Specialty Chemical Industry

Yang Wei
Director, Specialty Chemicals
+86 (0)10 65334695
wei.yang@ihsmarkit.com

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 2

Commodity versus Specialty Chemicals

Commodity Chemicals Specialty Chemicals

• No significant qualitative difference • Qualitative differentiation across markets

• Price is the determining factor in purchasing • Performance is the determining factor in
• Price tends to be determined by supply-demand purchasing
balance • Price tends to be determined by competition and
performance

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 3

Market-Directed Specialty Chemicals Functional Specialty Chemicals

• Cleaners, Industrial and Institutional • Adhesives and Sealants

• Construction Chemicals • Antioxidants
• Cosmetic Chemicals • Biocides
• Electronic Chemicals • Catalysts
• - IC Process Chemicals • - Emission Control
• - PCB/Packaging Materials • - Petroleum and Chemical Process
• Feed Additives • Coatings
• Food Additives • - High-Performance Anticorrosion
• Imaging Chemicals and Materials • - Radiation Curable
• Lubricants, Synthetic • - Thermosetting Powder
• Lubricating Oil Additives • Corrosion Inhibitors
• Mining Chemicals • Flame Retardants
• Nutraceutical Ingredients • Flavors and Fragrances
• Oil Field Chemicals • Surfactants
• Paper Chemicals • Thermoplastics
• Plastics Additives • - Compounding of Engineering
• Printing Inks • - High Performance
• Rubber Processing Chemicals • - Specialty Films
• Textile Chemicals • Water-Soluble Polymers
• Water Management Chemicals

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 4

Global specialty chemical demand: 2016

By Region
Other Asia North America
15% 24%

Central/South America
China 5%
23%

Western Europe
Japan 17%
8%

Middle East/Africa Central/Eastern Europe

Source: IHS Markit 4% 4% © 2017©IHS
2016
Markit
IHS
Total: $557 billion

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 5

Market position of specialty chemicals in China and North America

China North America

SC SC
8% 17%

Commodity Commodity
chemical chemical
92% 83%
Source: IHS Markit © 2017 IHS Markit Source: IHS Markit © 2017 IHS Markit

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 6

China and Other Asia still have a long way to grow per capita

Regional SC consumption per capita—2016

400

300
Dollars

200

100

0
North America Western Japan China Other Asia World average
Source: IHS Markit Europe © 2017©IHS
2016
Markit
IHS

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 7

North America specialty chemical overview: 2016

Total: $131 billion

Cleaners,
11%

Surfactants
Other
9%
39%

Oilfield chemicals
7%

Specialty polymers
Water-management 6%
chemicals
4% Catalysts
5% Water-soluble polymers
Cosmetic chemicals 5%
4% Food additives Flavor&Fragrance
Source: IHS Markit 5% 5% © 2017©IHS
2016
Markit
IHS

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 8

China specialty chemical overview: 2016

Total: $128 billion

Specialty Polymer
9%
Construction Chemical
Other 9%
40%
Electronic Chemical
8%

Specialty Coating
7%
Cleaners
4%
Water soluble polymers
5%
Flavor&Fragrance
4%
Surfactant Catalyst Plastics Additive
Source: IHS Markit 4% 5% 5% © 2017©IHS
2016
Markit
IHS

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 9

China is leading the growth

Specialty Chemical Volume Growth Rates by Region: 2016-2021

8
6.3
6

0
North CSA Western CEE MEA Japan China Other Asia
America Europe
Source: IHS Markit © 2017©IHS
2016
Markit
IHS

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 10

High growth end-markets will drive related SC markets

Growth vs. GDP End-market Key drivers

Substantially
– Electronics – Digitalization
above GDP – Health care – Ageing population
– Personal care – Wealthier middle class
– Automotive – Urbanization/increased family income
Above GDP – Food – Regulation
– Home care – Consumption upgrade1
– Petrochemicals – Consumption upgrade1
In line with – Oil & gas – Off-shore, shale gas
GDP
– Slowdown in infrastructure spend/ recent
– Construction oversupply
– Apparel/textile – Relocation to lower labor cost countries
Below GDP – Publishing – Digitalization
– Mining – Resource intensity of economy
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 11

Wide range of growth rates: 2016-2021

Average = 6.3%
15
Market size ($billion)

Construction
Electronic
10
Special coating
Plastic additive
F&F Cleaner
Textile
5 Cosmetic
Paper Nutraceutical
Synlube HP thermoplastics
Water management
0
4 5 6 7 8 9 10
Source: IHS Markit Annual growth rate (%) © 2017 IHS Markit

