C4 Olefins Market Outlook · China cracker wave is looming, adding over 2 MMA contained butadiene (18,100 KTA ethylene additions 2018-2027) Stand alone cracker E/P/B cracker Refinery-Cracker

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited

C4 Olefins Market Outlook

Anthony Song, Director Asia Olefins and Elastomers, +65 6439 6188, [email protected]

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Reproduction in whole or part without permission is prohibited.

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Economy, Energy, and

Automotive


GDP Growth expected to gradually slow down

- World economy will be sustained above 3.0% over the next couple of years

* Fiscal years starting 1 April

Source: IHS Markit © 2018 IHS Markit

2015 2016 2017 2018 2019 2020

World 2.9 2.6 3.3 3.2 3.1 3.0

United States 2.9 1.6 2.2 2.9 2.7 1.9

Eurozone 2.0 1.8 2.6 2.0 1.7 1.6

United Kingdom 2.3 1.9 1.8 1.2 1.1 1.4

China 6.9 6.7 6.9 6.7 6.3 6.1

Japan 1.4 0.9 1.7 1.0 1.0 0.4

India* 8.1 7.1 6.6 7.1 7.3 7.2

Brazil -3.5 -3.5 1.0 1.5 2.5 2.9

Russia -2.8 -0.2 1.5 1.8 1.6 1.8


Oil price eventually ease, but natural gas remains inexpensive

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0%

20%

40%

60%

80%

100%

120%

140%

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

Crude Oil Natural Gas Gas/Crude

Medium Term Energy Price Trends

2010

= 1

00

%

Gas

to C

rud

e P

rice R

ati

o

© 2018 IHS MarkitSource: IHS Markit


You don’t need to replace tires if you don’t use them

US29%

Europe21%

Japan4%

China11%

Other35%

2017 light duty vehicle miles driven share


0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

2007 2009 2011 2013 2015 2017 2019 2021

Global US Europe Japan China

Light duty vehicle miles driven

20

07

= 1

00

%



Automotive production growth slows

US11%

West Europe

16%

Japan10%

South Korea4%China

29%

Other30%

2017 passenger car production share


0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

2007 2009 2011 2013 2015 2017 2019 2021

Global US West Europe

Japan South Korea China

Trends in passenger car production

20

07

= 1

00

%



Non-internal combustion engine vehicle production is increasing

0

5

10

15

20

25

15 16 17 18 19 20 21 22 23

Mild Hybrid Full Hybrid Plugin Hybrid Electric Motor with Engine (REEV) Battery Electric Vehicle Fuel Cell

Electric, Hybrid, Fuel Cell Vehicles

© 2018 IHS Markit

%o

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lob

al V

eh

icle

Pro

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Source: IHS Markit Automotive


Petrochemical Market Overview


Ethylene


Cracker Trends in the US and China Drive the World

• US shale gas based ethane investments

> Total ethane availability 2017 – 2030 ~20 – 22 million tons of ethylene

> 8 crackers with more than 10 MMTA of ethylene capacity starting up 2017 – 2022

> 11 crackers with more than 14 MMTA of ethylene capacity under development, 3 well

down the path

> All ethane based

> 2018 start ups experiencing delays due to derivative consumption

• China investments based on naphtha, LPG, and imported ethane

> Many projects under development

> Ethane imports from US being worked on (60% capital cost and faster construction)

> Naphtha cracking will eventually increase


China cracker wave is looming, adding over 2 MMA contained butadiene (18,100 KTA

ethylene additions 2018-2027)

