Commodity Plastics Market Update: the Impact of Lower Crude May 15 2015 Ihs.Com

IHS CHEMICALS Presentation Commodity Plastics Market Update: The Impact of Lower Crude May 15 2015 ihs.com

Joel Morales, Director Polyolefins North America, 832 619 8588, [email protected]

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Plastics & Polymers • Global Plastics & Polymers • North America Polyethylene & Polypropylene Aromatics & Fibers Chlor-Alkali & Vinyls • Asia / Middle East / India Olefins & Derivatives • Aromatics (Asia, Asia • Global Chlor-Alkali Plastics & Polymers • Light Olefins (North Daily, Europe, Europe • Chlor-Alkali Weekly • Asia / Middle East / India America, Europe / Daily, North America, Reports (Asia, Europe, Polyethylene & Middle East, Asia) North America Daily) Americas) Polypropylene • Global Ethylene Oxide, • Global Polyester Fibers • Global Vinyls • China Polyolefins Glycol & Derivatives & Feedstocks • Vinyl Weekly Reports (Chinese) • Global C4 Olefins & • Global Nylon Fibers & (Asia, Europe, Americas) • Europe Plastics & Polymers Elastomers Feedstocks • China Chlor-Alkali/PVC • Europe Plastics & Polymers • Asia C4 Olefins & • Global Acetone (English, Chinese) – Supplement Elastomers Syngas Chemicals • Global Bleaching • Global PET Stream • Global Tire Raw • Global Methanol Chemicals • Global Engineering Resins Materials Indices • Global Acetyls • Global Soda Ash

Energy Overview

Quarterly Average Price per Barrel 120

100

20 12 Q2 Q3 Q4 13 Q2 Q3 Q4 14 Q2 Q3 Q4 15 Q2 Q3 Q4 16 Q2 Q3 Q4 Crude Brent WTI Benchmark crude price strip (dollars per barrel) 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 Dated 77.17 55.20 61.54 58.67 60.67 58.67 63.33 68.00 72.00 Brent WTI 73.15 48.73 54.83 50.32 51.72 50.49 56.08 60.70 66.46

• The oil price decline that began in June 2014 was triggered by Libya’s production return. However it was the underlying strength of US and non-OPEC supply amid weak global demand that exacerbated the effects. • OPEC will let markets decide the clearing price for oil for the time being, keeping markets oversupplied. • US shale oil and gas investment is slowing in 2015, but the impact on production growth will likely be less severe. Companies will ignore poor producing areas and remain focused on high-yield sweet spots. • Crude oil and refined products demand remains relatively weak. Lower prices may allow an upside surprise but that additional demand will be insufficient to balance the market…this is a supply-side issue.

© 2015 IHS Plastics Overview / May 2015 In the Global Economy…Who is Helped and Who is Hurt by Lower Oil Prices? Who is helped? • US consumers….annual fuel savings of at least $80 billion. • Energy-intensive industries (e.g. agriculture, transportation and shipping). • Governments in oil-importing countries with large fuel subsidies (at governmental level more so than consumer).

Who is hurt? • Oil producers, especially those with high costs. • Major oil exporters, especially those with difficult public finances where the “fiscal break-even point” is above $100 per barrel, including Iran, Russia, and Venezuela.

Net effect: • The drop in oil prices represents a transfer of $1.5 trillion annually from oil exporters to oil importers.

© 2015 IHS Plastics Overview / May 2015 Combining Energy & Economic Conditions…What is the Impact of Lower Oil Prices on Petrochemicals? • Better economic conditions improve global petrochemical demand • Lower cost for oil-based (price setters) lead to decreasing prices. • Advantaged-low cost assets experience margin decline. • New capital investments - approved projects continue

Potential Negative Implications: • Increasing demand/pause in new investments triggers tight markets in 2017-20. • Export terminals for LNG, Propane, and Ethane could be stalled or cancelled.

