2015 APIC Kim Hyunmin

7/24/2019 2015 APIC Kim Hyunmin

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Kim Hyun-Min

New Normal Emerges From Chinese Bubble

Tecnon OrbiChem Marketing Seminar at APIC 2015

Seoul, 7 May 2015


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Review of Chinese Economic Background

Bubbles in the Polyester Chain

Bubbles in Other Sectors

Caprolactam

Acetic Acid

2-EH

Acrylic Acid

New Normal in Chinas Economy New Normal in the Polyester Chain

Conclusions

Source: Tecnon OrbiChem

APIC 2015

AGENDA


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Central Government Stimulus Package

Huge spending in 2009-2010 as it sought to boost flagging economic growth Local Government

To meet GDP targets, raised revenue by selling land for petrochemical projects Real Estate

Losses from projects could be covered by high real estate appreciation

APIC 2015

THE START OF THE BUBBLE IN CHINA


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0.0

2.0

4.0

6.0

8.0

10.0

12.0

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Paraxylene

PET Resin

PTA


APIC 2015

CHINESE POLYESTER CHAIN CAPACITY BUBBLES

Annual Capacity Addition (Million Metric Tons)


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China PTA Imports(1,000 Metric Tons)

From 2009 2014 % Change14 /09

SouthKorea

3,215 699 -78

Taiwan 1,907 73 -96

Others 1,134 391 -65

Total 6,256 1,163 -81

China Must Export PTA?(1,000 Metric Tons)

0

2000

4000

6000

8000

2009 2010 2011 2012 2013 2014

Import

Export

463 in

2014

APIC 2015

CHINA PTA IMPORTS & EXPORTS



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-5.0

0.0

5.0

10.0

15.0

0

10

20

30

40

50

2006 2008 2010 2012 2014

Growth Rate

Capacityincreased by71.4% from2009 to 2015

(Million Metric Tons) (% Y-o-Y)


MillionMetric Tons 2009 2015(est.) 2019(est.)

World 27.5 41.3 53.3

China 17.4 29.6 42.2

China % ofWorld Total 63% 71% 79%

APIC 2015

CHINESE POLYESTER FIBRE CAPACITY (VIRGIN)& PRODUCTION

PRODUCTIONCAPACITY


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APIC 2015CHINA PET RESIN SUPPLY/DEMAND & EXPORTS

0

1

2

3

4

5

6

7

8

9

10

2006 2008 2010 2012 2014 2016

Export

Demand

Capacity

0

500

1000

1500

2000

2500

2006 2008 2010 2012 2014 2016

Korea

Taiwan

China

(Million Metric Tons)

2.7 Million

Tons Surplus

(1,000 Metric Tons)

China capacity grows from 3.3 to 9.4 million tons in 2016 (+180%)

Total world capacity to reach 32 million tons by 2016

Future growth projections have been lowered to between 4-5% per year


SUPPLY & DEMAND EXPORTS


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0

10

20

30

4050

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015 2016 2017

2-Ethylhexanol

Acetic Acid

Acrylic Acid

Caprolactam

Capacity Additions (Y-o-Y%)


APIC 2015

OTHER CHINESE CAPACITY BUBBLES


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0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2005 2007 2009 2011 2013 2015 2017

Imports

Production

Consumption

Capacity

(1,000 Metric Tons)

APIC 2015

CHINA CAPROLACTAM SUPPLY & DEMAND



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0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2007 2009 2011 2013 2015

(1,000 Metric Tons)

Production

Consumption

Capacity

Capacity increased by 111.6% from 2009 to 2015

APIC 2015

CHINA ACETIC ACID SUPPLY & DEMAND



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0

500

1,000

1,500

2,000

2,500

2011 2012 2013 2014 2015 2016 2017 2018

Production

Imports

Consumption

Capacity

(1,000 Metric Tons)

APIC 2015

CHINA 2-EH SUPPLY & DEMAND



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0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


APIC 2015

CHINA ACRYLIC ACID SUPPLY & DEMAND

Consumption

Capacity

(1,000 Metric Tons)


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Shift from high-speed growth to medium-high growth Shift from quantity and speed to quality and efficiency

Shift to an innovation-driven growth model.

