EPCA Seminar: Olefins Outlook

9 October 2020

James Wilson, Senior Analyst

Agenda

01 Demand impact for 2020 and outlook

02 Supply additions: where, when and what are the impacts

03 Changes to global competitiveness

2
 EUR/tonne

0
200
400
600
800
1000

-200
Jan-00
Jul-00

Source: ICIS Analytics

Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Indicative European Variable Margin (Ethylene ex Naphtha - Spot)

Jan-13
Jul-13
Entering 2020 | Expectations of a “tumultuous year”

Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Trendline

Jan-18
Jul-18
Jan-19
Jul-19
Jan-20
 Olefin Demand | Real term demand loss
Global Ethylene Demand (2000-2025) Global Propylene Demand (2000-2025)
200 200

180 180

160 160

140 140
Million tonnes

Million tonnes
120 120

100 100

80 80

60 60

40 40

Source: ICIS Supply & Demand Database

 Ethylene Supply | Large scale additions ongoing
Incremental Ethylene Capacity Additions by Region
14

12

10

8
MMTPA

-2
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

NORTH AMERICA NORTH EAST ASIA ASIA AND PACIFIC MIDDLE EAST REST OF WORLD

Source: ICIS Supply & Demand Database

 Operating Rates | Expected to remain depressed in the medium term
Global Ethylene Operating Rate Global Propylene Operating Rate
91% 84%

90%

89% 82%

88%
80%
87%

86%
78%
85%

84%
76%
83%

82% 74%

81%

80% 72%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: ICIS Supply & Demand Database

 Propylene Supply | Steam cracking driving capacity increase
Incremental Propylene Capacity Additions by Route
9

5
MMTPA

-1
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
STEAM-CRACKING REFINERY GAS PROPANE METATHESIS MTO/CTO OTHERS

Source: ICIS Supply & Demand Database

 Ethylene Cost Curve | Multi-year period of relative stability
1800

1600
Ethylene Cost of Production (USD/tonne)

1400

1200

1000

800

600

400

200

0
0 20 40 60 80 100 120 140 160 180 200
Cumulative Ethylene Capacity (Million tonnes)

Jan-17 (55 USD/bbl) Oct-18 (81 USD/bbl) Jan-20 (64 USD/bbl)

Source: ICIS Analytics
 Ethylene Cost Curve | Regional breakdown
1800

1600
Ethylene Cost of Production (USD/tonne)

1400

1200

1000

800

600

400

200

0
Cost curve for January 2020

North America Middle

Jan-20 East
(64 USD/bbl) Europe SE Asia NE Asia Other
Source: ICIS Analytics
 Cost of Production (USD/tonne)

0
1000

-200
200
400
600
800
03-Jan-20
10-Jan-20

Source: ICIS Analytics

17-Jan-20
24-Jan-20
31-Jan-20
07-Feb-20
14-Feb-20
21-Feb-20
28-Feb-20
06-Mar-20
13-Mar-20

North West Europe Naphtha

20-Mar-20
27-Mar-20
Ethylene Cost of Production

03-Apr-20
10-Apr-20
17-Apr-20
24-Apr-20
01-May-20
08-May-20
15-May-20
North East Asia Naphtha

22-May-20
29-May-20
05-Jun-20
12-Jun-20
19-Jun-20
26-Jun-20
USG Ethane

03-Jul-20
10-Jul-20
17-Jul-20
24-Jul-20
31-Jul-20
07-Aug-20
14-Aug-20
21-Aug-20
28-Aug-20
North East Asia MTO

04-Sep-20
11-Sep-20
18-Sep-20
25-Sep-20
02-Oct-20
 Ethylene Cost Curve | European producers move to the right
1600

1400
Ethylene Cost of Production (USD/tonne)

1200

1000

800

600

400

200

0
0 20 40 60 80 100 120 140 160 180 200
Cumulative Ethylene Capacity (Million tonnes)

Jan-20 (64 USD/bbl) Apr-20 (20 USD/bbl) Oct-20 (42 USD/bbl) Δ European producers
Source: ICIS Analytics
Conclusions

• Real term demand loss has occurred, with current estimates showing between one and
two years of lost growth for ethylene and propylene respectively
• Olefin demand has not fallen as much as GDP alone might imply, effects have not
been spread evenly between industry sectors and regions, understanding end markets
remains key
• While some projects have seen delays, those with steel in the ground are proceeding, and
we expect to see length increasing through 2021
• Operating rates have seen significant decreases in 2020 and are expected to remain
low through much of the decade, capacity rationalisation will be one factor in determining
the rate of bounce back
• Global competitiveness between olefin producers has increased in a low oil price
environment, reducing the advantage for producers at the low end of the cost curve and
those who might be export focussed
Thank you
james.wilson@icis.com