Welcome to the ICIS Asia Polyolefins Seminar€¦ · The US shale boom and its ramifications for global PE and PP markets. Asian and Middle Eastern polymer markets brace for shifting

Welcome to the ICIS Asia Polyolefins Seminar 23 May 2019 | Chinaplas 2019

Zachary Moore Deputy Managing Editor

Veena PathareSenior Editor Manager

ICIS

The US shale boom and its ramifications for global PE and PP markets

Asian and Middle Eastern polymer markets brace for shifting trade winds

Agenda

The US shale boom and its ramifications for global PE and PP markets23 May 2019

Zachary MooreDeputy Managing Editor, Americas

ICIS Editorial Chinaplas 2019

Agenda

US shale oil boom and its impact on the ethylene marketUS cracker and PE projectsOverview of US exportsImpact of shale oil on the propylene chainUS propylene, PP projectsUS PP import/export dynamics

Shale oil drives US ethylene advantage

Shale Oil

Shale oil—Game changer for US energy

• Lower 48 crude oil production up around 155% over last ten years

• US surpasses Saudi Arabia as largest oil producing country

• US may transition from net importer to net exporter of energy

Associated gases—the petrochemical game changer

**Imported Ethane costs are representative of purchasing Ethane FOB Mt BV USG and shipped to Destination, includes Liquefaction & Handling Costs

Abundant NGL supplies give the US the world’s lowest cost ethylene production

The US ethylene advantage

Abundant US ethane—can be flared on sold as a cracker feedstock

US ethane crackers produce ethylene at a considerable cash cost advantage relative to naphtha crackers

Ethylene is difficult to export—US producers are moving to capture the advantage by exporting derivatives

US cracker feedslates

Ethane is consistently the cheapest available feed

Many new crackers are ethane only, older crackers have feedstock flexibility

Some new crackers lack infrastructure to store co-products and re-route them to the feed

Propane and butane are sometimes preferred when cracker operators seek to maximize co-product production

Expansions of USGC NGL fractionation

Company Capacity (bbl/day) Location Status/Start-Up

Phillips 66 150,000 Brazoria County, Texas Late 2020

Phillips 66 150,000 Brazoria County, Texas Late 2020

Enterprise 150,000 Mont Belvieu, Texas Q1 2020

ONEOK 125,000 Mont Belvieu, Texas Q1 2021

Targa 110,000 Mont Belvieu, Texas Q1 2020

Targa 110,000 Mont Belvieu, Texas Q2 2020

Energy Transfer (Lone Star) 150,000 Mont Belvieu, Texas Q1 2020

Expansions = 945,000 bbl/day

New US crackers complete, under construction through 2019

Company C2 capacity (kt/year) Downstream (kt/year) Location Start-Up

OxyChem/Mexichem 544 Feed existing VCM plant of 1,050 Ingleside, Texas Q1 2017

Dow Chemical 1,500 ELITE PE (400); LDPE (350) – Plaquemine, Louisiana; EPDM (200); elastomers (320) Freeport, Texas Q3 2017

Chevron Phillips Chemical 1,725 Bimodal HDPE (500), mLLDPE (500) both at Old Ocean Cedar Bayou, Texas Q1 2018

ExxonMobil Chemical 1,500 mLLDPE plus LLDPE (650 x2) at Mont Belvieu Baytown, Texas Q3 2018

Lotte/Westlake 1,000 MEG (760) by Lotte, feed into existing PVC for Westlake St Charles, Louisiana H1 2019

Shintech 500 VCM (400), PVC (290), caustic soda (270) Plaquemine, Louisiana H1 2019

Formosa Plastics 1,200 HDPE (400), LDPE (400), EG (800) Point Comfort, Texas H2 2019

Sasol 1,500 LLDPE (470), LDPE (420), EO/EG (300/250), ethoxylates, detergent alcohols (300) Lake Charles, Louisiana H2 2019