Stand

alone

cracker

E/P/B

cracker

Refinery-

Cracker

Shenghong PC

Zhejiang PC I

Sinopec

Hainan

Sinopec/

KPC

CNOOC-

SHELL

Hengli PC

Panjin-

Aarmco

Wanhua

Chemical

SP

Chemicals

Zhejiang PC II

Sinopec

Wuhan

Sinochem QZ

Satellite PC

Shandong

Yuhuang

Shouguang

Luqing

Liaoning

Bora

Huatai

Shengfu

---- 4,000 8,000 12,000

Refinery-cracker complex

Ethane/Propane/Butane cracker

Stand alone cracker


Refinery-cracker complex

59%

Ethane/Propane/Butane cracker

23%

Stand alone cracker

18%


2018-2027 China Ethylene Capacity Additions

2018-2027 China Ethylene Capacity Additions

Fujian Gulei


Northeast Asia new ethylene capacity addition

Country Name Start-up LPG/Naphtha E/P

Hengli PC 2021 1,500

Zhejiang PC 2 2021+ 1,400

Shenhong PC 2021+ 1,000

Panjin Aramco 2021+ 1,000

Liaoning Baolai 2021+ 1,000

ExxonMobil 2024+ 1,000

Sinopec Hainan 2021+ 1,000

Satellite PC 2024+ 2,500

Bohai Chemical 2024+ 1,000

Nanshan Group 2024+ 2,000

Juneng Heavy Industry 2024+ 2,000

Guangxi Investment 2024+ 1,000

Yangmei Hengyuan 2024+ 1,500

Hyundai Oil Bank 2022 750

GS Caltex 2022 700

Total 19,350 9,350 10,000

Korea

China

Ethylene capacity

Country Name Start-up LPG/Naphtha E/P Coal

CNOOC-Shell 2018 1,000

Shandong Yuhuang 2019 400

Zhejiang PC 1 2020 1,400

Sinopec/KPC 2021 800

Hengli PC 2021 1,500

Sinochem QZ 2021 1,000

Fujian Gu Lei 2022 800

SP Chemical 2019 650

Wanhua Chemical 2021 1,000

SXYCPC-Yan'an E&C 2018 450

Huating Coal Group 2018 200

Baofeng Energy phase 2 2019 600

Zhong'an Coal Chem. 2019 600

Shanxi Coking Corp. 2020 600

Yulin Energy & Chem. 2020 600

Qinghai Damei 2021 600

Total 12,200 6,900 1,650 3,650

China

Ethylene capacityUnder Construction Under Review – in the Press


South Asia aggressive investment on steam crackers

Hyosung PDH 600KTA(2020)

Long Son PC 1,000KTA C2(2023)

PTTGC 500KTA C2(2021)

IRPC 200KTA C2(2019)

Exxomobil tbn (2022+)

Petronas 1,260KTA C2(2020)

Lotte Chem 92KTA C2(2018)

Lotte Chem 1,000KTA C2(2022+)

Chandra Asri 1,000KTA C2(Plan)

Pertamina(?) 1,000KTA C2(?)

HPCL Mittal Energy

1,200KTA(2022)

GAIL or IOC 1,500KTA(2023+)

GAIL or Essar 1~2 PDH (2021+)

Pakistan 700KTA(2025+)


Ethylene feed type: a shift from Liquids – return to Naphtha

0%

20%

40%

60%

80%

100%

2012 2017 2022 2027

Naphtha Ethane LPG Other

Global Ethylene Production by Feed Type


Pro

du

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, P

erc

en

t


Butadiene to Ethylene production ratios change with cracker feedslates

0.50

0.60

0.70

0.80

0.90

1.00

1.10

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027

World US WEP China MDE

B/E Ratio for Selected Countries and Regions


20

07

= 1

.0


Will there be enough Crude C4?

0

1

2

3

4

5

6

CC4 BD eSBR sSBR PBR ABS

Average Annual Growth Rates 2017 - 2027


Pe

rce

nt


Butadiene


What drove prices higher in Asia this year?