Dollars Per MMBtu Gas as a% of Crude, BTU Basis 18 120% 16 100% 14 12 80% 10 60% 8 6 40% 4 20% 2 0 0% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Crude (WTI) Natural Gas Gas as % of Crude

Most of the World Oil  Naphtha  Ethylene Fabricated Products Oil valued energy  Electricity  Chlor-Alkali EDC  VCM  PVC & OtherPipe/Siding

North America & Middle East Natural Gas  Ethane  Ethylene Natural Gas  Electricity  Chlor-Alkali EDC  VCM  PVC

China Coal  Carbide  Acetylene Coal  Electricity  Chlor-Alkali VCM  PVC

Crude Oil Ethylene Propylene

Refinery Naphtha Methane/Hydrogen Gas Oil Ethane Ethylene Crude C4 Butadiene Propane Unit Butanes Mixed Butylenes Gas Field Pygas Separation Condensates Unit Benzene Toluene/Xylene Heavy Aromatics Fuel Oil Natural Gas Olefins Flow Diagram

Tons 5.0

2.5

0.0 Ethane Propane Light Naphtha Gas Oil Ethylene Propylene Crude C4 Pygas (BTX & Heavy Aromatics) Hydrogen Methane Fuel Fuel Oil

• Accelerations in consumer spending and homebuilding, along with continued robust capital spending, will support growth. • As the largest net importer of crude oil, the United States is a beneficiary of lower oil prices, but oil industry investment will be cut in 2015. • Consumers will boost spending in response to declining gasoline prices and gains in employment, real disposable income, and net worth. • The recovery in homebuilding will gain momentum as labor markets improve and credit standards ease. • Interest rates will rise significantly over the next three years as monetary accommodation is withdrawn. The petrochemical industry is exposed to a global market.

Real GDP and its components

Percent change 2014 2015 2016

Real GDP 2.4 2.3 2.7

Consumption 2.5 3.4 3.0

Residential investment 1.6 11.1 11.3

Business fixed investment 6.3 4.8 5.4

Federal government -2.0 -0.3 -0.4

State & local government 0.9 1.2 0.9

Exports 3.2 3.9 3.3

Imports 3.8 5.3 5.6

© 2015 IHS Plastics Overview / May 2015 Business Opportunities look slightly brighter for 2015 in the Americas. • U.S. expansion gradually gains momentum and 2015 GPD growth forecast at 2.8%. • Latin America GDP is expected to grow but at a lower pace of 1.1% for 2015. Mainly due to slow down in Brazil which accounts for almost 50% of the Region’s GDP. • Presidential elections: Chile (Dec, 2013), Colombia (May 2014), Brazil (Oct/Nov 2014), Argentina (Oct 2015), and Peru ( April 2016) define economic policies in these countries. Most of these elections required a second round, an indication of tight races. • Mexico should feel the positive impact of the U.S. growing economy with GDP expectations of 2.6%.

Polyethylene

2014-2019 AAGR 2014 Global 4.5% 2019 Southeast Northeast Southeast Northeast Asia Asia Asia Asia 8% 33% 8% 36%

Africa/ Africa/ Middle East Middle East 11% 11% Indian Indian Subcontinent Subcontinent 6% Europe 5% 19% Europe 16% North North America South America South 17% America 18% America 6% 6%

2014 Total Global Demand = 84.7 2019 Total Global Demand = 105.7 Million Metric Tons Million Metric Tons

© 2015 IHS 20 Plastics Overview / May 2015 What Could Go Wrong ? (From January 2014 IHS presentation) • Collapse of crude vs NatGas spread • Global economic slow down • Anti-shale legislation • Increased anti-plastic bag legislation • Price related demand destruction

Cents Per Pound DollarsDollars Per Per Metric Metric TonTon 60 1,320

50 1,100

40 880

30 660

20 440

10 220

0 0

-10 -220 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 PE Margin - Contract HDPE Blow Molding Non-Int. Including Discounts Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs

Cents Per Pound Dollars Per Metric Ton 60

-10 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 PE Margin - Contract HDPE Blow Molding Non-Int. Including Discounts Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs

Cents Per Pound 100

20 Saudi Ethane Cash Cost

0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 NAM Cash Cost, Integrated NAM LLDPE WEP LLDPE CHINA LLDPE (Spot)