8 new crackers from 2017-2019 = 9.4m tonnes/year

Expansions of existing US crackers, plus 1 restart

Company Capacity (kt/year) Location Status/Start-Up

LyondellBasell 363 Corpus Christi, Texas Fully started up Q2 2017

Westlake Chemical 32 Calvert City, Kentucky Started up Apr 2017

Indorama (restart) 440 Lake Charles, Louisiana May 2019

Dow 91 Orange, Texas H1 2019

Dow 500 Freeport, Texas 2020

INEOS 270 Chocolate Bayou, Texas 2020

LyondellBasell 250 Channelview, Texas Evaluating for 2020s

Expansions about 1.4m tonnes/year + new crackers 9.4m = 10.8m, or over 35% of existing US capacity by 2019

North America PE expansionsCompany Capacity (kt/year) Grade, breakdown Location Start-Up

Dow Chemical 400 ELITE PE Freeport, Texas Q3 2017

Dow Chemical 350 LDPE Plaquemine, Lousiana Q4 2017

Chevron Phillips Chemical 1,000 Bimodal HDPE (500), mLLDPE (500) Old Ocean, Texas Q3 2017ExxonMobil Chemical 1,300 mLLDPE plus LLDPE (2 x 650) Mont Belvieu, Texas Q4 2017

INEOS/Sasol 470 HDPE La Porte, Texas Q4 2017

Dow Chemical 125 Bimodal HDPE St Charles, Louisiana Q4 2018

Sasol 890 LLDPE (470), LDPE (420) Lake Charles, Louisiana Q1 2019 / Q3 2019

LyondellBasell 500 HDPE La Porte, Texas Q3 2019Formosa Plastics 800 HDPE (400), LDPE (400) Point Comfort, Texas H2 2019

ExxonMobil Chemical 650 LLDPE Beaumont, Texas 2019

Total/Borealis/NOVA 625 Borstar PE Bayport, Texas 2021Shell 1,600 HDPE/LLDPE (2x 550), HDPE (500) Monaca, Pennsylvania Early 2020sPTT Global Chemicals 700 HDPE (2x 350) Belmont County, Ohio NANOVA Chemicals 430 LLDPE Sarnia, Canada 2022SABIC/ExxonMobil* NA PE unspec (2 units) Corpus Christi, Texas H1 2022Dow Chemical 600 PE (unspec) US Gulf Coast 2021-2023Dow Chemical 350 PE (unspec) US, global debottlenecks 2021-2023

Through 2019 = 6.5m tonnes/year (+39% US capacity)Through 2022 = 12.1m tonnes/year** (+74% US capacity)

* Assuming 1,300kt PE for SABIC/ExxonMobil

2nd wave of new US cracker projects

Company Capacity (kt/year)Downstream

(kt/year) Location Start-up Status

Total/Borealis/NOVA 1,000

Borstar PE (625) + existing PE (400) Port Arthur, Texas End 2020

Underconstruction

Shell 1,500 HDPE/LLDPE (2x 550), HDPE (500)Monaca,

Pennsylvania Early 2020sUnder

construction

SABIC/ExxonMobil 1,800 PE (2 units), MEG

Corpus Christi, Texas H1 2022

Underconstruction

PTTGC/Daelim 1,000 HDPE (700), MEG (500), EO (100)Belmont County,

Ohio NA Evaluation

Formosa Petrochemicals 1,200

LLDPE (400), HDPE (400), EG (900)

St James Parish, Louisiana 2022 Evaluation

Chevron Phillips Chemical NA NA US Gulf Coast NA

FID late 2019,early 2020

US PE export markets

Increasing production, rising export focus

New PE capacity designed for exportUS PE market mature—growth

follows GDPDespite trade tensions, exports were

up by at least 19% for all PE productsLLDPE saw the strongest gain in

exports at around 46%, over half of US LLDPE production was exported in 2018 0

5

10

15

20

25

30

35

40

45

50

HDPE LLDPE LDPE

Increase in production and exports from 2017 to 2018

Production Exports

Source: ICIS Supply and Demand Database

Export PE—prices trending lower as supply lengthens

Export prices have faced downward pressure on a strong dollar and rising supply

International economies are seeing some slowdown in growth, adding to export price pressure

US producers are looking to raise their export allocations following capacity additions.

