Convert Risks and Costs to new Opportunites Risks and Costs to new Opportunites Henning Schussmüller Sumitomo Chemical Europe SA/NV 2nd Annual European Petrochemicals C onference

Convert Risks and Costs to new OpportunitesHenning Schussmüller Sumitomo Chemical Europe SA/NV

2nd Annual European Petrochemicals C onference Düsseldorf March 2015

© Henning Schussmüller Sumitomo Chemical Europe

Creation of value along the supply chain flow for all stake holders

2© Henning Schussmüller Sumitomo Chemical Europe

1585-1652

Headquarter

Plant

R&D Unit

17 bill Euro 751 miillion Euro


SUMITOMO CHEMICAL EUROPE

Regional HQ in Brussels for Europe, Turkey and Africa Marketing of products from Japan, Singapore, Saudi Arabia Health and Crop Science production and marketing PP compounding production and marketing Diesel Partical Filter production and marketing Corporate support function

Our Business Locations Around the World

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Cambridge

Griffin

Hampshire

Brussel

Lyon

London

Barcelona

Milan

Torun

Wroclaw

Rabigh

Arusha

Pretoria

Mumbai

Bangkok

Kuala Lumpur

Singapore

Kaohsiung

Zhuhai

Shanghai

Wuxi

Dalian Seoul

Pyeongtaek

Iksan

Taipei

Tainan

Sydney

Walnut Creek

Wellington

Phoenix

Guadalajara

Libertyville

New York

Edison

Wilmington

Sao Paulo

Marlborough

Fort LeeBeijing

Hefei

Ho Cni Minh

Hong Kong

Shenzhen

Istanbul

© Henning Schussmüller Sumitomo Chemical Europe 4

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The EU doubled the sales in this periodand yet: the EU market sharehalved in the same period on global scaleThe Japanese production indexremained unchanged since 2003

European Chemical Industry remained its Competitiveness


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Japanese chemical industry participated well at Chinese dynamic growth Sumitomo Chemical keeps a strong market position in China for many years now Yet this fact may have delayed necessity to restructure the domestic chemical industry

Japanese Chemical Industry profited from its Chinese Neighbour Growth


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Sales (€ billion by country): 2013Title 2013 2012%

World 3156 3127,199

1 China 1047,27 33,2%

2 USA 465,653 14,8%

3 Japan 151,606 4,8%

4 Germany 149,727 4,7%

5 South Korea 132,118 4,2%

6 France 78,448 2,5%

7 India 72,166 2,3%

8 Brazil 70,239 2,2%

9 Taiwan 62,935 2,0%

10 Russia 56,105 1,8%

11 Italy 50,812 1,6%

12 Netherlands 50,76 1,6%

13 Spain 39,21 1,2%

14 Belgium 36,172 1,1%

15 United Kingdom 35,583 1,1%

16 Mexico 35,418 1,1%

17 Saudi Arabia 32,657 1,0%

18 Singapore 27,683 0,9%

Saudi Arabia now on position 17 of world sales ranking It will move up to close to top 10 of world ranking with new capacities coming on stream

The global Ranking will effected by the GCC Countries


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USASaudi Arabia Asia Asia Shale Gas Historical

Raw Material Costs

Natural Gas $/MMBTU 0,75 3 12,5

Crude Oil Cost $/BBL 50 100

Equivalent $/MT 483 482 964 148 615

Ration of 1 ton of Ethylene 1 2,98 2,98 1,29 1,29

Ethane Feedstock Costs $/MT 483 1436 2876 190 793

Catalyst + other $/MT 0 2 2 2 2

subtotal 483 1498 2878 192 795

other costs

By-product incomes $/MT 276 1073 1585 153 431

Utility Costs $/MT 149 235 235 109 454

Direct Costs $/MT 99 172 172 167 167

Total Ethylene Cost $/MT 455 832 1717 316 985

Saudi Ethylene cost remain competitive longer term

Shale Gas has strong positive impact on US petrochems

Asian Ethylene cost not competitive

The Petrochemical Costs in the Regions is one Challenge


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Ethylene plants in Japan Ethylene plants in Saudi Arabia

Company LocationCapacity in MT/year Company Location

Capacity in MT/year

Sumitomo Chemical Co Ichihara 415.000 Al Jubail Petrochemical Co Jubail 810.000Idemitsu Kosan Co Ltd Ichihara 374.000 Al Jubail Petrochemical Co Jubail 800.000Idemitsu Kosan Co Ltd Tokuyama 623.000 Al Jubail Petrochemical Co Jubail 800.000JX Nippon Oil & Energy Corp Kawasaki 460.000 Al Jubail Petrochemical Co Jubail 830.000Keiyo Ethylene Co Ltd Ichihara 740.000 Eastern Petrochemical Co Jubail 1.300.000Maruzen Petrochems Co Ichihara 520.000 Jubail Chevron Philips Co Jubail 300.000Mitsubishi Chemical Corp Kashima 375.000 Jubail United Petrochems Co Jubail 1.450.000Mitsubishi Chemical Corp Kashima 453.000 Petro Rabigh Company* Rabigh 1.600.000Mitsubishi Chemical Corp Mizushima 450.000 Saudi Ethylene and Polyethylene Jubail 1.000.000Mitsui Chemical Inc Ichihara 617.000 Saudi Kayan Petrochems Co Jubail 1.480.000Osaka Petrochems Industries Tokaishi 450.000 Saudi Petrochemical Co Jubail 1.300.000Sanyo Petrochemical Mizushima 500.000 Saudi Yanbu Petrochems Co Yanbu 860.000Showa Denko KK Oita City 675.000 Saudi Yanbu Petrochems Co Yanbu 920.000Tonen Chemical Corp Kawasaki 515.000 Yanbu National Petrochems Co Yanbu 1.300.000Tosoh Corp Yokkaichi 527.000 Sadara Petrochemical Co Jubail 1.500.000Average Capacity of Japanese Ethylene Plants 513.000

