Global PVC Market Tightening? - vinyl.org.au · •Focus on capturing more of upstream value •Competing priority for C2, easier to monetize elsewhere

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

Presentation

Global PVC Market Tightening?

13-15 March 2018

Eddie Kok, Executive Director, +65 6439 6060, [email protected]

Chemical Market Services

mailto:[email protected]


Agenda

Outlook risk

Outlook: market tightening?

Global overview

So what, who will benefit?

• Caustic/Chlorine Demand Imbalance

• Feedstock ( C2) availability

• PVC demand substitution/destruction


Global Overview


Northeast Asia is world’s producing powerhouse

29 mmt6.09.3

1.7 2.21.3

0.5

1.9

1.0

1.3

2017 global PVC capacity = 54 mmt


Regional demand split is also lopsided

0%

20%

40%

60%

NAMWEP CIS SAM NEA SEA ME AFR ISC CEP

Source: World Analysis - Vinyls

NAM

WEP

NEA

ISC

ROW

Regional demand breakdown, 2017

Source: World Analysis - Vinyls © 2018 IHS Markit

Global demand 2017 = 43.8 million tons Global demand 2022 = 51.9 million tons

Contribution to global demand growth, 2017-22

© 2018 IHS Markit


Global trade 2017: defined by cost vs. proximity

200 -400 kmt

401 kmt -700 kmt

>1 mmt

North America

South America

W. Europe

Middle East

Indian sub-continent

NE Asia

SE Asia

Total trade: 9.4 MMt

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

0

1,000

2,000

3,000

4,000

Imports Exports

Africa


Outlook: market tightening?


Surplus capacity and production is drying up

NAM

WEP

NEA

CEP

CIS

SAM

SEA

ME

AFR

ISC

Capacity

2018

Spare capacity: 9.8 mmt

3,000

4,000

5,000

6,000

7,000

8,000

-8,000

-4,000

0

4,000

8,000

12,000

2018 2019 2020 2021 2022

NAM WEP CIS SAM

NEA SEA ME AFR

ISC CEP Net Total

Excess production

Source: IHS Markit © 2018 IHS MarkitR

egio

ns, th

ousand m

etr

ic t

ons

Ne

t to

tal, t

ho

usa

nd

me

tric

to

ns

…but

Source: IHS Markit © 2018 IHS Markit


Collapse:

recession &

China

Recovery phase

More capacity needed ... and soon!

60

65

70

75

80

85

90

95

100

-9,000

-4,000

1,000

6,000

11,000

1980-1985 1986-1991 1992-1997 1998-2003 2004-2009 2010-2015 2016-2021 2022-2026

Net (demand less capacity change)** * Av. Op. Rate** *

Global incremental demand less incremental capacity

Source: IHS MarkitNotes: * Incl. hypo. capacity; ** Excl. hypo. capacity

Thousand m

etr

ic t

ons

Av. opera

ting r

ate

© 2018 IHS Markit

Tightening

Lengthening


Why lack of investment to date?

• Past weak return & higher investment costs

• Caustic soda: an obstacle in past

• Better ethylene/polyethylene integration

• Focus on capturing more of upstream value

• Competing priority for C2, easier to monetize

elsewhere

• Export-based investment; added risk element


S-PVC Capacity announcements: decelerated

Producer Country Timing Capacity

China (Various) 2017-20 2,970

Hanwha 2020 130

Philippines 2019 110

Asia 3,210

Westlake 2020 250

FPC 2020 140

North America 390

Trust Chem 2019-2020 200

Engro 2020 100

Navoi Azot 2020 100

Others 300


…but gear change ahead?


Outlook risk: caustic and chlorine demand imbalance


Vinyls: driver for chlorine consumption

Vinyls33%

Organics21%

Chlorinated Inter.6%

Inorganics2%

Pulp & Paper

2%

Water Treatment

7%

All Others29%


…but

Chlorine Caustic

Global = 2.5%

NAM = 1.0%

NEA = 2.8%

India = 5.2%

Global = 2.7%

NAM = 2.5%

NEA = 2.7%

India = 3.6%

2017-2020 Average Annual Demand Growth


Surplus chlor-alkali capacity to decline due to limited capacity growth

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Capacity additions Demand growth Excess capacity as a % of demand

Global Chlorine Capacity vs. Demand Growth


Thousa

nd M

etr

ic T

ons

>90%

capacity

additions

in China

19% av. excess capacity over demand

28% av. excess

15% av. excess


Net trade: EDC the balancing mechanism

Source: IHS World Analysis - Vinyls

2017

2021, +10%

2017 total trade: 2.7 MMt

1.54mmt

0.95mmt


Which markets stand to benefit from additional PVC production?

US extra-regional

China

Egypt

Turkey

Peru

UAE

WEP extra-regional

Turkey

Poland

Russia

NEA extra-regional

India

Malaysia

Bangladesh

Vietnam

Australia


Outlook risk: feedstock ethylene availability


Margins stay upstream, but less than before 2018

2015

323

378

32779

83

283

137

161

262

-21-4

256

North America Northeast AsiaWest Europe

255

263

196

PVC Cash Margin ECU Margin Ethylene Margin

307

291

233

PVC Cash Margin ECU Margin Ethylene Margin Dollars per Metric Ton


Polyolefins loses some of its shine to an old rival

13 14 15 16 17 18 19 20 21 22 23 24 25

Ethylene (into PE) HDPE Ethylene (into VIN) PVC

North America integrated chain margins



Outlook risk: PVC demand substitution/destruction


North America PVC to HDPE: some substitution possible?