• Asia prices rebounded after initial declines • Recycle helps set floor, uptick in prime demand likely • Significant restocking after Lunar near year boosted demand • Continued poor demand in Europe and emerging economies • Europe benefiting from tight supplies, lower Euro and MDE tariffs, recent closures • Lower crude provides incentives for higher cost producers to run at higher rates, both in China and Western Europe • Tight supply/demand fundamentals for North America continue into 2015/2016, but global PE price ceiling has been significantly lowered • Elevated arbitrages in 2015/2016 will encourage increased imports of pellets and finished goods into North America. • Increased incentive to export more product in 2015 with improved supply of existing assets.

Plastics Overview / May 2015 Regional HDPE Blow Molding Prices

Average Spread: Cents Per Pound 2013: 5.69 cpp Dollars Per Metric Ton 2014: 8.81 cpp 110 2015: 9.95 cpp 2,425 2016: 8.01 cpp 90 1,984

70 1,543

50 1,102

30 661

10 220

-10 -220 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 Sep-16 NAM Net Trans. - CFR China NAM Net Transaction NAM Spot Export WEP Discounted Contract

Resin Type Company Location Country LDPE LLDPE HDPE TBA Startup 2012-2013 Equistar LaPorte, TX United States 23 Q4 2012 Equistar Morris, IL United States 45 Q4 2012 2014 Equistar Bay City United States 91 Q4 2014 Dow Canada Prentiss Canada 200 Q3 2014 2015-2016 Braskem Idesa Coatzacoalcos Mexico 300 750 Q3-Q4 2015 Nova Joffre Canada 450 Q4 2015 Formosa Point Comfort, TX United States 300 Q4 2016 ExxonMobil Mont Belvieu, TX United States 650 650 Q3 2016 Equistar Corpus Christi, TX United States 500 2016 Sasol Lake Charles, LA United States 420 450 Q42016 2017 Dow Freeport, TX United States 400 650 2017 CPChem Sweeny, TX United States 500 500 Q3 2017 2018-2019 Ineos Deer Park, TX United States 470 2018 Nova Sarnia Canada 430 Q3 2018 Shell Marcellus United States 500 500 Q3 2019 Totals, 000's MT 1420 3698 3161 500 8279

2014 Total PE Capacity 20,300 KTA Resin Type Company Location Country LDPE LLDPE HDPE TBA Startup 2014 Equistar Bay City United States 100 (6) Q2 2014 2015-2016 Braskem Idesa Nachital Mexico 300 (2) 750 (6,7) Q3-Q4 2015 Ineos Sasol Deer Park, TX United States 470 (6) Q2 2016 Nova Joffre Canada 432 (4) Q3 2016 2017 ExxonMobil Mont Belvieu, TX United States 650 (4) 650 (4) Q2 2017 Mont Belvieu, TX United States 60 (5) Q2 2017 CPChem Sweeny, TX United States 500 (5) 500 (7) Q3 2017 Dow Plaquemine, LA United States 375 (2) Q3 2017 Dow Freeport, TX United States 450 (5) Q3 2017 2018-2020 Formosa Point Comfort, TX United States 400 (2) Q1 2018 Sasol Lake Charles, LA United States 420 (2) 450 (4) Q3 2018 Formosa Point Comfort, TX United States 200 (4) 200 (4) Q3 2019 Equistar Laporte, TX United States 500 (5) Q3 2019 Appalachian Resin* Marcellus WV United States 275 (3) 2020 Shell* Marcellus Pa United States 500 (3) 1000 (4,7) 2020 Totals, 000's MT 1495 3182 4230 275 9,182 Totals, 000's MT (in Database) 1495 2682 3230 0 7,407 *Reported projects not fully verified or approved and not included in IHS capacity database. **Processes: (1) Autoclave, (2) Tubular, (3) TBA, (4) Gas Phase, (5) Other, (6) Ziegler, (7) PF Loop