• Derivative affordability

> Non-synthetic rubber butadiene derivatives had

higher affordability

• Long ethylene balance in US

> Ethylene balance was long in US due to weak

demand

> Crackers have reduced operating rate

• Limited spot availability in Asia

> Spot cargoes set price in Asia

> Term contracts are influenced heavily by spot

transactions

0%

50%

100%

150%

200%

Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18

NAM WEP NEA

Regional Butadiene Prices

© 2018 IHS Markit

Ju

ne

20

17

= 1

00

%

Source: IHS Markit


Derivative affordability is price setter in Asia

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18

SBR PBR ABS BD (CFR NEA)

Derivative Affordability

© 2018 IHS Markit

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Source: IHS Markit


Butadiene demand primarily driven by mobility, especially tires

PBR28%

eSBR20%

sSBR7%

NBR7%

PCR1%

ABS13%

SBL9%

ADN5%

Other10%

2017 key butadiene derivatives


China19%

North America

13%

West Europe

13%

Northeast Asia ex China21%

Other34%

2017 key butadiene consuming regions



New capacities are being added, mostly in Northeast Asia

0

100

200

300

400

500

600

2018 2019 2020 2021 2022

CIS & Baltic NEA SEA

Butadiene Capacity Additions

© 2018 IHS Markit

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Source: IHS Markit


New butadiene capacities are going back to conventional method

0

100

200

300

400

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600

2018 2019 2020 2021 2022

On-purpose Conventional

Butadiene Capacity Additions by Method

© 2018 IHS Markit

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Source: IHS Markit


Market sentiment is expected to remain unfavorable for on-purpose production

-1,000

0

1,000

2,000

3,000

4,000

Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

Cash Margin Extraction Cash Margin Dehydro Cash Cost Extraction Cash Cost Dehydro BD CFR NEA

Butadiene Production Economics

© 2018 IHS Markit

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Source: IHS Markit

But there will be period where on-purpose can run with short duration


China drives the world

• World’s most dynamic market

> 66% of global capacity additions 2017 – 2022

> 11 ethylene cracker projects expected to start up

between 2017 and 2022

> Single largest short-term price driver

• Butadiene demand growth slowed, but

remains robust

• Increased environmental impact focus

significant for individual companies, but overall

market dynamics unaffected so far

> 9% of ethylene and 28% of butadiene production

capacity is in affected area

> 30% of SBR, 40% of PBR, and 55% of tire

production capacity in affected area


China trends more self sufficient

82%

87%

92%

97%

102%

0

1000

2000

3000

4000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Conventional Production On Purpose Production Self Sufficiency

Butadiene production and self sufficiency in China

Th

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Se

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Northeast Asia ex-China highlights

• Domestic crude C4 production flat to down

with lighter cracker feedslates

• Region has been significant net exporter of

derivatives, which trends in China are hurting

• Production and domestic demand remain flat

• Longer-term potential for additional ethylene

production capacity, most likely naphtha based


Northeast Asia ex-China is stable

0

500

1000

1500

2000

2500

3000

3500

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Demand Conventional Production

Northeast Asia ex-China butadiene balance

Th

ou

sa

nd

Me

tric

To

ns



West Europe highlights

• Butadiene production decreases slightly with

lightening cracker feedslate

• Butadiene supply remains more than sufficient

for domestic demand

• Export pull decreases

• Crude C4 hydrogenation returns later in

forecast


80%

85%

90%

95%

100%

105%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

20

07

= 1

00

%

West Europe butadiene to ethylene production ratio index


West Europe cracker feedstocks continue lightening trend


Europe will remain as net exporter of butadiene

40%

50%

60%

70%

80%

90%

100%

0

0.5

1

1.5

2

2.5

3

12 13 14 15 16 17 18 19 20 21 22

Demand Production Total Capacity Operating Rate

West Europe : Butadiene Supply & Demand

© 2018 IHS Markit

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Source: IHS Markit


North America highlights

• Increased ethylene production makes the

region more self sufficient, but not a pure net

exporter

• Butadiene derivative producers exercise care

in investing in region to not force continued

imports

• Transition will be painful and inconsistent

> Currently ethylene derivative capacity does not

allow full operation of new ethylene crackers

> Eventually combination of derivative capacity

increased and ethylene export capacity increases

makes market more stable


North America will continue to import butadiene

30%

40%

50%

60%

70%

80%

90%

0

0.5

1

1.5

2

2.5

3

12 13 14 15 16 17 18 19 20 21 22

Demand Production Total Capacity Operating Rate

North America : Butadiene Supply & Demand

© 2018 IHS Markit

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s

Source: IHS Markit


Synthetic and Natural

Rubber


Slower butadiene derivative capacity additions expected

-500

0

500

1,000

1,500

12 13 14 15 16 17 18 19 20 21 22

ABS PBR ESBR SSBR

ABS & Synthetic Rubber Capacity Additions

© 2018 IHS Markit

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Source: IHS Markit


Operating rates remain weak, but will improve

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

World North America West Europe Northeast Asia ex China China Other

Commodity Synthetic Rubber Operating Rates



• Vast majority of production by small farmers

➢ Production = living cost (small farmers)