0

5

10

15

20

25

0

20

40

60

80

100

Delta HDPE PVC

North America HDPE vs PVC netbacks


HD

PE

& P

VC

,cts

/lb

Delta

• Product life cycle

• Relative densities

• Tensile strength

• Maintenance & reliability

• Installation

PVC more

competitive

But there are other considerations?


Recycled PVC: threat to virgin PVC demand in developed economies

Growing role of PVC recycling in Western Europe

0%

5%

10%

15%

0

2,000

4,000

6,000

Recycled PVC (virgin equivalent)

PVC Demand (virgin)

Proportion recycled vs. virgin PVC (75% basis)

Source: IHS Markit and VinylPlus © 2018 IHS Markit

Thousa

nd m

etr

ic t

ons


So what, who will benefit?


Balances will tighten across all regions, with few exceptions

-1,200

-1,000

-800

-600

-400

-200

0

200

NAM WEP CIS SAM NEA SEA ME AFR ISC CEP

Change in surplus/deficit capacity, 2018-21


Thousa

nd m

etr

ic t

ons

Surplus region, 2018

Deficit region, 2018


Sales growth opportunities: largely function of maturity

0

3

6

9

0 2 4 6 8 10 12 14

Regional demographic and economic metrics

Source: IHS Markit © 2018 IHS MarkitPer capita (kg) PVC consumption, 2018

GD

P (

%)

gro

wth

, 2017

-22

SAM

NAM

ISC

WEP

CEP

CIS

NEASEAMEAFR

= population size


Capacity/population disparities: investment or export?

0

500

1,000

1,500

2,000

0

7,500

15,000

22,500

30,000

NAM WEP CIS SAM NEA SEA ME AFR ISC CEP

Capacity Population

Regional PVC capacity and population


Capacity,

thousand m

etr

ic t

on

s

Po

pu

latio

n, m

illio

n in

ha

bita

nts


North America’s advantage looks assured, in longer-term

-100

0

100

200

300

2017 2018 2019 2020 2021 2022 2023 2024

WEP NEA China non-integ.Source: IHS Markit © 2018 IHS Markit

Dolla

rs p

er

metr

ic t

on

NAM PVC production cash cost advantage


Progress across the board, but NAM PVC producers still rule the waves

-50

0

50

100

150

200

250

300

350

400

0

10

20

30

40

50

60

70

80

90

100

15 16 17 18 19 20 21 22 23 24

NAM Margin WEP Margin NEA Margin NAM OR WEP OR NEA OR

Regional PVC margins and operating rates

Source: IHS Markit

Opera

tin

gR

ate

, P

erc

enta

ge

Ma

rgin

, D

olla

rs p

er

Me

tric

Ton

© 2018 IHS Markit

Cycle peak


Global capacity build is over. What’s next? Evolution or revolution

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

12 13 14 15 16 17 18 19 20 21 22 23

NAM WEP NEA ROW NAM Hypo

ISC Hypo NEA Hypo SEA Hypo ME Hypo Demand

Year-on-year PVC capacity changes


Thousa

nd m

etr

ic t

ons

Actual Expected Hypo.


Who are the winners?

Integrated vinyls

producers &

Feedstock

suppliers

Converters

Standalone PVC producer

& Resin end-users


Market

tightening

Key takeaways

Buyers

beware in

most markets

Cycle peak

2021-22CAV better

positioned

for

feedstocks

Margins

expansion

to support

investment


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Portfolio of Subscriptions Tailored to Your Business

33

Inorganics

World Analysis

• Chlor-Alkali

• Vinyls

• Soda Ash

• MDI *(D)

• TDI *(D)

Market Analysis

• Global Chlor-Alkali

• Global Vinyls

• Global Soda Ash

• Global Bleaching Chemicals

• China Chlor-Alkali/PVC-English

• China Chlor-Alkali/PVC-Chinese

Syngas Chemicals

World Analysis

• Methanol

• Acetyls

• Formaldehyde/Resins *(A)

• MTBE *(A)

Market Analysis

• Global Methanol

• Global Acetyls

Aromatics & Fibers

World Analysis

• Benzene

• Cumene/Phenol & Acetone

• Nylon Feedstocks *(A)

• Nylon Fibers *(A)

• Paraxylene

• Polyester

• PTA/DMT

• Styrene

• Toluene & Xylenes

Market Analysis

• NAM Aromatics

• Asia Aromatics

• Europe Aromatics

• Global PET Stream

• Global Acetone

• Global Nylon/Feedstocks

• Global Polyester/Feedstocks

• Global Ethylene Oxide & Glycol

*(A)

Abbreviated

Version

* (D) Data-

Only Version

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Global PVC Market Tightening? - vinyl.org.au · •Focus on capturing more of upstream value •Competing priority for C2, easier to monetize elsewhere