Net Trade, Million Metric Tons Trade as a % of Production 10.0 20% 8.0 16% 6.0 12% 4.0 8% 2.0 4% 0.0 0% -2.0 -4% -4.0 -8% 09 10 11 12 13 14 15 16 17 18 19 North America Net Trade South America Net Trade Americas Net Trade Americas Net Trade as % of NAM Production

• 7.3 MM tons of expansions included in 2014 -2019 forecast with approx. 5.7 in the US • Most projects look viable, but start dates for some will slide. • Cost basis should allow the producers to operate at highest achievable rates, likely 90%+ • Record integrated margins peaked in 2014 but 2015 quite robust • Increased arbitrage will challenge exports short term but exports of resin and finished goods will increase starting as early as 2016 • Processors will add or repatriate capacity as region becomes more competitive and begins shipping more product around the world

Polypropylene

ihs.com

2014 2019

Indian Sub. Indian Sub. China 7% China 8% 37% 33% Africa/Middle East 10% Africa/Middle East Northeast 10% Asia Northeast 7% Asia 7% Southeast North North America Asia America Southeast 12% South 11% 8% South Asia America Europe America 8% Europe 4% 18% 5% 15%

2014 Total Global Demand = 58.9 Million Metric Tons 2019 Total Global Demand = 75.0 Million Metric Tons

Million Metric Tons 6.0

4.0

2.0

0.0

Increase = +20.0 MMT Increase = 17.2 MMT -2.0 Excess = + 6.1 MMT Excess = + 0.9 MMT 08 09 10 11 12 13 14 15 16 17 18 19 NAM SAM WEP CEP CIS AFR MDE ISC NEA SEA Global Demand Change

• 2014 domestic PP consumption (including imports and finished goods) increased 1.6% over 2013 • 2015 Q1 off to a sprinter’s pace ahead of prior year Q1 by over 9%. • Prices down 29.5 cents since October highs • Planned / Unplanned outages continue to be an issue; however first quarter operating rates averaging 90% best first quarter since 2008 • Producers are aggressively pushing for margin increases; next increment June? Reinvestment economics in sight? • No new capacity planned as market forecasted to get tighter with imports expected to increase

Net Trade, Million Metric Tons Trade as a % of Production 1.5 15.0

1.0 10.0

0.5 5.0

0.0 0.0

-0.5 -5.0

-1.0 -10.0 09 10 11 12 13 14 15 16 17 18 19 South America Net Trade North America Net Trade NAM Exports - SAM Imports Americas Net Trade as a % of Nam Prod

North America - New Polypropylene Projects Company Location Country PP Comments 2019 Unknown* US Gulf Coast United States 440 Aligned with Ascend PDH Unknown* Alberta Canada 450 Aligned with Williams PDH Formosa* Point Comfort, TX United States 450 integrated to PDH 2020 Rextac* Odessa, TX United States 300 integrated to PDH Totals, 000s MT 1640 *Reported projects not fully verified or approved and not included in IHS capacity database.

Cents Per Pound Dollars Per Metric Ton 120 2,646

100 2,205

80 1,764

60 1,323

40 882

20 441

0 0 Jan-10 Dec-10 Nov-11 Oct-12 Sep-13 Aug-14 Jul-15 Jun-16 NAM-China Spread NAM Net Transaction WEP Disc. Contract NEA Spot Avg. CFR China

PricePrice RatioRatio 1.4

1.2

1.0

0.8 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 PP/HDPE North America PP/HDPE West Europe PP/HDPE China

000 Metric Tons Percent 350 7.0% ~500KTA or 1.22 Billion Pounds 300 6.0%

250 5.0%

200 4.0%

150 3.0%

100 2.0%

50 1.0%

0 0.0% 2008 2009 2010 2011 2012 2013 2014F Finished Goods Pellets Total % of Domestic Demand

• Chinese capacity expansions in propylene and derivatives shifts trade balances and puts downward pressure on global prices

• PP to become very competitive in Asia and increase arbitrage pressure on North America producers

• Middle East redirects exports responding to Chinese self sufficiency

• Europe adapts to changing feedstocks and increased PP imports

• Regions in Southern Hemisphere increase net imports as global operating rates still remain in mid 80 percent range