➢ Difficult to control production

• Production is concentrated in Asia, especially

Southeast Asia (accounting for 80 percent)

• Non-major producing countries are increasing

the production

• Supply is relatively price inelastic and reflects

market conditions roughly 8 years prior

• Agricultural product = sensitive to climate and

plant diseases

37

Natural rubber production fundamentals

0

300

600

Cambodia Myanmar Cote d'Ivore

2012 2013 2014 2015 2016 2017

Natural Rubber Production

© 2018 IHS Markit

To

ns

Source: IHS Markit


• Asia accounts for more than half of demand

• China is by far the largest consuming

country.

• Tire production drives natural rubber

demand, primarily larger truck tires.

➢ MH Truck production growth is much lower than

LV production growth (LV 96% vs MH 4%)

• Demand is sensitive to general economic

conditions as goods shipment by truck is the

most significant driver.

38

Natural rubber demand fundamentals

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2013 2015 2017 2019 2021 2023

World North America West Europe India China

Medium & Heavy Truck Production



What has changed since last year for natural rubber?

• Long supply and high inventory having pressure on price

- Rubber farmers demanding government support

- Production increasing from other than major natural rubber

producers

• Lower automotive production growth

- Purchase tax reduction on small vehicles is over

- Slower growth from China

• ITRC members have started export curb but no effect

• New scheme from Thailand to support rubber industry

- Subsidy will be given to cut down rubber trees (voluntary)

- Promoting use of natural rubber


Oversupply of natural rubber continues

10

12

14

16

12 13 14 15 16 17 18 19 20 21 22

Production Demand

Global Natural Rubber Supply & Demand

© 2018 IHS Markit

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Source: IHS Markit


Price Forecast


Butadiene prices have been extremely volatile

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Ja

n-1

0

Ap

r-1

0

Jul-10

Oct-

10

Ja

n-1

1

Ap

r-1

1

Ju

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1

Oct-

11

Ja

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2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oct-

14

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oct-

15

Ja

n-1

6

Ap

r-1

6

Ju

l-1

6

Oct-

16

Ja

n-1

7

Ap

r-1

7

Ju

l-1

7

Oct-

17

Ja

n-1

8

Ap

r-1

8

WTI Butadiene Ethylene Styrene

Price Volatility of Select Commodities


Ra

tio

to

20

10

-M

ay 2

01

8 A

ve

rag

e


Forecast is stable, but actual prices will be volatilePrice volatility will be created by any kind of unexpected events, base energy volatility, Asia market speculation, etc

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19

NAM WEP NEA

Butadiene Price Forecast

© 2018 IHS Markit

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Source: IHS Markit


Butadiene – naphtha spread will trend down with new capacity additions

0

500

1,000

1,500

2,000

2,500

3,000

2013 2015 2017 2019 2021 2023

Asia BD-Naphtha NEA NAM WEP

Butadiene Price Forecast

© 2018 IHS Markit

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Forecast risk and uncertainties

Short term

> Unplanned events

> Base energy volatility

> Cracker feedslate deviation from forecast

> Trade-war

Longer term fundamentals

> Crude oil and natural gas price dynamics

> Mobility evolution

– Reinventing the Wheel

IHS Markit Customer Care

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

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Documents

C4 Olefins Market Outlook · China cracker wave is looming, adding over 2 MMA contained butadiene (18,100 KTA ethylene additions 2018-2027) Stand alone cracker E/P/B cracker Refinery-Cracker