Acrylic acid value chain

Has the tide turned?

Denis Poussin, Director Global Acrylates and SAP,
IHS Markit

22 March 2018
Hilton Americas | Houston, TX, US

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Babies and contractors have a lot in common….

Don’t make deadlines

Like to eat…a lot
Expensive!

but mainly…

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…they are big consumers of acrylic acid derivatives

49% Acrylic Acid 51%

Super Absorbent
Polymers (SAP)
5.6M Acrylate
Esters
tons

But their market dynamics

are very different
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Has the tide turned on the industry?

What drives demand for each side of value chain?

Isn’t there overcapacity?

Which side is more attractive to producers?

What price movements can we anticipate?

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Consumers of acrylic acid derivatives

Super absorbent polymers Acrylate esters

Glacial Acrylic Acid Oxo Alcohols

Acrylic Acid

Propylene

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They are influenced by different drivers

Acrylic acid

Acrylate esters Sap

Paints and Absorbent

coatings hygiene products Socio-cultural
factors
Construction Disposable
and automotive income

Macro economics/GDP

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 Acrylates demand follows GDP
US Architectural coatings production vs. residential construction
Paints, 4000 200
GDP trends coatings
and 160
3000
adhesives

Real 2010 Dollars

Millions of Litres
demand 120
• Economic cycles
2000
80

• Construction industry 1000

40

0 0
2000 2003 2006 2009 2012 2015
• Automotive Industry Architectural Coatings Produced
Residential US Construction Market Value
Source: IHS Markit © 2018 IHS Markit

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 Whereas SAP demand grew very quickly based on societal factors
Baby diaper penetration
100
Societal and

Penetration %
economic factors Diaper 50
adoption
0
0 5000 10000 15000 20000 25000 30000
Source: IHS Markit GDP per Capita in USD per annum © 2018 IHS Markit
• Disposable income
• Demographics Middle Class
400

Million Households
• Degree of urbanization Forecast

• Working mothers 200

• Preconception / disposable product adoption

0
2000 2005 2010 2015 2020 2025 2030
China India
Source: IHS Markit © 2018 IHS Markit

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Acrylates are commodities, whereas SAPs are more of a specialty product

SAP X SAP premium grades 40% of global market.

Premium grades Mature and maturing markets.
Requirements for Innovation

1,067kt

X SAP standard grades: 40% of global

SAP SAP
Performance grades Standard grades
market. Developing economies.
535kt 1,075kt
X
SAP Performance grades: 20% of global
market. Versatile and high growth.

X Butyl acrylate: low differentiation

2-EHA BA
641 kt 2,826kt
X
2 Ethylhexyl acrylate: low differentiation

Global demand

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Has the tide turned on the industry?

What drives demand for each side of value chain?

Isn’t there overcapacity?

Which side is more attractive to producers?

What price movements can we anticipate?

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 But let’s first look back…

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Acrylic acid capacity is dominated by NEA

N. America
1,283
16% EMEA & CIS N.E. Asia
1,640 4,621
20% 57%

Region
S. S.E. Asia
Capacity thousand America
metric tons
375
160 5%
2%
% world capacity

2017 total capacity = 8.1 million metric tons

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Due to breakneck speed China capacity addition in 2010 to 2015
Acrylic Acid capacity
10

8
Million Metric Tons

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

China Capacity Rest of NEA Rest of the World

Source: IHS Markit © 2018 IHS Markit

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Resulting in global overcapacity but unequal regional operating rates
Regional Acrylic Acid operating rates
100%

90%
Operating Rate

80%

70%

60%

50%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
NAM WEP NEA
Source: IHS Markit © 2018 IHS Markit

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 But all is not well…

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Recent volatility masking long term trends
Regional Glacial Acrylic Acid prices
2,500 Nov-Dec 2016
Multiple TARs and April 2017
incidents in China Unexpected
shutdown at
Dollars Per Metric Ton

2,100 Oct 2016

BASF Arkema, US
Jan 2018
Ludwigshafen Propylene price rockets in the
1,700 US

1,300

900 Environmental inspections

in China

500
Dec-15 Sep-16 Jun-17 Mar-18 Dec-18

North America, Contract West Europe, Contract China, Spot

Source: IHS Markit © 2018 IHS Markit

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 Is there more trouble ahead?