• North America PP margins increase and expected to remain high prior to capacity expansions as producers push for reinvestment levels

Plastics Overview / May 2015

Expanded Polystyrene and Polystyrene

Benzene (0.8) Ethyl Styrene Benzene (0.98) (1.07) Ethylene Polystyrene/ (0.3) EPS

Butadiene / Crude PBR HIPS C4 (0.08 – 0.12)

Building / Construction Asia/Pacific 61% 55%

Others 5%

N. America Africa/Middle 10% East 8% S. America Packaging Europe 3% 34% 24%

2014 Global EPS Demand = 6.1 Million Metric Tons

• California's Office of Environmental Health Hazard Assessment (OEHHA) intends to list styrene as known to the state to cause cancer under Proposition 65 • New Shipping code provision – additional shipping costs - higher price for Asian imports • Foam cups and containers especially in food packaging facing bans – New York will be implementing the ban on EPS cups and single serve food packaging

Plastics Overview / May 2015 Key Take-aways

• The drop in crude oil have lowered the cost of EPS feedstocks - benzene and styrene • Margins in North America have improved • EPS capacity surplus globally – mainly Asia • North America demand growth is strong, while Asia and Europe slowdown. • Demand from Construction sector leading growth in EPS.

Africa Middle East Indian Subc. Others 2% 6% 3% Building / Construction 11% 8% CIS & Baltics 3% NE Asia C. Europe 37% 3%

W. Europe 15% Electronics / Appliances 30% Packaging 37% S. America 6%

Consumer Products SE Asia 14% N. America 5% 20%

2014 Global Polystyrene Demand= 10.4 Million Metric Tons

Growth Rate, % 15.0

10.0

5.0

0.0

-5.0

-10.0

-15.0 2009 2011 2013 2015 2017 2019 North America West Europe China

2009 2015

Dart Others Dart Deltech Others Container 3% Container 2% 3% Resirene 3% Americas 4% 6% Styrenics Americas 28% Resirene BASF SE 6% Styrenics 6% 29%

INEOS NOVA 27% Total PC Total PC 25% 27% Styrolution 29%

Capacity = 2.7 Million Metric Tons Capacity = 2.6 Million Metric Tons

© 2015 IHS Plastics Overview / May 2015 Conclusions • Global demand for polystyrene growing lower than GDP • Slowdown in demand in China has slowed global demand growth • Polystyrene market still in a oversupply situation globally • Rationalization of capacity has been seen in North America and West Europe, • Following historically high prices in 2014, the drop in crude and benzene prices has resulted in lower prices for PS • North America will see demand remain stable and operating rates and margins improve

Polyvinyl Chloride

China Still a Big Driver for PVC Demand 50 0.45

40 0.40

30 0.35 Ratio MetricTons 20 0.30 Million 10 0.25

0 0.20 09 10 11 12 13 14 15 16 17 18 19 China Rest of World Ratio of China against Rest of the World

China Increasing Consumption of PVC 16

10 PerCapita 8 KG 6

0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 North America West Europe South America India China World

Europe and Northeast Asia Margins Improve in the Long Term

400

350 300 250 200 150 100 Dollars per per Ton Metric Dollars 50 0 -50 -100 09 10 11 12 13 14 15 16 17 18 19

US & Canada PVC Seasonal Domestic Demand 1.00 0.95 0.90

0.85 0.80 0.75 0.70 BillionPounds 0.65 0.60 0.55

0.50 J J J F A A S N D O M M

5 yr min-max range 2013 2014 2015

US & Canada PVC End Use Demand - YTD March 2015 All Others 11% Calendering Resellers & 7% Compounders 15% Coatings 1%

Windows & Doors Wire & Cable 5% 4%

Siding 9%

Rigid Pipe & Tubing 48%

YTD March Domestic Demand = 2.6 Billion Pounds

US & Canada PVC Scoreboard 2013-2015 (Million Pounds)

