Ethylene and derivatives Nandita Lal

Editor Ethylene, Polyethylene & MEG

Agenda

• European ethylene market – coping with margin destruction

• Polyethylene and PVC – Q4 destocking begins?

• Glycols- Will prices sustain as supplies ease

Spot and contract ethylene prices

Record high

What’s moved the market this year?

• Peaks and troughs become more extreme

• Feedstock volatility remains main catalyst

• Main drivers in both Q1, Q3 was stock replenishment

• End of Q3 saw maintenance period: 2.67 million mt/year

4

Margin compression

Negative spot margins

Naphtha vs. ethylene vs. LDPE

6

Naphtha-ethylene spread narrows to 2008 levels

So what has Europe done?

•Scaled back rates

•Closed inefficient units

0

1000

2000

3000

4000

5000

6000

Jan - Mar Apr - Jun Jul - Sep Oct - Dec

2005

2006

2007

2008

2009

2010

2011

2012

Quarterly Ethylene Production 2005-2012

Source: APPE

Comparative regional economics

Source: CEFIC

Average Steam Cracker Profitability Q4 2011 $/mt

West Europe

Central Europe

North Asia

Middle East

China Asia World

Net Feed Cost 498 551 756 216 255 340 590

Variable Cost 533 550 111 22 504 456 276

Fixed Cost 114 113 69 36 33 50 57

Ethylene Cost 1144 1214 936 274 791 846 922

Margin 222 99 285 943 338 243 276

ROI(%) 7.4 3 13.4 43.3 12.3 8.7 10.9

Comparative regional plant utilization rates

Source: CEFIC

Derivative rationalization

• Ineos looking to sell its HDPE plants

• Versalis plans to replace its LLDPE C8 plant with elastomers

• Ineos is set to exit LLDPE C4

• Shale boom may accelerate the closure of almost 10% of European

crackers capacity in the best case and 20% in the worst case in the next

five years.

• Europe to lose competitiveness in C2, likely to concentrate on C3 and C4.

BASF plans to build a new 155,000 mt per year butadiene extraction plant

at its Antwerp, Belgium to start in 2014.

MOL plans a new butadiene plant in Tiszaujvaros, Hungary by 2015.

Versalis plans a new 70,000 metric tonne butadiene unit in Dunkirk, France

to be on line by 2015.

LyondellBasell to debottleneck butadiene capacity in Wesseling,Germany

40% from 170,000 mt to 238,000 mt/yr by 2013.

Shale gas developments to add to woes

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Average HDPE profitability

Source Booz and Company

• Integrated PE complexes are unlikely to be replaced

• The strong speciality chemical base of Europe

• A world-scale cracker to cost between $4 billion and $5 billion- not all announcements likely to be followed

What opportunities lie ahead?

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Polymer derivatives: Fundamentals for Q4

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Converting industry also facing challenges

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High and volatile feedstocks

Competitive finished products from Middle East and Asia

A spate of production issues lead to spike in MEG prices in Europe in touching highs since 2007.

Glycols: Resisting the sell-off

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• Hurricane ISAAC limits USA supplies

• Europe imports 80,000-100,000 mt/year from the USA

• In August Ineos’ plant in Cologne, Germany; BASF in Ludwigshafen,

Germany and PKN Orlen in Plock, Poland were on turnaround

• In Middle East, SABIC, Equate and Petro Rabigh all had production

issues

Middle East, US and Europe contribute

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