global chlor-alkali market outlook · european chlor-alkali market: refreshed by new, modern...

© 2018 IHS MarkitTM. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved.© 2018 IHS MarkitTM. All Rights Reserved.

Global Chlor-alkali Market OutlookClorosur Technical Conference15 November, 2018│Monterrey, Mexico

Ana LopezAssociate Director, Chlor-alkali / Vinyls

[email protected]

© 2018 IHS MarkitTM. All Rights Reserved.

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OverviewThe big picture

3


Chlor-alkali Market Outlook…strong demand growth combined with lack of capacity expansions will drive higher asset utilization and increased profitability through 2023.

4


2018 Chlor-alkali capacity: Approximately 90 million metric tons Chlorine basis

47.4

13.3

15.5

4.33.4

2.6

2.4

Source: IHS Markit Chlor-alkali World Analysis 2018 © IHS Markit

1.0

Intercontinental Caustic Soda Trade = 9.3 Million DMT

5


• Chlor-Alkali capacity

> Mercury-cell conversion is complete in Europe

> New capacity announcements emerging for Europe and US

• Caustic soda

> Prices moved higher, although excess product in regional spot markets has stalled upward momentum

> Alumina producers are optimizing bauxite vs. caustic price

> Limited uncontracted volume heightens spot market sensitivity

• Chinese environmental policy expanded

> Renewed inspections are impacting chlorine and caustic demand

> Chinese economy has cooled a bit

> Production from carbide-based PVC capacity is stalled … at least for now

What’s changed since last year?

6


7

7

Four key drivers support strong market conditions in the global caustic soda market

• Strong economic activity is supporting caustic demand in all segments

• Key consumption segments are exploring optimization alternatives for caustic soda cost mitigation

• E-commerce is changing the comparative structure of pulp consumption segments

• Chinese production and consumption dominates global market structure, magnifying impacts of changes underway in the domestic market

Strong Economy

Cost Optimization efforts

E-commerce driving pulp

China environmental impact


Americas

8


South America caustic and chlorine demand continue to diverge

0

1

2

3

4

5

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Chlorine demand Caustic demand Capacity

SAM Chlorine and Caustic Soda Demand Forecast

Ch

lori

ne

/ C

au

stic s

od

aM

illio

n m

etr

ic to

ns/D

MT

Source: IHS Markit World Analysis 2019 © 2018 IHS Markit

9


4.7% AAGR of SAM caustic demand for pulp production

0,0

0,5

1,0

1,5

2,0

0

10

20

30

40

50

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Caustic soda Consumption Total Pulp Capacity Pulp Production

PU

LP

CA

PA

CIT

Y &

PR

OD

UC

TIO

N

MIL

LIO

N M

T

CA

US

TIC

CO

NS

UM

PT

ION

, M

ILL

ION

DM

T

SAM Pulp Production & Caustic Demand


• 5 year SAM caustic production AAGR = 1.8%, constrained by chlorine outlets

10


SAM caustic demand for alumina production continues to grow

0,0

0,5

1,0

1,5

2,0

0

5

10

15

20

25

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Alumina Production Alumina Capacity Forecast Alumina Capacity Caustic soda Consumption

AL

UM

INA

CA

PA

CIT

Y &

P

RO

DU

CT

ION

M

ILL

ION

MT

CA

US

TIC

CO

NS

UM

PT

ION

, M

ILL

ION

DM

T

SAM Alumina Production & Caustic Demand


• 5 year SAM caustic demand growth for ALA = 4.5%, net of projected Alunorte refinery operating rate recovery

11


US net caustic exports are growing, raising production demand

0

200

400

600

800

1.000

0

1.000

2.000

3.000

4.000

5.000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

2019 Import Forecast 2019 Forecast 2018 Forecast

US export forecast reflects new capacity starting up 2021

NE

T E

XP

OR

TS

, M

ILL

ION

DM

T

NE

T I

MP

OR

TS

, M

ILL

ION

DM

T

US Caustic Soda Import and Export Forecast


12


US operating rates increase – new capacity projected isn’t enough to temper increasing operating rates

70

75

80

85

90

95

10

12

14

16

18

20

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Capacity Announced Capacity Projected Capacity Demand Operating Rate

CA

PA

CIT

Y /

DE

MA

ND

,

MIL

LIO

N D

MT

OP

ER

AT

ING

RA

TE

US Caustic Soda Supply / Demand and Operating Rate

Additional new capacity is needed to meet 5-year demand


13


North America market outlook summary

DomesticDemand

Production & Trade

Operating Rates

• Shintech adds 270 kdmta in 2021; additional hypo capacity assumed in 2023

• South American pulp growth and alumina rebound fuel USGC export growth

• Average operating rates climb to 90% in 2021 – new Shintech capacity moderates rise until 2023

• Strong domestic demand through 2023; Vinyls and MDI are stand out chlorine growth segments; inorganic chemicals, organic chemicals and pulp are standout caustic growth segments

• 2018 caustic exports slightly lag 2017 exports due to Alunorte; 2019 – 2023 caustic exports grow in spite of Australian producers optimizing bauxite grade

Net Exports

Prices&

Margins

• Prices rise modestly to peak as global market awaits Asia recovery

• Low natural gas prices support continued globally advantaged economics

14


Europe

15


European chlor-alkali market: refreshed by new, modern capacity

• Operating rates have risen

• Significant market shift from short to balanced after mercury-cell phase-out completion

• Better balance is repositioning continental pricing

• Participation in the export spot market participation is providing continental price support