2015 GDP growth target approximately 7%

APIC 2015

THE NEW NORMAL IN CHINAS ECONOMY


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47

48

49

50

5152

53

54

2011 2012 2013 2014 2015

NBS PMI HSBC PMI

NBS and HSBC PMI data

0

2

4

6

8

2011 2012 2013 2014 2015

Source: National Bureau of Statistics of China & HSBC

Fixed Asset InvestmentIncreased by 13.9%- The lowest for 13 years

Property SalesFell 15.8% during Jan-Feb 2015 year-on-year- The worst drop since 2012

Retail Sales

Grew by 10.7%- The smallest increase in a decade

Electricity ConsumptionOnly rose 3.8% in 2014, year on year- The weakest in 16 years.

Industrial ProductionRose 6.8% in the first two months- The lowest level since the 2008 financial crisis

Y-O-Y %Growth in CPI

January & February 2015

APIC 2015

CHINA ECONOMY ENTERS INTO NEW NORMAL


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(Y-o-Y % Growth)

0

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014

Single MonthCumulative Value

CHINA SOFT DRINK PRODUCTION

0

5

10

15

20

25

30

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013 2014

APIC 2015

SLOW PACE OF DOWNSTREAM DOMESTIC GROWTH

Source: National Bureau of Statistics of China

CHINA RETAIL SALES OFGARMENTS, FOOTWEAR, HATS &KNITWEAR

(Y-o-Y % Growth)(Million Metric Tons)


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APIC 2015

CHINESE POLYESTER FIBRE OVERCAPACITY (Virgin)

Production

Capacity

Growth rate

Polyester Filament

Production

Capacity

Growth ratePolyester Staple

(Y-o-Y %Growth)

Polyester fibre capacity growth rate expect to maintain over 10% in 2015.However, polyester fibre production growth rate may drop to 4-5%



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ASIA PET RESIN MARGINS

-50

0

50

100

150

200

250

300

350

400

2004 2006 2008 2010 2012 2014

PET RESIN - RESTRUCTURING

USA

DAK Americas (204 ktpa), Sep 2013

Europe

Indorama (168 ktpa), UK, Dec 2013

Asia

Japan Unipet (66 ktpa), Japan, Mar 2015

Daehan Synthetic Fibre (60 ktpa), Korea, Dec 2013

China

Nan Ya Plastic (150 ktpa) shut in 2012

Zhuhai Yuhua (140 ktpa) produces alternativepolymers

Sinopec Shengzhiye (240 ktpa) shut in 2013 Ningbo SK-Zhenbang (150 ktpa) shut in 2013

Liaoyang Petrochemical (105 ktpa) shut in 2013


APIC 2015

OVERCAPACITY & SLOW DEMAND DRAGPET RESIN BUSINESS DOWN

($/ton)


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Company Capacity(ktpa)

China

PetroChina Liaoyang 870Yangzi Petrochemical 730

Zhejiang Yisheng 650

Chongqing Pengwei 900

BP Zhuhai 600

Fujian Jialong 600

Xianglu Petrochemical 1,650Yisheng Dahua 2,200

Zhejiang Yuandong 3,300

Total 11,500

Northeast Asia

SK Petrochemical 520

Lotte Chemical 400CAPCO 1,320

Tuntex 440

Mizushima Aroma 250

Total 2,930

PTA PRODUCERS NOT OPERATING

0

10

20

30

40

50

60

70

80

90

0

100

200

300

2005 2007 2009 2011 2013 2015

Capacity PTA Margin

ASIA PTA CAPACITY &MARGIN 2005-2015($/ton)

APIC 2015

THE START OF PTA RE-BALANCING?




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Oversupply dominates Asian and world markets and is stressing global margins.

China PTA industry rationalisation is expected to continue with PTA plantselsewhere in Asia under threat as already seen in Taiwan and South Korea.

With Zhejiang Yuandong announcing bankruptcy, it will be significant to seewhether this is the start of real PTA industry rationalisation in China.

However, the interdependence of PTA projects on each other and with localeconomies and banks risks the start of a domino effect.

Recent health and safety concerns related to paraxylene are a symptom of theproblems that exist, but have the potential to become an issue in themselves

The polyester market is still growing in China, but it is difficult to expect the

speed of growth to be as fast as in the past. Chinas economy has entered a New Normal. Economic growth has slowed

and structural change is needed to overcome the legacy of past stimulus policies.

APIC 2015

CONCLUSIONS



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2015 APIC Kim Hyunmin