LLDPE in focus

US producers are building out large volumes of LLDPE and MLLDPE capacity

Additional supply has caused premiums for hexene and metallocene grades over butene to narrow

Export markets account for over half of total US LLDPE demand

Shifts in LLDPE trade patterns

MEXICO23%

CANADA14%

CHINA10%BRAZIL

10%BELGIUM9%

COLOMBIA4%

SINGAPORE4%

ARGENTINA2%

CHILE2%

GUATEMALA1%

All Others21%

2017 LLDPE EXPORTS

BELGIUM16%

MEXICO15%

BRAZIL9%

CANADA8%CHINA

7%

SINGAPORE5%

TURKEY4%

COLOMBIA4%

MALAYSIA3%

VIETNAM3%

All Others26%

2018 LLDPE EXPORTS


Shifts in LDPE trade patterns


CANADA22%

MEXICO13%

CHINA11%

BRAZIL7%

COLOMBIA5%

SINGAPORE4%

CHILE4%

INDIA3%

ARGENTINA3%

VIETNAM2%

All Others26%

2018 LDPE EXPORTS

CANADA24%

CHINA15%

MEXICO13%

BRAZIL4%

COLOMBIA4%

CHILE3%

HONG KONG 3%

ARGENTINA3%

PERU3%

GUATEMALA3%

All others25%

2017 LDPE EXPORTS

Shifts in HDPE trade patterns


MEXICO26%

CANADA18%

CHINA12%

BRAZIL5%

COLOMBIA5%

CHILE3%

PERU3%

ISRAEL3%

BELGIUM2%

GUATEMALA2%

All Others21%

2017 HDPE EXPORTS

MEXICO24%

CANADA15%

CHINA13%

COLOMBIA5%

BRAZIL4%

BELGIUM4%

PERU3%

CHILE2%

VIETNAM2%

ISRAEL2%

All Others26%

2018 HDPE EXPORTS

Concluding thoughts on the impact of trade tensions

Mexico and Canada are the largest export markets and have limited realistic alternatives

Retaliatory tariffs a risk as US exporters increase presence in Europe, SE Asia

US likely to take greater share of the Latin American trade, may push out Asian competitors

US producers still able to sell to Chinese re-export converters

Ships in the Houston ship channel. Photo by Al Greenwood

Shale oil’s impact on the US propylene chain

• Gas cracking is solely focussed on the production of ethylene

• Heavier feedstocks produce significantly more co-products

Naphtha to Ethane:•95% reduction in propylene•96% reduction in butadiene•98% reduction in raffinate-1•98% reduction in pygas

Ethane cracking greatly reduces co-product production

Typical Yield Patterns of Different Steam Cracker Feedstocks

0.0

0.5

1.0

1.5

2.0

2.5

3.0

ETHANE LPG NAPHTHA

Cum

ulaiv

e yie

ld of

prod

ucts,

tonn

e Ethylene Propylene ButadieneRaffinate-1 Pygas Fuel oil

Source: ICIS Consulting

Refineries a key source of US propylene

Refineries account for more than half of US propylene production

Refinery-grade propylene (RGP) can be used in gasoline blending or upgraded to chemical-grade (CGP) or polymer-grade (PGP) propylene

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

US propylene production by source

Chemically-sourced propylene Refinery-sourced propylene

Source: AFPM

No lasting US advantage in propylene costs

Propane has alternate demand outlets, unlike ethylene

US relying on PDH and other on-purpose technology to make up lost propylene production from crackers

US propylene cash costs similar to those of Asian and European producers

North America on-purpose propylene projects (PDH)

Company Capacity, kt/year Location Start-up Status

Enterprise Products 750 Mont Belvieu, Texas Nov 2017 Running

Formosa Plastics 600 Point Comfort, Texas 2020-2021 Under construction

Inter Pipeline 525 Alberta, Canada Late 2021 FID made Dec 2017

Pembina Pipeline/PIC(Kuwait) 544 Alberta, Canada --- FID March 2019

Formosa Plastics 600 Louisiana --- Evaluating

LyondellBasell 500 US --- FID pending

BASF (MTP) 475 Freeport, Texas --- On hold

NOTE: Others by Ascend Performance Materials, Sunoco, Dow, Enterprise, REXtac cancelled

