Confidential. © 2017 IHS MarkitTM. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

China Next: Evolution

to Revolution

APIC Marketing Seminar

20 August 2018 | Kuala Lumpur, Malaysia

Paul Pang

Vice President \ IHS Markit\ APAC Oil, Mid-down Streams, and Chemical

+86 21 24229016

paul.pang@ihsmarkit.com

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.© 2017 IHS Markit

Asia is by far the largest market

Rest of World45%

China36%

Japan3%

Korea4%

Taiwan2%

Singapore1%

Thailand2%

Malaysia1%

Indonesia1%

Philippines0%

Vietnam0% India

5%

Benzene8%

PX7%

Ethylene25%

Propylene17%

MEOH13%

PVC9%

Caustic12%

Soda Ash9%

World total demand in 2018 = 639 million tons

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.© 2017 IHS Markit

Asia market is a very diversified

Demand in 2018 (million Tons)

Gro

wth

Rate

(%, 2

01

3-1

8)

China

India

Indonesia

Thailand

Philippines

Taiwan

Malaysia

Korea

Singapore

Japan

(5.0)

0.0

5.0

10.0

0.00 100.00 200.00 300.00

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.© 2017 IHS Markit

China is the only growing country in Northeast Asia

Demand

China

0

100

200

300

400

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Japan Korea Taiwan

Mill

ion

to

n

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.© 2017 IHS Markit

Southeast Asia/India is growing but from a small base

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Singapore Thailand Malaysia Indonesia Philippines Vietnam India

Mill

ion

To

n

Demand

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

China Highlight

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Evolution of policy: opening up but gradual

Launch discharge

permitting system

NOV

2019 20202017 20182015 20162013 201420122007

Deregulate most

investment in chemical;

Restrict less than 1000

KTA refining to JV with

local majority share

JAN

FDI in oil / gas,

and cracker no

less than 800 KTA:

JV only with local

majority share

OCT

Deregulate

refining/

chemical FDI;

deregulate

crude import

FEB

Deregulate

approval

system

JAN

Completely deregulate

refining/chemical;

restrict FDI in oil / gas

upstream to JV only

JULY

Launch nationwide

CO2 trading

DEC Environment

protection tax

JAN ???

Carbon

tax

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

• Policy change paves way for private investment

• Private companies are more nimble and efficient

• Strong entrepreneurship

• Grow big to survive: eat or be eaten

Private investment is leading the growth

Product: olefins, PX, Bz, PTA, MEOH, MEG, Caustic, soda ash

Percent of capacityCapacity (million ton)

0%

20%

40%

60%

80%

0

100

200

300

400

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Sinopec PetroChina CNOOC Foreign

Local Private

Capacity Comparison between SOEs and Private

Private & Local

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Capital investment in billion US$

© 2018 IHS MarkitSource: IHS Markit

Conventional petrochemical leads growth again

• Coal chemicals

– High CAPEX

– High emission

– Less policy incentives

– Competitive cash cost

• Conventional

– High profitability

– Lowered entry barriers

0

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

CTO/CTP MTO PDH CTMEG PX Cracker

Petrochemical

Unconventional

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

North & Northeast

Middle & West

South

East

A wave of integrated refining / petrochemical complexes

8.Wanhua

Chemical

2.SP

Chemicals

Standalone light feed cracker

4.Sinopec

Wuhan

14.Panjin-

Aarmco

7.Shandong

Yuhuang

9.Hengli PC

13.Shenghong

PC

12.Zhejiang PC-

Rongsheng II

3.Zhejiang PC-

Rongsheng I

6.Sinochem QZ

10.Sinopec Gulei

1.CNOOC-

SHELL

11.Sinopec

Hainan

5.Sinopec/

KPC

Integrated complex

Capacity addition (2018-2021), million ton

0

30

60

90

120

Refinery CDU

0

5

10

15

20

C2 C3 PX

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

817

≥42

0%

20%

40%

60%

80%

100%

Global Refinery 2016 Petro Rabigh Hengli Refinery-PX

Others Jet/Kerosene Diesel Gasoline Chemicals

Refinery product yields

NaphthaNaphtha

All chemicals

A China Mega

Refinery/Petrochemical Complex

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

In operation

Under construction

China

Mongolia

South Korea

CTO projects

No. Name Cap./KTA Startup Status

1 SXYCPC-Yan'an E&C 700 Mid-2018 Constructing

2 Huating Coal Group 200 Apr-2018 Constructing

3 Baofeng Energy phase 2 600 Nov-2019 Constructing

4 Zhong'an Coal Chem. 600 Oct-2019 Constructing

5 Shanxi Coking Corp. 600 Apr-2020 Constructing

6 Yulin Energy & Chem. 600 Apr-2020 Constructing

7 Qinghai Damei 600 Mid-2021 Constructing

Total 3,900

1 Baotou Shenhua 630 Apr-2022 Planning

2 Qinghai Mining 670 Mid-2022 Planning

3 Sinopec Zhijin 600 2022 Planning

4 Shenhua Ningmei&SABIC 700 Jul-2023 Planning

5 China Coal Yuheng 600 Mid-2023 Planning

6 CPI/Total JV 890 2024 Planning

7 Sinopec Hebi 600 2024 Planning

Total 4,690

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

A wave of CTMEG projects is coming

Capacity KTA On stream

1 CNSG Hong Si Fang 300 2018

2 ECO Coal Chemical 240 2018

3 Jiutai 100 2018

4 Yongjin Xinxiang 200 2018

5 Xinjiang Tianye 100 2018

6 Xinhang Energy 100 2018

7 Xinjiang Tianying 150 2018

8 Qianxi 300 2018

9 Hualu Hengsheng 500 2019

10 Huiteng Energy 400 2019

11 Xiangkuang Hongtong 200 2019

12 Binzhou Chem 300 2019

13 Connel 300 2019

14 Xinjiang Tianye 600 2020

Total 3,790

Coal-based

Existing CTMEG capacity 2,075 KTA

Planned capacity > 5,000 KTA

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

• Nation-wide carbon trading

• “Gas for coal” in “2+26” regions

• Enforcement of new regulations

• Ban on waste imports

Pollution issue: too serious to be ignored further

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Ban on waste import: a big impact in recycling materials

© 2018 IHS MarkitSource: IHS MarkitDomestic Import

0

2

4

6

8

10

12

2000 2003 2006 2009 2012 2015 2018

China recycled PE/PP consumption, million ton

Ban waste

import

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Key takeaway

• Strong margins supporting acceleration in

new capacity additions.

• China is reaching a turning point for

revolutionizing its refining and chemical

industry

• Macro policy change is expediting the

change

• Threats to the positive outlook: escalating

protectionist trade rhetoric, geo-politics,

rising energy costs….