2014 ihs aromatics and fibre

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Fibers: Capacity ExplosionHurting Growth Prospects

ITMF Annual Conference, 2014Beijing, P.R. China

Ashish Pujari,Senior Director (Aromatics & Fibers)

IHS Singapore

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Fibers Are Essential in Our Lives

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Agenda

• Overview

• Cotton

• Polyester

• Nylon

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Global Fiber Mix

Cotton, 29%

Polyester, 49%

Nylon, 5%

Olefin, 6%

Cellulosic, 5%

Acrylic, 3%

Wool, Silk &

Linen, 2%

Other SyntheticFibers, 1%

Cotton

Polyester 

Nylon

OlefinCellulosic

Acrylic

Wool, Silk & Linen

Other Synthetic Fibers

2014 Total Fiber Demand:85.3 Million Metric Tons

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World Total Fiber Consumption

Apparel55%

Industrial &Others

20%

HomeFurnishing,Rug/Carpets

25%

Apparel

Industrial & Others

Home Furnishing, Rug/Carpets

2014 Total Fiber Demand:85.3 Million Metric Tons

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Fiber Demand Increases in Line with GDP

40

50

60

70

80

90

100

110

46 50 54 58 62 66 70 74 78 82 86

GDP (Billion 2010 $)

Thousands

   F   i   b  e  r ,   M   i   l   l   i  o  n   M

  e   t  r   i  c   T  o  n  s

2010

2012

Total Natural and Man-Made Fibers

2000

Fibers Growth = 1.6 X GDP Growth

2016

2014

2018

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Polyester Gaining Share at the Expenseof Others

0

10

20

30

40

50

60

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Percentage (%)

Polyester Cotton Nylon

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Agenda

• Overview

• Cotton

• Polyester

• Nylon

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Demand Growth Depends on CottonAvailability

-3

-2

-1

0

1

2

3

4

5

-8

-6

-4

-2

0

2

4

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

GDP Growth, %

Cotton Polyester Nylon Others GDP

Fibers, Million Metric Tons

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Demand Continues to Lag Behind Supply

0

5

1015

20

25

30

   2   0   0   3   /   0   4

   2   0   0   4   /   0   5

   2   0   0   5   /   0   6

   2   0   0   6   /   0   7

   2   0   0   7   /   0

   8

   2   0   0   8   /   0   9

   2   0   0   9   /   1   0

   2   0   1   0   /   1   1

   2   0   1   1   /   1   2

   2   0   1   2   /   1   3

   2   0   1   3   /   1   4

   2   0   1   4   /   1   5

Ending Stocks Consumption Production

Source: USDA, Forecast as of August-14

Million Metric Tons

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High Cotton Inventory – Mainly in China expectedto put pressure on Cotton

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

0

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Inventory World Inventory Cotlook A

   T   h  o  u  s  a  n   d   M  e   t  r   i  c   T  o  n  s

A

I  n d  ex (  F  ar E  a s t   S  t   ar  t  i  n g2  0  0  8  /  2  0  0  9  )  

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Agenda

• Overview

• Cotton

• Polyester

• Nylon

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Fibers Account For Around 60 percentof Total Polyester Demand

PET Resin31%

Staple16%

TextileFilament

42%

IndustrialFilament

4%

Film5%

OtherPolyester

2%

PET Resin

  Staple

  Textile Filament  Industrial Filament

  Film

  Other Polyester 

2014 Total Polyester Demand:60.8 Million Metric Tons

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0

22

44

66

88

110

132

154

176

198

220

243

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15

Cotton 'A' Index Staple Fiber  

Dollars Per Metric Ton Cents Per Pound

Weak Cotton Will Create a Price Ceiling ForPolyester Staple

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PSF Demand – Affected by Cotton Availability

0%

15%

30%

45%

60%

75%

90%

0

4

7

11

14

18

21

25

28

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

World Capacity World Demand World Op Rate

Million Metric Tons

3.5 3.2%3.0% 2.9%

3.7%10.5% 1.7% -1.6%0.6% 3.6%4.4

Operating Rate

PSF Demand has Rebounded in 2014

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Filament Demand – Off from Peak but Stable

0%

10%

20%

30%

40%50%

60%

70%

80%

90%

0

10

20

30

40

50

60

70

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

World Capacity World Demand World Op Rate

Million Metric Tons

5.6%

7.0%7.4%6.8%7.5%15.8%

6.6%

4.8%

5.1%7.5%

6.7%

Operating Rate (%)

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  Provided No Further

Expansions

45

50

55

60

65

70

75

80

-2

0

2

4

6

8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Million Metric Tons

Demand Growth Americas Europe

CIS & Baltic States Middle East/Africa China

Asia (exclude China) Operating Rate

Operating Rate (%)