PP projects—fewer in number and smaller in capacity

Company Capacity, kt/year Location Start-up Status

Braskem 450 La Porte, Texas Q1 2020 Under construction

Inter Pipeline 525 Alberta, Canada Late 2021 FID made Dec 2017

Formosa Plastics 250 Point Comfort, Texas --- FID made, detailed design phase

Pembina/PIC (Kuwait) 544 Alberta, Canada --- FID March 2019

LyondellBasell 500 US --- FID pending

Formosa Plastics 600 Louisiana --- Permitting

ExxonMobil 400 Louisiana, US 2022 FID made

PP exports—overwhelming majority to Mexico and Canada


MEXICO49%

CANADA28%

CHINA7%

PERU2%

VIETNAM1%

All Others13%

PP EXPORTS 2017

MEXICO52%

CANADA31%

CHINA2%

BELGIUM2%

VIETNAM2% All Others

11%

PP EXPORTS 2018

Deepwater arbitrage for PP to/from the US

US PP prices fluctuate directly with propylene

Deepwater trade flows may result in more imports or more exports according to arbitrage

US PP prices have moved from globally uncompetitive to globally competitive over the past year

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Asian and Middle Eastern polymer markets brace for shifting trade winds23 May 2019

Veena PathareSenior Editor Manager

ICIS Editorial Chinaplas 2019

www.icis.com 36

Agenda

US-China trade war & impact on Asian polyolefin markets

Impact of new capacities on future trade flows

H2 2019 outlook

US-China trade war & impact on Asian polyolefin markets

A look back on escalating US-China trade tensions

$110bn

Product Initial Tariffs Final tariffs after 25% hike implemented on 28 Aug 2018

Total China imports in 2017 (million tonnes)

Estimated share of US materialin China imports in 2017

LDPE 6.5% Not included; remains at 6.5% 2.4 7%

HDPE 6.5% 31.5% 6.4 5%

LLDPE 6.5% 31.5% 3.3 5%

PP 6.5% 31.5% 4.7 3%

Total US Tariffs: $250bn

Total Chinese Tariffs: $110bn

Source: ICIS Supply and Demand database


2,025,6302,224,395

791,675

1,852,458

12%

10%

15%

6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

HDPE LLDPE LDPE PP

2017 US Export Volumes

2017 US exports (tonnes) Exports (tonnes) 2017 US exports (tonnes) % exports to China

Asia LLDPE prices decline on weaker sentiment after tariff announcement;stabilises in early 2019

2%

-2%

2%

-2%

-3%

-4%

2%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300

05-Jan-2018 16-Feb-2018 30-Mar-2018 11-May-2018 22-Jun-2018 03-Aug-2018 14-Sep-2018 26-Oct-2018 07-Dec-2018 25-Jan-2019 08-Mar-2019

Asia LLDPE price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)

Q1 off to a bullish start, buoyed by pre-Lunar New Year buying

US tariffs on Chinese exports announced in mid-June

With the tariffs imposed, US cargoes are directed to other regions outside of China. Chinese prices find some stability in Q3, while SE Asia prices come under continued pressure.

Sharp depreciation of Chinese yuan weighs heavily on import market

Prices stabilise as yuan strengthens and trade talks begin

Source: ICIS

Asia HDPE prices largely supported; fell in Q4 2018 on longer supply

2%

-2%

2%

-3%-2%

-5%

2%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

900

1,000

1,100

1,200

1,300

1,400

1,500


Asia HDPE price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)

Q1 largely supported by tight supply amid strong PE pipe market

US tariffs on Chinese exports announced in mid-June

Prices rebound amid plant maintenance season in China

Fears of US-China trade war and local currencies depreciation add to bearish sentiment

Prices plunged in late 2018 on increased supply and availability of competitively priced cargoes

Source: ICIS

Prices remain under pressure amid weak downstream demand

Reduced PE exports from the US to China; others fill the gap

Source: ICIS Supply and demand database

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

LLDPE imports to China 2016-2018 (tonnes)

