heavier LPG Ethane Coal/ Methanol Others

Source: IHS 2017 IHS

2017 IHS Markit 13

Unconventional Feedstocks for Crackers in China

Shenhua Donghua
Yankuang Shenhua Yitai Coal
Ningmei
Yulin Erdos Erdos
I &II

Tongyi PC
Yitai
Xinjiang

Tianjin Wanhua
Chemical

SP
Chemicals

Hengli PC

Dongying

Shenghong
PC

Zhejiang PC
I & II
Sinopec/
KPC
Sinochem
Quanzhou
CTL

E/P Cracker Sinopec

CNOOC- Sinopec
Hainan
Naphtha SHELL Gulei
Cracker

2017 IHS Markit

Ethylene

World Cracker Feedstock Shift

Cracker Feedstock Breakdown
100%

80%

60%

40%

20%

0%
11 16 21 11 16 21 11 16 21 11 16 21 11 16 21
MDE NAM SEA NEA WEP

Ethane LPG Naphtha Gasoil and Heavier Methanol Coal Others

Source: IHS 2016 IHS

2017 IHS Markit

Ethylene cracker coproduct volume trends down

Steam cracker butadiene to ethylene production ratio trends

100%

95%
2016 = 100

90%

85%
2016 2017 2018 2019 2020 2021

World North America West Europe Middle East China

World
Source: IHS Analysis - Butadiene
Markit 2017 IHS Markit

2017 IHS Markit

Butadiene

2017 IHS Markit

Recent butadiene market dynamics have been very
challenging

Pricing insanity beginning

last yearthe world flipped
upside down

Regional spreads historically large

Chain margins uneven

2017 IHS Markit

Butadiene price insanity

Regional Butadiene Price Trends Regional Butadiene Price Spreads

250% 2000

200% 1500

150% 1000
January 2011 = 100%

500
100%

$/MT
0
50%

-500
0%

-1000

North America West Europe Northeast Asia US - WEP NEA - WEP

Source: IHS Source: IHS

2017 IHS Markit

Chain margins skewed

Key price differentials in Asia

2000
Dollars per Metric Ton

High operating cost

1000

Low operating cost

-1000
Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17

Asia Natural Rubber - SBR Asia SBR - BD

Source: IHS Global C4s & Elastomers

2017 IHS Markit

Domestic US Crude C4 Production increases as new
ethylene capacity starts up in US
Trends in US Crude C4 Production
0.050 120%
0.045
115%
0.040
0.035

Q113 = 100%
110%
B/E Ratio

0.030
0.025 105%
0.020
100%
0.015
0.010
95%
0.005
0.000 90%
Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 Sep-18

CC4 Production B/E

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

North America Highlights

Crude C4 availability will eventually

improve, but not until much later this
year
Butadiene prices are falling as
global prices return to more typical
levels.
Market is loosening with end of
most significant Spring BD outage
and large derivate outage
Prices will continue to fall in the
second half of the year with
improved spot availability from
Europe

2017 IHS Markit

But the future brings light cracking in Europe

West Europe Cracker Cash Cost by Feedstock

1400

1200
Euro per Metric Ton

1000

800

600

400

200

0
Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18

Naphtha Propane Butane

Source: IHS 2017 IHS Markit

2017 IHS Markit

Europe Highlights

Butadiene in Europe very tight on

exports and turnarounds in H1 2017
Derivative producers benefit in
export markets, but domestic
demand in some segments will
suffer from competitive
routes/products
Even as Asian prices fall rapidly,
Europe is tight up to May (or June)
so prices will fall much more slowly.
At equilibrium remains global swing
supplier

2017 IHS Markit

Asia trends that drove price higher

Persisting tight supply situation amid outages and

maintenances
- Usual maintenance season in Asia makes supply tight
- Adding to tighter supply amid major outage in SEA
followed by continuous small outages

Chinese government support for domestic

automotive industry
- Purchase tax reduction from mid 2015 to end 2016

- Purchase tax on small vehicles was reduced to 5

percent from 10 percent

Inventory build up before Chinese Lunar New Year

holiday
Arbitrage cargoes from Europe is not possible due
to tight balance in Europe although arbitrage
window is wide open
2017 IHS Markit
 Tax Reduction Boosted Vehicle Sales in China

China Vehicle Sales Growth

30%

25%

20%

15%

10%

5%

0%
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16
-5%

-10%

Source: IHS 2016 IHS

2017 IHS Markit

Synthetic Rubber Outpaced Butadiene Capacity
Additions
Asia Capacity Additions
1,000

500

0
2012 2013 2014 2015 2016 2017

Synthetic Rubber Butadiene

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

On-Purpose Butadiene production was economical

Butadiene Production Economics

2,000
Dollars Per Metric Ton

1,500

1,000

500

-500
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

Extraction Cash Margin Extraction Cash Cost Butane Dehydro Cash Cost

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

China New Butadiene Projects

Capacity/ Start-up
Producer Process Derivatives
Shenhua Jiutai KTA date
Ningmei Energy

Jiangsu
100 H2 2017 BDH Merchant
Sailboat PC
Shandong
Kenli
Shenhua
65 H2 2017 Extraction Merchant
Sailboat Ningmei
PC

Late
CSPC phase 2 165 Extraction Merchant
2017

CNOOC- Jiutai Energy 60 H1 2018 BDH PBR

SHELL

Shandong Kenli 100 NA BDH Merchant

2017 IHS Markit

Asia Highlights

Chinese market is already settling down

and prices are falling rapidly
Butadiene is available for export from
Asia, but at high prices
As the year progresses, prices will fall as
domestic supply is more available and
imports from Europe return
On purpose economics are important
even though volume is small at best
Derivative margins will improve, but
remain under pressure