Cyclic Upturn Soon

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65

70

75

80

85

90

-4

0

4

8

12

16

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Americas EMEAAsia Excess CapacityWorld Demand Growth World Operating Rate

Million Metric Tons Operating Rate (%)

Conditions Worsen With More PX Capacity

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19

50

60

70

80

90

100

-6.0

-3.0

0.0

3.0

6.0

9.0

12.0

2008 2010 2012 2014 2016 2018Global Demand Growth China India SubcontinentNEA net China SEA EuropeMiddle East & Africa N. America S. AmericaOperating Rate

Million Metric Tons Operating Rate (%)

PQS 640 KTAM&G 1.2 MMT

Lotte UK DAK US

Global PTA Capacity Growth

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20

2013 2018

Capacity (MMT): 67 95

Number of Plants: 117 140

Average Plant Size(KMT):

567 675

To Achieve 85% Industry Utilization

Capacity to Rationalize (MMT): 9 20

Plant Size (KMT): <= 380 <= 520

Plants to Rationalize (#): 31 55

Demand (MMT): 49 64

Demand

Rationalize

Excess Capacity

Is Realistic Rationalization Possible?

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© 2014 IHS, Inc. No portion of this presentation may be reproduced, reused, or

otherwise distributed in any form without prior written consent.

0

1

NAM

-10

SAM

-10

1

Europe

-3

-2

-1

0

MEA

-7

-6

-5

-4

-3-2

-1

0

China 0

1

2

3

45

6

7

NEA

01

2

SEA-2

-1

0

1

ISC

2010/2013/2018 NET IMPORT /EXPORT  MILLION METRIC TONS

Diminishing PTA Trade

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0

25

50

75

100

0

100

200

300

2008 2010 2012 2014 2016 2018

PTA Spread Over PX PTA Global Operating Rate

Dollars Per Metric Ton Operating Rate, %

85% OR

$125 Per Ton Spread

Asia PTA Spreads

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Overbuilds Depress Profitability

0

50

100

150

200

250

300

0

500

1000

1500

2000

2500

3000

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

PET EXPORT PET POY PSF

Domestic, CNY Export, USD

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Agenda

• Overview

• Cotton

• Polyester

• Nylon

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Key Raw Materials for Nylon Fiber

Fiber & Plastics End Uses

AdipicAcid

Cyclohexane

Cumene

Phenol

Nylon 6

Cyclohexane

HMDA

Acrylonitrile

Adiponitrile Adiponitrile

Caprolactam

Nylon6,6

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50

55

60

65

70

75

80

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

China Asia (Exclude China) Middle East

CIS & Baltics C. Europe/W. Europe Americas

Global Demand Growth Global Operating Rate

Million Metric Tons Operating Rate (%)

Additional Nylon 6 Capacity In Asia KeepsGlobal Operating Rate Down

26

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Nylon 6,6 Chip Capacity Additions

27

30

40

50

60

70

80

90

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

N. America W. Europe Middle East

NE Asia (Exclude China) China Demand Growth

Global Operating Rate

Million Metric Tons Operating Rate (%)

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60

65

70

7580

85

90

95

-0.4

0.0

0.4

0.8

1.2

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Asia (Exclude China) China CIS & BalticsC. Europe/W. Europe Americas Global Demand GrowthGlobal Operating Rate

Million Metric Tons Operating Rate (%)

Healthy Margins Boost Asian CaprolactamInvestment, Slashing Operating Rates

28

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50

55

60

65

70

75

80

85

90

-0.8

-0.4

0.0

0.4

0.8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Asia (Exclude China) China N. America

S. America W. Europe CIS & Baltics

Global Demand Growth Global Operating Rate

Million Metric Tons Operating Rate (%)

Strong Demand Drives New Adipic AcidCapacity But Cuts Operation Rates

29

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Investments Run Counter Cyclic to Margins

-50 

0 

50 

100 

150 

-2 

0 

2 

4 

6 

2008  2009  2010  2011  2012  2013  2014  2015  2016  2017  2018 

Supply Growth  Demand Growth  EBITA 

Million Metric Tons  Dollars Per Metric Ton 

Polyester Filament 

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Will Investor Fervor Cool Off?

(10.00)

0.00

10.00

20.00

30.00

40.00

50.00

0

20

40

60

80

100

120

2004 2007 2010 2013

Chemical Fiber Investment In China

Investment YOY Growth Rate

Billion CNY  YOY Growth Rate

Positive Signs:

• Major producers have almost

completed an aggressive

expansion wave.

• NDRC’s guideline has

changed, no longer

encouraging new capacities in

East China.

Complexity:

•

Local governments.• Projects may move inland.

• Consumers’ desire to

integrate upstream.

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Conclusion

•

Demand growth hasslowed significantly inemerging economics.

• All major fibers and raw

materials are inoversupply – but notmuch capacityexpansion under way.

• Margins are negativeand will not improveunless there are capacityrationalizations.