SINGAPORE SAUDI ARABIA THAILAND UNITED ARAB EMIRATESSOUTH KOREA UNITED STATES IRAN QATARINDIA OTHERS

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

HDPE imports to China 2016-2018 (tonnes)

SAUDI ARABIA IRAN UNITED ARAB EMIRATESSOUTH KOREA THAILAND TAIWAN, PROVINCE OF CHINAUNITED STATES KUWAIT QATAROTHERS

India remains unattractive for both Middle Eastern, US PE sellers

900

950

1000

1050

1100

1150

1200

02-Apr-2018 04-Jun-2018 06-Aug-2018 08-Oct-2018 10-Dec-2018 18-Feb-2019

LLDPE netback Mideast to China=CFR China-freight

LLDPE netback Mideast to India = CFR India-freight

LLDPE netback Mideast to SEA=CFR SEA(dut)-freight

LLDPE netback Mideast to Turkey=CFR Turkey-freightSource: ICIS

India to see 11% growth in LLDPE demand, HDPE to remain flat* in FY 2018-2019

India remains an unattractive market for LLDPE, HDPE importsAmple domestic availabilityImport prices influenced by domestic product

Indian PP import prices capped by domestic price parity

*According to market estimates

Netbacks to FOB Middle East - LLDPE film

950

1000

1050

1100

1150

1200

1250

1300

1350

1400

02-Apr-2018 04-Jun-2018 06-Aug-2018 08-Oct-2018 10-Dec-2018 18-Feb-2019

HDPE netback Mideast to China = CFR China-freight

HDPE netback Mideast to India=CFR India-freight

HDPE netback Mideast to SEA=CFR SEA (dut)-freight

HDPE netback Mideast to Turkey =CFR Turkey-freight

Netbacks to FOB Middle East - HDPE film

Indian PE exports surge, bulk of it to China

China, 63%Indonesia, 9%

Vietnam, 6%

Bangladesh, 4%

Pakistan, 4%

Turkey, 4%Nepal, 2%Kenya, 1%

Malaysia, 1%

Others, 7%

Indian LLDPE exportsFY 2018-2019 (Apr-Feb)

LLDPE exports = 473.19 KT

050000

100000150000200000250000300000350000400000450000500000

2014-15 2015-16 2016-17 2017-18 2018-19 (Apr-Feb)

India PE exportsFY 2018-2019 (Apr-Feb)

HDPE LLDPE LDPE

Tonn

es


US cargoes emerge in Indonesia, LLDPE price spread widens

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Indonesian LLDPE imports2016-2018 (tonnes)

INDIA JAPAN KUWAIT

MALAYSIA QATAR SAUDI ARABIA

SINGAPORE SOUTH KOREA THAILAND

UNITED ARAB EMIRATES UNITED STATES OTHERS

950

1000

1050

1100

1150

1200

1250

1300

1350

LLDPE import prices in Indonesia (USD/tonne)

PE LLDPE Film CFR Indonesia - Low end

PE LLDPE Film CFR Indonesia - High end

Source: ICIS Supply and Demand database Source: ICIS

Vietnam: Another major destination for US cargoes

VietnamZero duty; level playing ground for all Little or no duty advantage for ASEAN cargoes

Malaysia Big converters and re-exporters benefit from

import duty exemptionLocal converters prefer ASEAN or local cargoes -

higher import duty for dutiable cargoes (10%)

ThailandNet exporter; less reliance on importsPreference for local cargoes; relatively low import

duty (3%)

1000.0

1050.0

1100.0

1150.0

1200.0

1250.0

1300.0

Dutiable and non-dutiable LLDPE prices in SE Asia ($/tonne)

Dutiable LLDPE Non-Dutiable LLDPE

For LLDPE, price gap widened from late 2017 up to more than $100/tonne

Source: ICIS

MLLDPE: Wide spread over C4 LLDPE hampers demand

1050.000

1100.000

1150.000

1200.000

1250.000

1300.000

1350.000

1400.000

Asian C6 MLLDPE prices

PE LLDPE C6 Metallocene CFR SE Asia PE LLDPE C6 Metallocene CFR China

PE LLDPE C6 Metallocene CFR India

0

50

100

150

200

250

C6 MLLDPE - LLDPE film price spread

Source: ICIS

Trade war no impact on PP; lengthened availability of Indian exports in Q3 weighs on spot prices