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 12

Opportunities depend on industries

Higher growth for

> Environmental protection
> Personal goods & health care
> Electronic & transportation products
Price-sensitive to quality-sensitive
Less chance for low-growth industries?
> New Regulation
> New Technology

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PAO Business

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Better Lubrication with Chemistry Group I

Group II
Mineral
Additives Group III

Base Synthetic Group IV

Oil
Group V

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 Better Lubrication with Chemistry

Group I
Vacuum
distillation
Atmospheric Solvent
HDT HIS Group II Group III
residue extraction

Vacuum gas oil, medium motor oil, light motor oil

HCK HIS Group II Group III

Syn gas CO + H2 Fischer

HCK HIS Group III III Plus
Tropsch

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 LAO is Shortage in China

C4-C8 LLDPE, Elastomer

C8-C12 PAO

Nonionic, Detergent
C10-C16
alcohol

C16-C18 Special surfactants

C20-C30 LOA, Drilling fluid

Chemicals Enter New Frontiers: Industry Innovates and Adjusts to Uncertainty in Energy and Economy
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 17

PAO Demand Comparison Between China and North America

China PAO consumption by market- 2015 N.A PAO consumption by market- 2015

Industrial Other
Automotive compress 2%
22% or
13%

Industrial
Wind gear oil
Industrial turbine 20%
67% 11%
Automotive
65%

Source: IHS Markit © 2017©IHS

2016
Markit
IHS

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 Fuel-economy Regulation and Gasoline-Engine Oil Grade

GF-1/SJ GF-3/SL GF-5/SN

1970’s 1996 2001 2004 2009 2017?

GF-2/SK GF-4/SM GF-6/SP

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 19

Fuel-economy promotes the upgrade of automotive lubricants

Fuel Economy OEM New Compatible

Emission Control Re-design Lubricant

More PAO is Base Oil

Upgrade
consumed

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 20

China wind energy will continue to grow

300 50%

250 40%

% Change
200
30%
gw

150
20%
100

50 10%

0 0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: IHS Markit
Wind capacity Capacity change © 2017©IHS
2016
Markit
IHS

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 21

Poly Alpha Olefin growth rates by application: 2016-2021

Percent %
14%
12%
10%
8%
6%
4%
2%
0%
Source: IHS Auto/Aviation Wind turbine Industrial © 2016 IHS

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Integrated Circuits Processing Chemicals

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 23

The integrated circuit (IC) process

chemical market relies totally on imports

• China’s IC process chemical market is

approaching $2.1 billion in 2017
• Average annual growth rate is forecast to be 13%
in the period 2016-2021
• Integrated circuit production has a huge
requirement for chemicals
• Domestic producers’ penetration is close to zero
due to technological barriers

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 Scaling: The drive toward smaller devices: • Small = fast

90 nm • Small = more functionality

• Small = cheaper

• Small = better
65 nm
=130×0.7 We are HERE

=90×0.7 45 nm

=65×0.7 ……

22 nm
Note that 1 nm=1/1,000,000,000 14 nm
m 10 nm
7 nm
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 Chemical Materials

• Silicon Wafer
Metal Circuit • Atmospheric and Specialty Gases
• Dielectric Materials: low-k and high-k
• Thin Film Metals
Silicon Gate • Copper Plating Chemicals

Insulator(SiO2)
• Photoresist and Ancillaries
Source Drain • CMP Slurries

Silicon Substrate • Wet Chemicals

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 IC Process Chemicals
Global IC Process Chemicals Market by Segment- 2016

Thin Film Metals Others

3% 2%

Atmospheric&Special
Gases
19%
Silicone Wafer
42%

CMP Slurries
8%

Wet Processing
Chemicals
7%
Photoresist&Ancillary
17%
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26
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IC Process Chemicals
IC Process Chemicals Market by Region- 2013 IC Process Chemicals Market by Region- 2016

ROW North ROW North

5% America 5% America
17% 17%
Taiwan Taiwan
20% 21%

Europe Europe
12% 11%

Korea Korea
19% Japan
19%
Japan 17%
China 19% China
8% 10%

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 IC Process Chemicals
Future
16 Trend of IC Process Chemicals
14

12

10

0
North America Europe Japan China Korea Taiwan ROW

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28
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Strategic Implications
• The market growth of specialty chemicals is in line
with regional GDP
• China is leading the specialty chemical market
growth
• China is transitioning its focus from commodity to
specialty chemicals
• PAO is more blended into auto engine oil
• Electronic chemicals are moving from Japan and
Europe to mainland China

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