Forecast % Change Market Factor 2013 2014 2015 13-14 14-15 Capacity 17,730 17,831 17,979 0.6 0.8 Supply* 15,560 15,214 15,659 (2.2) 2.9 Domestic Demand 10,248 10,516 10,810 2.6 2.8 Export Sales 5,275 4,739 4,832 (10.2) 2.0 Total Sales 15,523 15,254 15,642 (1.7) 2.5 Operating Rate, % 86.7 84.3 86.2 66.3 75.0 55.3

* Includes Imports

Rest of 2015 • Stable ethylene market ahead. • Supply/demand fundamentals to play key role in price negotiations. • Resin producers will try to keep PVC market balanced with exports. • Continued strength anticipated in the housing market.

2016 • Increasing cash cost for ethylene may pressure PVC prices through the year. • Supply/demand fundamentals to play key role in price negotiations. • New PVC capacity coming on line. • Continued strength anticipated in the US housing market.

Plastics Overview / May 2015 Key Take Aways

• North America advantaged cash cost position continues for PVC, however currency appreciation in combination with the energy swing have changed the competitive landscape in the short term.

• Ethylene availability is key for vinyl capacity expansions in the future for non integrated producers.

• Domestic demand in North America will continue to grow hand in hand with activity mainly in the construction market.

PVC Demand in North America is Doing Better Than Before

PET

Other Oriented PET 3% Film 4%

PET Resin (Rigid Packaging) 31%

Fiber 62%

2013 Total Demand = 58 Million Metric Tons

Global Polyester Demand Fiber PET 58.1 Million Metric Tons 39.0 Million Metric Tons 17.8 Million Metric Tons

China Non-China Asia Southeast Asia Indian Sub Cont. MDE/AFR Europe South America North America

• With very low barriers to entry, capacity growth continues to outpace demand growth despite massive overcapacity. • Asia continues to be the incremental supplier to the world capping prices in any region at Asian cash costs plus freight and duty. • Overall industry cost structure is falling with new world scale assets and falling margins in PX.

Million Metric Tons Operating Rate, Percent 3.0 100 M&G 1 million metric ton expansion at Corpus Christi, 90 2.0 Texas 80 1.0 70 0.0 60 50 -1.0 Selenis 110 thousand metric Indorama 540 thousand 40 -2.0 ton expansion. metric ton expansion. 30 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DAK Indorama M&G Nan Ya Selenis Eastman Invista Wellman Hypothetical Virgin Resin Demand Growth Excess Regional Capacity Operating Rate

• M&G – 1.2 million tons PTA & 1 million tons PET at Corpus Christi around 2016 • Indorama - 540 thousand ton PET plant at Decatur with completion by Q4 2015. • Combined announcements will increase North American capacity by over 35 percent • North American domestic demand will increase less than 7 percent over the same period.

Selenis 2% NanYa 7% DAK 31%

Indorama 28%

M&G 32%

Total Capacity = 4.6 Million Metric Tons

• Global PET markets will • North America is embarking • Falling PX will reduce PX continue to be vastly on even further capacity prices with PX margins oversupplied. expansion which will change suffering due to increasing the economic dynamic. capacity.

• Which products will be advantaged in North America? • Does North America import more less products by 2019? • Can logistical challenges be overcome with the onset of new capacities?

Cents Per Cubic – US Net Prices 4.50

4.00

3.50

3.00

2.50

2.00

1.50 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Clarified PP HDPE PET Polystyrene

Thousand Metric Tons 1600

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2019 Plastics Import from ROW

Thousand Metric Tons 14000

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2019 Plastics export from NAM

© 2015 IHS Plastics Overview / May 2015 Conclusions • Defining factor in new energy world order is OPEC stepping down from the role of supply buffer maintain price. • All base chemicals and derivatives & plastics markets adjusting to this new energy environment

• Price setters have lower cost…prices will decline unless tight markets exist • Demand pause, likely to see surge once crude markets are stable; trade patterns likely to shift; look for higher volatility as a result • Approved new capacity in advantaged regions continue; new projects pause • Integrated margins for low-cost producers decline, some high-cost producers see margin improvement