2017 IHS Markit

Near term butadiene prices continue to fall driven by
Asia
Butadiene Price Forecast
3,307 150
Dollars Per Metric Ton

2,756 125

Cents Per Pound

2,205 100

1,653 75

1,102 50

551 25

0 0
13 May Sep 14 May Sep 15 May Sep 16 May Sep 17 May Sep 18 May Sep

Spot Korea, FOB Contract WEP, CIF Contract USA, FOB

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

Annual prices return to trend line in 2018 and move
generally with naphtha
Regional Butadiene Prices
3,500

3,000
Dollars Per Metric Ton

2,500

2,000

1,500

1,000

500

0
07 08 09 10 11 12 13 14 15 16 17 18 19 20

Spot Korea, FOB Contract WEP, CIF Contract USA, FOB

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

Key Synthetic Rubber Trends

2017 IHS Markit

Butadiene based synthetic rubber operating rates
remain weak on average
Commodity Synthetic Rubber Operating Rates
85

80
Operating Rate, %

75

70

65

60

55

50
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

PBR eSBR sSBR

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

North America Highlights

Antidumping complaint injects a great

deal of uncertainty into market at contract
negotiating time.
Butadiene cost disadvantage will prevent
significant change in North America
synthetic rubber export competitiveness.
A major market factor will be synthetic
rubber producers outside of North
America trying to increase exports to the
region.
sSBR exports continue, but operating
rates struggle.
PBR exports will continue as many PBR
producers are downstream integrated.

2017 IHS Markit

West Europe Highlights

Butadiene cost advantage strong enough

to keep derivatives competitive.
No significant capacity additions in the
near term.
sSBR exports are significant, capacity will
be added for high performance sSBR

2017 IHS Markit

China Drives the Rubber World

China imports of eSBR have fallen, but

will increase some as demand grows in
the near term.
China will remain a significant importer of
sSBR
Substantial overcapacity in PBR keeps
operating rates weak in near to medium
term.

2017 IHS Markit

Other Asia Highlights

Will be significant play in export markets,

especially involved in competition for
NAM consumers.
sSBR over capacity remains a factor

Integrated PBR producers will run, but

others will struggle

2017 IHS Markit

Natural Rubber

2017 IHS Markit

Natural Rubber Production Fundamentals
World: 2016 Natural Rubber Production World: 2016 Natural Rubber Production by Feedstock

Indonesia
25% Malaysia
6%
India
5%

China Small Holders

8% 74%

Vietnam
8% Estates
26%

Others
Thailand 14%
34%

Source: IHS 2016 IHS Source: IHS 2016 IHS

Natural Rubber trees require specific growing conditions found near the Equator.

Vast majority of supply is grown by small farmers.

Supply is relatively price inelastic and reflects market conditions roughly 8 years prior.

2017 IHS Markit

Natural rubber demand fundamentals
World 2016 Natural Rubber Demand World: 2016 Natural Rubber Demand

SE Asia
15%

Tires & Tire

America Products
13% 70%
General Rubber
NE Asia Products
46% 30%

Europe
12%

Others
14%

Source: IHS 2016 IHS Source: IHS 2016 IHS

Tire production drives natural rubber demand, primarily larger truck tires.

Demand is sensitive to general economic conditions as goods shipment by truck is the

most significant driver.

China is by far the largest consuming country.

2017 IHS Markit

Increasing rubber inventory

Qingdao Rubber Inventory

300,000

250,000

200,000
Tons

150,000

100,000

50,000

0
Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17

Natural rubber Synthetic rubber

Notes: Add notes here or delete
Source: IHS 2016 IHS

2017 IHS Markit

 Natural rubber price following similar trend with
butadiene and synthetic rubber
Daily Natural Rubber (TSR20) Prices

120 2,646
US Cents Per Pound

US Dollars Per Ton

100 2,205

80 1,764

60 1,323

40 882
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

Singapore Commodity Exchange New York West Europe

Source: Singapore Commodities Exchange (SICOM) & RTAE 2017 IHS

2017 IHS Markit

Natural Rubber vs Synthetic Rubber Prices

Trend
DailyofNatural
Natural and Synthetic
Rubber Rubber Prices
(TSR20) in Asia
Prices
6,000 2.40

5,000 2.00
Dollars Per Ton

4,000 1.60

3,000 1.20

2,000 0.80

1,000 0.40

0 0.00
Jan-05 Jun-06 Nov-07 Apr-09 Sep-10 Feb-12 Jul-13 Dec-14 May-16

Natural/Synthetic Natural Rubber, TSR 20 SICOM Asia SBR 1502

Source: Singapore Commodities Exchange (SICOM) & RTAE 2017 IHS Markit

2017 IHS Markit

Natural rubber surplus outlook

Natural rubber supply and demand

16,000

15,000
Thousand Tons

14,000

13,000

12,000

11,000

10,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Supply Demand

Source: IHS Markit 2017 IHS Markit

2017 IHS Markit

Long Term Megatrends

2017 IHS Markit

Reinventing the Wheel

Key global factors impacting the automotive industry

ecosystem

Regulation Technology
pressure development

Environment Economic
and climate uncertainty
issues

Autonomous
Energy rivalry

Societal change Ride hailing

Congestion Connectivity

2017 IHS Markit

 Thank You

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