1

Shaping of the

European polyolefin industry

16 February 2004

Mark Vester

SABIC EuroPetrochemicals

Shaping Success

2

• Business Outlook

• Major factors affecting Europe

• How will Europe shape for success?

ContentsContents

3

Gap between WE and ME at historical peak!Gap between WE and ME at historical peak!

Oil and naphtha pricing has shifted upward

European cost increase, impact on pricing levels

structural

delta

in cost

LOW HIGH LOW HIGH

Gas price ($/mmBTU) Oil price ($/bbl)

ME producer WE producer

De

liv

ere

d c

os

t to

WE

cu

sto

me

r (E

ur/

t)

Circles represent typical ranges

4

Oil and Naphtha determine WE integrated cost position

OPEC seems determined to keep prices at today’s level

At recent historical margin levels (below re-investment level)

Historical range Present range

Oil ($/bll) 15 - 25 25 - 35

average PE (Eur/t) 500 - 1000 700 - 1200

WE marginal cost producers supply most of the market

Cost levels today require 900 - 1000 Eur/t PE for integrated business to survive

Price levels will fluctuate between 700 and 1200 Euro/t

New price range will break psychological barrierNew price range will break psychological barrier

5

Prices set records, will margins follow?Prices set records, will margins follow?

Until 2001capacity addition in WE was significant

Coming years demand looks healthy, capacity additions are limited

West Europe

-500

0

500

1000

NPC

demand

An

nu

al

inc

rea

se

(k

t)

6

ME capacity build-up in HD/LL continues

For LDPE build-up is now taking off

Technology portfolio in ME is broadening, e.g. LDPE, bimodal HDPE

Gap in cost between ME and WE is at historical peak

ME share of global capacity increasesME share of global capacity increases

0%

5%

10%

15%

1993 1998 2003 2008

HDPE

LDPE

LLDPE

Sh

are

of

glo

ba

l c

ap

ac

ity

(%

)

7

Imports increase in coming years: ME and CEE capacity

PE imports into WE claim 20% market share by 2008 (13% today)

ME share of imports raise towards 75% (50% today)

Exports remain at today’s level

Imports take lion share of market growthImports take lion share of market growth

West Europe

0

1000

2000

3000

imports

exports

Vo

lum

e (

Kt)

8

ME and Asia determine the global gameME and Asia determine the global game

Americas and Europe increasingly local for local ME can supply to Asia and Europe (and lands at lowest cost)ME balances structural positions over Asia and Europe

ME

Europe

Asia

S. Am.

N. Am.

9

Growth will come from MEGrowth will come from ME

Cost curve changes shape

Price levels dictated by European cost level and ME/Asia global balancing

PE Delivered Cost and Price curve

Cumulative volume

eu

ro/t

Middle East HDPEimports

WE cost

leader

PriceDelivered cost

Oil and naphtha

10

What do we need to do ?What do we need to do ?

Converters

Anticipate increased price levels

Reshuffle supplier base

Team up with leading suppliers

Producers

WE scrap and selectively build

Focus on key competences and markets

Grow from ME

PE Delivered Cost and Price curve

Cumulative volume

eu

ro/t

Middle East HDPEimports

WE cost

leader

PriceDelivered cost

Oil and naphtha

Globally

91 producers < 500 kt

(25% of capacity)

94 sites < 200 kt

(42% of capacity)

Source Maack Business Services

11

More than 20 out of 50 sites in WE have no grid connection

30% of WE ethylene capacity

75% of ethylene is used captive

Average WE PE producer is active from 6 sites

Average WE PE capacity per site is only 270 kt

ARG well positioned to supply Europe

ARG supplies 40% of WE ethylene and PE demand

ARG area exports 2,5 mln ton PE to non ARG countries

80% ARG capacity is captive

Average ARG PE capacity per site is 450 kt

7 out of WE European top 10 sites (scale and integration) are at ARG

Integration and logistics are importantIntegration and logistics are important

12

Scrap rigorously and build selectively in Europe

tremendous amount of scrap potential

cost leaders annually beat inflation

Growth from lowest cost platform (import)

Price levels will shift

Producers focus on key competences

select markets / products

Converters anticipate

team up with leading suppliers

ConclusionsConclusions

13

M.E.W.E.

… and have fun !!

Shaping success