Chemical Market Services

Presentation

Global PVC Market Tightening?

13-15 March 2018

Eddie Kok, Executive Director, +65 6439 6060, eddie.kok@ihsmarkit.com

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

Agenda

Global overview

Outlook: market tightening?

Outlook risk
• Caustic/Chlorine Demand Imbalance
• Feedstock ( C2) availability
• PVC demand substitution/destruction

So what, who will benefit?

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Global Overview

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Northeast Asia is world’s producing powerhouse

1.3

29 mmt
9.3 6.0 1.0

1.3 1.7 2.2

0.5

1.9

2017 global PVC capacity = 54 mmt

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Regional demand split is also lopsided

Regional demand
Contribution breakdown,
to global demand2017
growth, 2017-22

60%
NAM
ROW

40% WEP

ISC
20%

0%
NAM WEP CIS SAM NEA SEA ME AFR ISC CEP NEA

Global demand 2017 = 43.8 million tons Global demand 2022 = 51.9 million tons
Source: World Analysis - Vinyls Source: World Analysis - Vinyls © 2018 IHS Markit

© 2018 IHS Markit

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Global trade 2017: defined by cost vs. proximity
4,000

3,000

2,000
NE Asia
1,000 4,000

0 3,000
North America Imports Exports
4,000 W. Europe 2,000

3,000 Middle East 1,000

4,000
0
2,000
3,000 Imports Exports

1,000
2,000

0
1,000
Imports Exports

0
Imports Exports
SE Asia
4,000

4,000 3,000
4,000
3,000 2,000
4,000
3,000
2,000 1,000
3,000
2,000
1,000 0
2,000 Imports Exports
200 -400 kmt 1,000
0
1,000
0 Imports Exports
Imports Exports
0
401 kmt -700 kmt Imports Exports
Indian sub-continent
South America
Africa

>1 mmt

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Total trade: 9.4 MMt
Outlook: market tightening?

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Surplus capacity and production is drying up

Spare capacity: 9.8 mmt Excess production

12,000 8,000

Net total, thousand metric tons

Regions, thousand metric tons
NAM
8,000 7,000
WEP
NEA 4,000 6,000
CEP
0 5,000
Capacity
2018
…but
-4,000 4,000
CIS
SAM
-8,000 3,000
SEA 2018 2019 2020 2021 2022
ME
NAM WEP CIS SAM
AFR NEA SEA ME AFR
ISC ISC CEP Net Total
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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More capacity needed ... and soon!

Global incremental demand less incremental capacity

Collapse: Recovery phase 100
11,000
recession & 95
Tightening China
Thousand metric tons

90

Av. operating rate

6,000
85

1,000 80

1980-1985 1986-1991 1992-1997 1998-2003 2004-2009 2010-2015 2016-2021 2022-2026 75

-4,000 70
Lengthening 65
-9,000 60

Net (demand less capacity change)** * Av. Op. Rate** *

Notes: * Incl. hypo. capacity; ** Excl. hypo. capacity
Source: IHS Markit © 2018 IHS Markit

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Why lack of investment to date?

• Past weak return & higher investment costs

• Caustic soda: an obstacle in past

• Better ethylene/polyethylene integration

• Focus on capturing more of upstream value

• Competing priority for C2, easier to monetize

elsewhere

• Export-based investment; added risk element

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S-PVC Capacity announcements: decelerated

…but gear change ahead?

Producer Country Timing Capacity
China (Various) 2017-20 2,970
Hanwha 2020 130
Philippines 2019 110
Asia 3,210
Westlake 2020 250
FPC 2020 140
North America 390
Trust Chem 2019-2020 200
Engro 2020 100
Navoi Azot 2020 100
Others 300
Source: IHS Markit © 2018 IHS Markit

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Outlook risk: caustic and chlorine demand imbalance

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Vinyls: driver for chlorine consumption

Water 2017-2020 Average Annual Demand Growth

Pulp & Treatment All Others
Paper 7% 29%
2% Chlorine Caustic

Inorganics
2% India = 3.6% India = 5.2%

Chlorinated
NEA = 2.7% NEA = 2.8%
Inter.
6% …but
NAM = 2.5% NAM = 1.0%

Global = 2.7% Global = 2.5%

Organics
21%
Vinyls
33%
Source: IHS Markit © 2018 IHS Markit

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Surplus chlor-alkali capacity to decline due to limited capacity growth

Global Chlorine Capacity vs. Demand Growth

>90%
5,000
capacity
additions 28% av. excess
4,000
Thousand Metric Tons

in China

3,000 19% av. excess capacity over demand

15% av. excess
2,000

1,000

0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
-1,000

Capacity additions Demand growth Excess capacity as a % of demand

-2,000
Source: IHS Markit © 2018 IHS Markit

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Net trade: EDC the balancing mechanism

1.54
mmt
0.95
mmt

2017
2021, +10%

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2017 total trade: 2.7 MMt Source: IHS World Analysis - Vinyls
Which markets stand to benefit from additional PVC production?