Average Capacity of Saudi Ethylene Plants 1.100.000

Total Ethylene Capacity 7.694.000 Total Ethylene Capacity 16.250.000* including expansion of 300.000

Announced additional Ethylene Capacities in Gulf/Iran by 2020: 10.000.000 Mt/year

Petro Rabigh Company Joint Venture of Sumitomo Chemical and Saudi Aramco Total Ethylene capacity in Japan exceeds more than 20 % of actual demand Average Saudi cracker has double the capacity of the Japanese cracker High production unit cost of old Japanese cracker force industry to adapt to market changes

... And the Age and Capacity of Japanese Crackers is another one


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Consequential restructuring Programs underway

Sumitomo Chemical Company:

Ethylene Plant closure

Caprolactam Liquid Phase Plant closure Propylene Oxide/Polystyrene Plant closure PMMA Plant closure PE and PP plant closureEPDM plant closure

And other Japanese major chemical companies to follow:

Acrylonitrile plant closure by Asahi Kasei

Integration of cracker plant of Mitsubishi and Asahi Kasaei Integration of cracker plant of Mitsui and Idemitsu Restructuring of the entire Fibre Value Chain

... whilst the Japanese Prime Minister, Mr Abe keeps pushing the industryto adopt plant capacities to market demands to regain competitiveness


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Geographical Overview of the chemical Sites in the Gulf and Saudi Arabia


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The expansion of PetroRabigh in Phase 2 will add new products to existing site:

PetroRabigh I Nameplate Capacity

(k-tonnes/year)

Ethylene 1300

Propylene 900

Linear Low PE 600

High Density PE 300

Polypropylene Homo 350

Polypropylene Copo 350

MEG 600

Propylene Oxide 200

PetroRabigh II Project Nameplate Capacity

(k-tonnes/year)

Ethylene 300

Propylene 250

Isobutylene 60

Paraxylene 1300

Benzene 400

Cumene 400

Phenol 250

Acetone 150

Methylmethacrylate 90

PMMA 50

LDPE 80

EVA 70

EPDM 70

TPO's 10

Caprolactam 120

Nylon 6 60

Polyols 50

Sumitomo Chemical Investment in low Cost Plants in Saudi Arabia


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0

5000

10000

15000

20000

2008 2016

Export

GCC

Ethylene Derivatives Production well exceeds Regional (GCC) Demand

Derivatives of 14.400 kt seek export business This equals some 8 million TEU containers It corresponds to ca. 2 million extra TEU‘s just for GCC region

To put this into perspective: The two largest Chinese container producers

have a joint capacity of 3.5 million containers /year Jebel Ali - the biggest port in UAE has a capacity of 9.8 million TEU Jeddah Islamic Port has a capacity of 3.9 million TEUNew King Abdullah Port expanded to 2.7 million TEU

Ethylene derivatives production ... that leads to new strategical logistic challenges:


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Challenge current supply chain to become more agile

Allow learning organisation but ensure time efficient transition

Increase reliability and cost to serve optimisation

Our overall business goals

• Customer service

• Operational excellence

• Value : cost optimisation

• Robust supply chain

• Cultural Diversity

Our supply chain objectiveRealise competitive edge with the supply chain as “the catalyst” for innovative marketing of our products

Our partner expectations

• Full understanding of our business

• Reliability

• High value at lowest cost

• Radical processes simplification

• Strong collaboration in supply chain

Our KPI’s

Safety, quality, reliability, efficiencies and productivity, reporting


Vertical integration triggers the added values of horizontal integration:

Strengths of the collaboration model:

Fluent pick-up in port ICT: Transparency of stocks is realised immediately at quay site 360°planning On site repacking in adapted transport units Flexible container choice Consolidation at one port = a cost saver for us

« Our supply chainhas migrated intoa value chain »

Customers

Whs networkSea Carriers

Sumitomo Chemical

Singapore

Customers

PetroRabigh

Onsite LSPSea Carriers

Customers

LSP EuropeLSP TurkeySea Carriers


Sumitomo Chemical Europe


The Human Resource Factor is a Key Enabler in this Business Strategy

Orchestre the diversity of Japanese, Saudi and European cultures and values Identify, employ, train and retain talented staff in increasing competitive environment There is no business globalisation without globalised culture: the learning organisation There is still too much of „silo thinking“around all parties Tackle the resistence to change in all hierarchies, not just on lower levels

Kaizen: Continuous Improvement Process:

„Let us help each other to climb to the next level“

Domo arigato – Thank you

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Henning SchussmüllerE: [email protected]


Documents

Convert Risks and Costs to new Opportunites Risks and Costs to new Opportunites Henning Schussmüller Sumitomo Chemical Europe SA/NV 2nd Annual European Petrochemicals C onference