3%

-2%

-1%

-10%

4%

1%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350


Asia PP flat yarn price Jan 2018 – Mar 2019 ($/Tonne) Week on week % change CFR China CFR SE Asia (dutiable)

Chinese import prices plummet in Q3 due to a sudden spike in exports from India, as suppliers there seek to clear on-hand cargoes

Start up of new PP plant in Vietnam lengthens regional supply Build-up of domestic

inventory levels in China after the Lunar New Year holiday

US tariffs on Chinese exports announced

Prices supported by tight supply – unexpected turnarounds in Q1 2019

Source: ICIS

Middle Eastern PP exports affected by outages

Slew of scheduled and unexpected outages in the Middle East have capped PP export availability since August 2018

Source: ICIS

China’s PP imports – South Korea, GCC dominant sources

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Total PP imports to China 2016-2018 (tonnes)

SOUTH KOREA SINGAPORE SAUDI ARABIA

TAIWAN, PROVINCE OF CHINA UNITED ARAB EMIRATES THAILAND

JAPAN INDIA VIETNAM

MALAYSIA UNITED STATES OTHERS

GCC – 22% of total Chinese imports

China moves closer to self-sufficiency, imports continue

China to provide price direction for global markets despite rise in self-sufficiency


Indian Q1 2019 netbacks increase on tight Middle Eastern supply

Netbacks to FOB Middle East from India on an uptrend since January

2019 but trades remain limited

0

50,000

100,000

150,000

200,000

250,000

300,000

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019(Jan-Feb)

Total PP imports to India2016-2019 (tonnes)

UNITED ARAB EMIRATES SAUDI ARABIA SINGAPORE

THAILAND SOUTH KOREA KUWAIT

OMAN UNITED STATES OTHERS

Source: ICIS Supply and demand database

Tight Middle East supply narrows spread in SE Asia

1000.0

1050.0

1100.0

1150.0

1200.0

1250.0

1300.0

1350.0

Dutiable and non-dutiable PP Flat Yarn prices ($/tonne)

Dutiable PP Yarn Non-dutiable PP Yarn

For PP flat yarn, price gap narrowed in 2018 to consistently below $50/tonne

on tight Middle East supply

Source: ICIS

Price difference reduced to an all-time low of $5/tonne in late-April 2019

Spread between the two expected to remain narrow

Availability of non-dutiable cargoes to lengthen with several start-ups in SE AsiaStatic expansions in the Middle East in

contrast

Tariff impact on US and China Trade

0

5,000

10,000

15,000

Round 2 (Aug 2018) Round 3 (Sep 2018)

Exports under tariff based on 2017 trade flows

US exports to China impacted China exports to US impacted

$ millions

$2.0bn $2.2bn

$8.8bn

$13.2bn

Source: American Chemistry Council, US International Trade Commission

Impact on China’s finished plastic exports to US

0

2,000

4,000

6,000

$ millions

Round 2 Round 3

The US imported $39bn of finished plastics products from global sources in 2017.

China’s exports to the US worth $7bn made up around 30% of total US imports in terms of volume but merely 18% of total imports in

terms of value

$1.4bn

$5.6bn

An estimated 2.6m tonnes of annual Chinese plastic products demand might be lost as a result of these tariffs

67% of the demand is for products made from polyolefins

Impact of new capacities on future trade flows

Evolving PE trade flows as US producers redirect cargoes

Source: ICIS

PE estimated global trade flow 2020 （’000 tonnes）

US PE diverted away from China to SE Asia

190,300184,442

158,294

179,768

93,060

103,655

10,956

27,869

69,74928,424

60,496147,989

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jul 2018 * Oct 2018 *

US PE sales Jul vs Oct 2018 (%)