US extra-regional WEP extra-regional NEA extra-regional

China
Turkey India
Egypt
Poland Malaysia
Turkey
Russia Bangladesh
Peru
Vietnam
UAE
Australia

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Outlook risk: feedstock ethylene availability

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Margins stay upstream, but less than before 2018
2015
West Europe North America Northeast Asia

323 233
327 196 -21 79
307 -4
137 255

262
83
283 256

161

263
291

378

PVC Cash
PVC Cash Margin
Margin ECUMargin
ECU Margin EthyleneMargin
Ethylene Margin Dollars per Metric Ton

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Polyolefins loses some of its shine to an old rival

North America integrated chain margins

13 14 15 16 17 18 19 20 21 22 23 24 25
Source: IHS Markit Ethylene (into PE) HDPE Ethylene (into VIN) PVC © 2018 IHS Markit

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Outlook risk: PVC demand substitution/destruction

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North America PVC to HDPE: some substitution possible?

North America HDPE vs PVC netbacks But there are other considerations?
100 25
• Product life cycle
80 20
HDPE & PVC, cts/lb

• Relative densities
60 15
• Tensile strength

Delta
40 PVC more 10
• Maintenance & reliability
competitive
20 5
• Installation
0 0

Delta HDPE PVC

Source: IHS Markit © 2018 IHS Markit

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Recycled PVC: threat to virgin PVC demand in developed economies
Growing role of PVC recycling in Western Europe

6,000 15%

Thousand metric tons

4,000 10%

2,000 5%

0 0%

Recycled PVC (virgin equivalent)

PVC Demand (virgin)
Proportion recycled vs. virgin PVC (75% basis)
Source: IHS Markit and VinylPlus © 2018 IHS Markit

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So what, who will benefit?

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Balances will tighten across all regions, with few exceptions

Change in surplus/deficit capacity, 2018-21

NAM WEP CIS SAM NEA SEA ME AFR ISC CEP

200
Thousand metric tons

-200

-400

-600

-800

-1,000
Surplus region, 2018
-1,200
Deficit region, 2018
Source: IHS Markit © 2018 IHS Markit

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Sales growth opportunities: largely function of maturity

Regional demographic and economic metrics

9
GDP (%) growth, 2017-22

ISC
= population size
6

SEA NEA
AFR ME
3 SAM CEP
CIS NAM
WEP

0
0 2 4 6 8 10 12 14
Per capita (kg) PVC consumption, 2018
Source: IHS Markit © 2018 IHS Markit

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Capacity/population disparities: investment or export?

Regional PVC capacity and population

30,000 2,000
Capacity, thousand metric tons

Population, million inhabitants

22,500 1,500

15,000 1,000

7,500 500

0 0
NAM WEP CIS SAM NEA SEA ME AFR ISC CEP

Source: IHS Markit Capacity Population © 2018 IHS Markit

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North America’s advantage looks assured, in longer-term

NAM PVC production cash cost advantage

300
Dollars per metric ton

200

100

0
2017 2018 2019 2020 2021 2022 2023 2024

-100
Source: IHS Markit WEP NEA China non-integ. © 2018 IHS Markit

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Progress across the board, but NAM PVC producers still rule the waves

Regional PVC margins and operating rates

100 400
Cycle peak

Margin, Dollars per Metric Ton

Operating Rate, Percentage

90 350
80 300
70 250
60
200
50
150
40
30 100
20 50
10 0
0 -50
15 16 17 18 19 20 21 22 23 24

NAM Margin WEP Margin NEA Margin NAM OR WEP OR NEA OR

Source: IHS Markit © 2018 IHS Markit

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Global capacity build is over. What’s next? Evolution or revolution
Year-on-year PVC capacity changes
3,500
3,000
Thousand metric tons

2,500
Actual Expected Hypo.
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
-2,000
12 13 14 15 16 17 18 19 20 21 22 23
NAM WEP NEA ROW NAM Hypo
ISC Hypo NEA Hypo SEA Hypo ME Hypo Demand
Source: IHS Markit © 2018 IHS Markit

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Who are the winners?

Integrated vinyls
producers &
Converters Feedstock
suppliers
Standalone PVC producer
& Resin end-users

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Key takeaways

Buyers
beware in
Margins most markets
expansion
to support Cycle peak
investment 2021-22
CAV better
positioned
for
feedstocks

Market
tightening

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Portfolio of Subscriptions Tailored to Your Business

Aromatics & Fibers Inorganics

World Analysis Market Analysis
World Analysis Market Analysis
• Chlor-Alkali • Global Chlor-Alkali
• Benzene • NAM Aromatics • Vinyls • Global Vinyls
• Cumene/Phenol & • Asia Aromatics • Soda Ash • Global Soda Ash
Acetone • Europe Aromatics • MDI *(D) • Global Bleaching
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*(A) • Formaldehyde/Resins
* (D) Data- *(A)
Abbreviated
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Version

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