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What are those long term trends?
Rebalancing of the market:
• Demand growing faster than new capacity

• Global producers integrating downstream

• North America has cost advantage but no

investment planned

• China has spare capacity, but also issues:

– Cost position
– Environmental issues

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SAP is pulling acrylic acid from acrylates value chain
2017-2027
2017 -2027Growth Rates
growth rates (%)

6.5
SAP 3.4
3.4

4.3
2-EHA 2.5
2.1

5.3
BA 2.1
2.5

5.3
Acrylic Acid 3.2
0.9

0 1 2 3 4 5 6 7
Growth Rate (%)
NEA WEP NAM
Source: IHS Markit © 2018 IHS Markit

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SAP has historically offered better margins
SAP Margins
NBA Margins
Regional margins – Butyl Acrylate to SAP
400
US Dollars per Metric Ton

200
0
-200
-400
-600
-800
-1000
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

NAM Contract WEP (Contract) China (Spot)

Source: IHS Markit © 2018 IHS Markit

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Global supply of acrylic acid is tightening
Demand is growing faster than capacity addition
5,000

4,000
Thousand Tons

3,000

2,000

1,000

0
2012 2014 2016 2018 2020 2022 2024 2026
Capacity addition Demand
Source: IHS Markit © 2018 IHS Markit

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Global producers are increasing captive use
Capacity (kmt) % Captive use
in WEP
CAA Derivatives
50
50

DowDuPont 100 Acrylates

72 70

50 50

Arkema 250 Acrylates

54 48

50
50

BASF 480 Acrylates

92 62

50

Evonik 250 SAP

68

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Which is worrying for North America
North America: Acrylic Acid Supply & Demand North America: Butyl Acrylate Supply & Demand
2,000 100% 700 100%

Thousand Metric Tons

Thousand Metric Tons

Operating Rate
Operating Rate
0 0% 0 0%
12 13 14 15 16 17 18 19 20 21 22 27 12 13 14 15 16 17 18 19 20 21 22 27

Domestic Demand Production Domestic Demand Production

Total Capacity Operating Rate Total Capacity Operating Rate
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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 Can China help?

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China Butyl Acrylate Producers ~ 600 Mt BA

~ 200 Mt BA

~ 100 Mt BA
4
1
13
1
5 31%
Non Integrated
36
12
69%
Integrated into Propylene
5

4
8

Traditional Propylene units 3 44%

PDH
13

On Purpose Propylene units 56%

Conventional

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At a disadvantaged feedstock position
Propylene 2017 Cost Curve
• High feedstock costs
1200 Demand
• Expensive logistics to Europe and
Americas
Dollars per Metric Ton

1000 China Steam Cracker

Avg
PD

800
H
Splitter • Fast growing domestic demand
WEP

600
Avg • Chequered reliability record
NEA Avg
NAM Avg
400
• China remains to prove itself as
200
global exporter…
0
0.0 20.0 40.0 60.0 80.0 100.0 120.0
Cumulative Production - Million Metric Tons
Source: IHS Markit © 2018 IHS Markit

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China Environmental Inspections Number of
Provinces
Impact on Butyl Acrylate
Involved % of BA Capacity affected
BA Capacity

Price comparison
1st
2,000 600 25%
Round 8
Pilot
Dollars Per Metric Ton

2nd 420
1,000 17%
Round 7
2nd

3rd

4th
1st

3rd
0 140 6%
Round 7

China NBA (Spot) 4th

Source: IHS Markit © 2018 IHS Markit 1,270 52%
Round
8

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Trends combine to support underlying price rises
Global weighted average prices

2,100
US Dollars per Metric Ton

1,900

1,700

1,500

1,300

1,100
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Global BA Global 2-EHA Global GAA Global SAP

Source: IHS Markit © 2018 IHS Markit

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 Conclusions: Has the tide turned on acrylic acid value chain?

SAP vs Acrylates Markets

• Distinct drivers • China is only competitive within limits

• Faster growing demand from SAP • Limited investment
• SAP is a more attractive outlet for acrylic • Uncertainties and volatility
acid

Trends Prices

• Vertical integration • Global prices poised for progressive uplift

• Shrinking merchant market
• Channeling of acrylic acid towards SAP

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Contact details

Denis Poussin
Director \ Acrylates
+44 203 253 2623 tel
Denis.Poussin@ihsmarkit.com
London

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