NORTH AMERICA SOUTH & CENTRAL AMERICA EUROPEEASTERN EUROPE AFRICA MIDDLE EASTCHINA REST OF ASIA

(41,325)

38,035

16,160

14,757

10,299

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Changes in US PE exports to Asia* –Jul vs Oct 2018

CHINA VIETNAM MALAYSIA SINGAPORE INDONESIA

Source: ICIS Supply and Demand database(*) Volumes in tonnes

Source: ICIS

Middle East to remain major PP global supplier; northeast Asia emerges as net exporter PP estimated global trade flow 2020 （’000 tonnes）

China PE, PP expansions – inching towards PP self-sufficiency

Source：ICIS

Producer Capacity ('000 tonnes/year) Estimated start upLLDPE HDPE LDPE PP

Jiutai energy 250 350 H2 2019

Zhongan union chemical 350 350 H2 2019

Qinghai Damei 300 400 H2 2019

Zhejiang Petrochemical 300 HD/LLD 450 900PP H2 2019PE 2020

Baofeng energy 300 300 H2 2019Juzhengyuan 600 H2 2019Hengli Petrochemical 400 880 2019-2020

Daqing lianyi chemical 400 500 2020

Bora chemical 450 HD/LLD 350 600 2020

Zhanjiang zhongke 350 550 2020Yantaiwanhua 450 350 300 2020Ningbo futai 400 2020Satellite Petrochemical 500 400 end 2020

Source：ICIS

Asia leads the way for PP expansions

Iran sanctions – Effect on China imports likely limited

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Iranian PE imports in China

LDPE LLDPE HDPE

Grade 2017 2018 Growth (%)LDPE 604,802 584,880 -3.3LLDPE 165,429 214,876 29.9HDPE 1,197,220 1,085,344 -9.3Total 1,967,451 1,885,100 -4.2

US sanctions on Iran’s oil and petrochemical products were re-imposed on 5 November but China will likely continue to

import a significant PE volume from IranUnit: Tonnes

Iranian export (by origin)

The Chinese government’s response so far Increase in export tax refund rates for plastics and plastic products to 16% on 1 November 2018 but tied to VAT rate so rolled back to 13% as of 1 April 2019

Increase competitiveness of Chinese polyolefin exports

Reduce the value-added tax (VAT) for the manufacturing sector effective 1 April 2019Increase margin for local plastic manufacturers

Product Export Rebate

LDPE 16 13% (as of April)

HDPE 16 13% (as of April)

LLDPE 16 13% (as of April)

Product Export Rebate

PP homopolymers 16% 13% (as of April)

PP copolymers 9% (no change)

Other PP grades 13% (no change)

Import price ($/tonne)

Import cost* on 16% VAT (CNY/tonne)

Import cost* on 13% VAT (CNY/tonne)

Selling price in yuan-based import market (CNY/tonne)

Margin* on 16% VAT (CNY/tonne)

Margin* on 13% VAT (CNY/tonne)

$1,000 CNY8,489 CNY8,273 CNY8,600 CNY111 CNY327

* The yuan-denominated import cost takes into account an exchange rate of CNY6.75 to $1; a 6.5% import duty and assumed port fees of CNY150/tonne; while margin is computed as selling price less import cost.

Source: China Finance Department

Outlook for 2019

2019 outlook for the polyolefins market

• Additional capacities in China and SE Asia expected to come on stream in H2 2019• US PE start-ups threaten oversupply in H2 2019, more US PE could flow to SE Asia should

US-China trade war persist • Steady increase in China’s PP export volumes to SE Asia

• Sustainability and plastic waste are key issues in 2019 and beyond – global efforts needed• Upstream crude and monomer cost prices; their effects on regional operating rates• Volatile exchange rates against a backdrop of uncertain global macroeconomic outlook

Demand

Supply

Other factors

• Demand seasonally peaks in April; buying to slow as Eid holiday approaches • Some uptick expected in Q3, ahead of the year-end close• Indian imports dictated by domestic supplier prices

• Pro-consumption government policies, reduction in VAT and increased export tax rebate could support Chinese demand

