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

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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] © 2015 IHS Plastics Overview / May 2015 Terms of Use The accompanying materials were prepared by IHS Inc. (IHS Chemical) and are not to be redistributed or reused in any manner without prior written consent, with the exception of client internal distribution as described below. IHS Chemical strives to be supportive of client internal distribution of IHS Chemical content but requires that: • IHS Chemical content and information, including but not limited to graphs, charts, tables, figures, and data, are not to be disseminated outside of a client organization to any third party, including a client’s customers, financial institutions, consultants, or the public. • Content distributed within the client organization must display IHS Chemical’s legal notices and attributions of authorship. Some information supplied by IHS Chemical may be obtained from sources that IHS Chemical believes to be reliable but are in no way warranted by IHS Chemical as to accuracy or completeness. Absent a specific agreement to the contrary, IHS Chemical has no obligation to update any content or information provided to a client. © 2015 IHS Plastics Overview / May 2015 ABOUT IHS CHEMICAL © 2015 IHS © 2015 IHS Plastics Overview / May 2015 IHS INDUSTRIES AEROSPACE & DEFENSE CHEMICAL FINANCE TECHNOLOGY 100+ years’ experience Over 200 leading industry Research on 200+ World’s largest delivering unrivaled news, authorities creating integrated countries and territories electronics component insight and intelligence on views and analysis across with harmonized indicators database with more than defense and security more than 300 chemical from IHS analysts and 350 million parts equipment, markets, markets and 2,000 processes economists industries and risk for 95 industries AUTOMOTIVE ENERGY MARITIME The world’s largest team Extensive Oil & Gas well World’s largest maritime of automotive analysts with information on 5.5+ million database with an information hundreds of experts located wells worldwide dating gathering heritage of 250+ in 15 key markets around back as far as 1860 years with comprehensive the world covering the entire information on all vessels 100 automotive value chain GT and over © 2015 IHS Plastics Overview / May 2015 Our Portfolio • Complete coverage and cross-disciplinary content and knowledge of your end-markets. Business Consulting & Chemical Technology & Information & Advisory Insights Analytics Same-Day Services Analysis Strategy Aromatics & Fibers Process Economics Chemical Week Olefins & Derivatives Commercial Analysis Chemical Company Cost Curve Analytics Analysis Transaction Chlor-Alkali & Vinyls Legal Services Regional or Country Plastics & Polymers Capital Cost Services Analysis Technology Syngas Chemicals Directory of Scenarios Renewables Chemicals Producers Specialty Chemicals Specialties Special Studies Member Events Special Studies Training © 2015 IHS Plastics Overview / May 2015 IHS Market Advisory Services • Comprehensive price discovery, near-term analysis and forecasts of global chemical markets. 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 © 2015 IHS Plastics Overview / May 2015 Energy Overview © 2015 IHS Plastics Overview / May 2015 Current Bench Price Crude Price Outlook Quarterly Average Price per Barrel 120 100 80 60 40 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 © 2015 IHS Plastics Overview / May 2015 Key Messages Regarding Oil Market Dynamics • 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. © 2015 IHS Plastics Overview / May 2015 North America Energy Price Trends 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 © 2015 IHS Plastics Overview / May 2015 Regional Energy Chain Flows Most of the World Oil Naphtha Ethylene Fabricated Products Fabricated Oil valued energy Electricity Chlor-Alkali EDC VCM PVC Pipe/Siding Other & 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 © 2015 IHS Plastics Overview / May 2015 Energy Feedstocks Petrochemicals 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 © 2015 IHS Plastics Overview / May 2015 Cracker: Co-Product Yields by Feed Source 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 © 2015 IHS Plastics Overview / May 2015 The US economic expansion will continue • 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. © 2015 IHS Plastics Overview / May 2015 US economic growth by sector 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
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