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1
Shaping of the
European polyolefin industry
16 February 2004
Mark Vester
SABIC EuroPetrochemicals
Shaping Success
2
• Business Outlook
• Major factors affecting Europe
• How will Europe shape for success?
ContentsContents
3
Gap between WE and ME at historical peak!Gap between WE and ME at historical peak!
Oil and naphtha pricing has shifted upward
European cost increase, impact on pricing levels
structural
delta
in cost
LOW HIGH LOW HIGH
Gas price ($/mmBTU) Oil price ($/bbl)
ME producer WE producer
De
liv
ere
d c
os
t to
WE
cu
sto
me
r (E
ur/
t)
Circles represent typical ranges
4
Oil and Naphtha determine WE integrated cost position
OPEC seems determined to keep prices at today’s level
At recent historical margin levels (below re-investment level)
Historical range Present range
Oil ($/bll) 15 - 25 25 - 35
average PE (Eur/t) 500 - 1000 700 - 1200
WE marginal cost producers supply most of the market
Cost levels today require 900 - 1000 Eur/t PE for integrated business to survive
Price levels will fluctuate between 700 and 1200 Euro/t
New price range will break psychological barrierNew price range will break psychological barrier
5
Prices set records, will margins follow?Prices set records, will margins follow?
Until 2001capacity addition in WE was significant
Coming years demand looks healthy, capacity additions are limited
West Europe
-500
0
500
1000
NPC
demand
An
nu
al
inc
rea
se
(k
t)
6
ME capacity build-up in HD/LL continues
For LDPE build-up is now taking off
Technology portfolio in ME is broadening, e.g. LDPE, bimodal HDPE
Gap in cost between ME and WE is at historical peak
ME share of global capacity increasesME share of global capacity increases
0%
5%
10%
15%
1993 1998 2003 2008
HDPE
LDPE
LLDPE
Sh
are
of
glo
ba
l c
ap
ac
ity
(%
)
7
Imports increase in coming years: ME and CEE capacity
PE imports into WE claim 20% market share by 2008 (13% today)
ME share of imports raise towards 75% (50% today)
Exports remain at today’s level
Imports take lion share of market growthImports take lion share of market growth
West Europe
0
1000
2000
3000
imports
exports
Vo
lum
e (
Kt)
8
ME and Asia determine the global gameME and Asia determine the global game
Americas and Europe increasingly local for local ME can supply to Asia and Europe (and lands at lowest cost)ME balances structural positions over Asia and Europe
ME
Europe
Asia
S. Am.
N. Am.
9
Growth will come from MEGrowth will come from ME
Cost curve changes shape
Price levels dictated by European cost level and ME/Asia global balancing
PE Delivered Cost and Price curve
Cumulative volume
eu
ro/t
Middle East HDPEimports
WE cost
leader
PriceDelivered cost
Oil and naphtha
10
What do we need to do ?What do we need to do ?
Converters
Anticipate increased price levels
Reshuffle supplier base
Team up with leading suppliers
Producers
WE scrap and selectively build
Focus on key competences and markets
Grow from ME
PE Delivered Cost and Price curve
Cumulative volume
eu
ro/t
Middle East HDPEimports
WE cost
leader
PriceDelivered cost
Oil and naphtha
Globally
91 producers < 500 kt
(25% of capacity)
94 sites < 200 kt
(42% of capacity)
Source Maack Business Services
11
More than 20 out of 50 sites in WE have no grid connection
30% of WE ethylene capacity
75% of ethylene is used captive
Average WE PE producer is active from 6 sites
Average WE PE capacity per site is only 270 kt
ARG well positioned to supply Europe
ARG supplies 40% of WE ethylene and PE demand
ARG area exports 2,5 mln ton PE to non ARG countries
80% ARG capacity is captive
Average ARG PE capacity per site is 450 kt
7 out of WE European top 10 sites (scale and integration) are at ARG
Integration and logistics are importantIntegration and logistics are important
12
Scrap rigorously and build selectively in Europe
tremendous amount of scrap potential
cost leaders annually beat inflation
Growth from lowest cost platform (import)
Price levels will shift
Producers focus on key competences
select markets / products
Converters anticipate
team up with leading suppliers
ConclusionsConclusions
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