• Slower growth: 5-6% growth expected for PE; 6-7% for PP • Uncertainty dampens sentiment

Rest of Asia & Mideast

China

Copyright © 2019 ICIS – Private & Confidential

China has been importing 45-70% of the world’s total waste, around 7.5m tonnes in 2016Easier for developed countries to sell their recycled plastic scrap to Asia than process it at home

From January 2018, China refused to buy any recycled plastic scrap, reducing imports volume to an estimated 1.5m tonnes in 2018

Stricter environmental control

Hundreds of small-operation Chinese plastics recyclers relocated to other southeast Asian countriesSome countries are overwhelmed by the sheer volume and are refusing to take any more waste imports

Demand for virgin resin to see boost by the ban in waste plastic imports

China's ban on scrap imports shifts waste crisis to southeast Asia

Copyright © 2019 ICIS – Private & Confidential

What lies ahead

Supply chain, logistics management to assume greater role

Increase in number of trans-shipment, warehousing hubs

A more even playing field for PE producers worldwide

Wider choice of sellers and buyers

US suppliers need to find buyers for surplus volumes due to unavailability of China market

Profitability of warehousing/trans-shipment hubs

ChallengesOpportunities

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Welcome to the ICIS Asia Polyolefins Seminar AgendaThe US shale boom and its ramifications for global PE and PP marketsAgendaShale oil drives US ethylene advantageShale OilShale oil—Game changer for US energyAssociated gases—the petrochemical game changerSlide Number 9The US ethylene advantageUS cracker feedslatesExpansions of USGC NGL fractionation New US crackers complete, under construction through 2019Expansions of existing US crackers, plus 1 restartNorth America PE expansions2nd wave of new US cracker projectsUS PE export marketsIncreasing production, rising export focusExport PE—prices trending lower as supply lengthensLLDPE in focusShifts in LLDPE trade patternsShifts in LDPE trade patternsShifts in HDPE trade patternsConcluding thoughts on the impact of trade tensionsShale oil’s impact on the US propylene chainEthane cracking greatly reduces co-product productionRefineries a key source of US propyleneNo lasting US advantage in propylene costsNorth America on-purpose propylene projects (PDH)PP projects—fewer in number and smaller in capacityPP exports—overwhelming majority to Mexico and CanadaDeepwater arbitrage for PP to/from the USICIS PE/PP editorial teamThank you for your timeAsian and Middle Eastern polymer markets brace for shifting trade windsAgenda US-China trade war & impact on Asian polyolefin marketsA look back on escalating US-China trade tensionsAsia LLDPE prices decline on weaker sentiment after tariff announcement;�stabilises in early 2019Asia HDPE prices largely supported; fell in Q4 2018 on longer supply Reduced PE exports from the US to China; others fill the gap India remains unattractive for both Middle Eastern, US PE sellersIndian PE exports surge, bulk of it to ChinaUS cargoes emerge in Indonesia, LLDPE price spread widensVietnam: Another major destination for US cargoesMLLDPE: Wide spread over C4 LLDPE hampers demandTrade war no impact on PP; lengthened availability of Indian exports in Q3 weighs on spot pricesMiddle Eastern PP exports affected by outagesChina’s PP imports – South Korea, GCC dominant sourcesIndian Q1 2019 netbacks increase on tight Middle Eastern supply Tight Middle East supply narrows spread in SE AsiaTariff impact on US and China TradeImpact of new capacities on future trade flowsSlide Number 54US PE diverted away from China to SE AsiaMiddle East to remain major PP global supplier; northeast Asia emerges as net exporter China PE, PP expansions – inching towards PP self-sufficiencyAsia leads the way for PP expansionsIran sanctions – Effect on China imports likely limited The Chinese government’s response so far Outlook for 20192019 outlook for the polyolefins marketChina's ban on scrap imports shifts waste crisis to southeast Asia�What lies aheadSlide Number 67ICIS PE/PP editorial teamThank you for your time

Documents

Welcome to the ICIS Asia Polyolefins Seminar€¦ · The US shale boom and its ramifications for global PE and PP markets. Asian and Middle Eastern polymer markets brace for shifting