• River system issues are keeping the market tight

16

180

200

220

240

260

280

250

300

350

400

450

500

550

600

650

Ma

r-1

2

Se

p-1

2

Ma

r-1

3

Se

p-1

3

Ma

r-1

4

Se

p-1

4

Ma

r-1

5

Se

p-1

5

Ma

r-1

6

Se

p-1

6

Ma

r-1

7

Se

p-1

7

Ma

r-1

8

Spot FOB NWE inventories

Europe Caustic Spot Price vs Inventory levels

Source: IHS Markit © 2018 IHS Markit

WEP Caustic Soda Supply / Demand and Operating Rate

INV

EN

TO

RY,

Th

ou

sa

nd

DM

T

$ P

ER

DM

T


Improved reliability has stabilized the market balance …

17

Force Majeure

FM or technical

issue linked to

ethylene

AUGUST 2018

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2012 2013 2014 2015 2016 2017 2018

Technical Issue


New capacity announced for Europe nearly off-sets demand loss from conversions, but not enough to cover growth

• 2017 capacity loss exceeds 900 kmtchlorine

• Numerous capacity debottlenecking projects announced for short to medium-term

> New capacity announced for start-up by 2022 equals 75% of lost capacity

• Additional hypothetical expansions forecast to sustain balance

18

-1000

-800

-600

-400

-200

0

200

400

600

2015 2016 2017 2018 2019 2020 2021

Cumulative

Net capacitychanges

2015-2021 European Chlor-Alkali Capacity

TH

OU

SA

ND

ME

TR

IC T

ON

S,

CH

LO

RIN

E

Source: IHS Markit © 2018 IHS Markit


European operating rates increase until new capacity is on-stream

70

75

80

85

90

95

0

3

6

9

12

15

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Capacity Announced Capacity Hypothetical Capacity Demand Operating Rate

CA

PA

CIT

Y,

MIL

LIO

N D

MT

NE

T I

MP

OR

TS

, M

ILL

ION

DM

T

WEP Caustic Soda Supply / Demand and Operating Rate WEP Caustic Soda Supply / Demand and Operating Rate

Source: IHS Markit Chlor-alkali World Analysis 2019 © 2018 IHS Markit

19


Europe market outlook summary

Capacity

Production

Operating Rates

• Market impact of 900,000 mt net chlorine capacity closures 2015 – 2017 isoffset by higher operating rates. 2015 – 2016 mercury-cell plants operatedat 62-66% of capacity.

• Operating rates rise from 80% in 2016 to peak at 88% in 2020; new capacityon-stream gradually reduces rates to mid-80s% by 2023

• New capacity will not mitigate high operating rates – 75% of demand growthis offset

Prices • Higher operating rates and dependence on imports bias the Europeanmarket to more than historical price volatility

20


Asia

21


Asia leads the world in per capita caustic soda consumption growth rate …

• Chinese per capita consumption increases by almost 60% over the next 10 years

• Korean and Japanese per capita caustic consumption exceeds that of West Europe

• Chinese per capita caustic consumption approaches that of US by 2028

0

5

10

15

20

25

30

35

2013 2015 2017 2019 2021 2023 2025 2027

CHINA PC Caustic SEA PC Caustic MDE PC Caustic AFR PC Caustic

WEP PC Caustic CEP PC Caustic FSU PC Caustic SAM PC Caustic

US PC Caustic CHINA PC Caustic INDIA PC Caustic JAPAN PC Caustic

KOREA PC Caustic

PE

R C

AP

ITA

CA

US

TIC

US

E

KG

/PE

RS

ON

YE

AR

Per Capita Caustic Consumption


22


… But current market dynamics are mixed in China

• Chinese environmental inspections will continue to contribute to regional instability

> Widespread plant inspections impact caustic and chlorine demand (Jiangsu, Shanghai and Shandong)

> Recent unusual market dynamics have pressured caustic soda demand and price

> Mandated chemical plant relocations will contribute to unstable demand through 2020

• Shifting trade flow patterns – possible further shifts due to new tariffs

• Alumina demand is key to the caustic balance

> China domestic alumina price is less than LME price; sustained differential provides catalyst for increased Chinese operating rates

> Guinean bauxite imports have not negatively impacted caustic consumption yet … continued upgrading could lead to lower unit caustic consumption

23


Uncertainty factors

• Impact of trade disputes – short-term or long-term?

• Environmental initiatives – short-term or prolonged?

• Increasing energy prices

• Capacity increase when plants are “moved” to industrial parks?

• Low cost construction v. higher operating costs

• Political / geopolitical issues and government interventions

24


Northeast Asia caustic demand for alumina production continues to grow

0,0

4,0

8,0

12,0

16,0

20,0

0

20

40

60

80

100

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Alumina Production Alumina Capacity Forecast Alumina Capacity Caustic soda Consumption

AL

UM

INA

CA

PA

CIT

Y &

P

RO

DU

CT

ION

M

ILL

ION

MT

CA

US

TIC

CO

NS

UM

PT

ION

, M

ILL

ION

DM

T

NEA Alumina Production & Caustic Demand


• New alumina capacity must be added to meet global aluminum demand growth

• Forecast new alumina capacity adds 2.7 Million dmt caustic demand

25


NEA caustic exports rise in 2019, then decline as Chinese operating rates increase

0

1

2

3

4

5

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

China Japan Korea Taiwan

NEA Caustic Soda Export Volume


EX

PO

RT

, M

ILL

ION

DM

T

26


Northeast Asia operating rates rise to unprecedented levels

70

75

80

85

90

95

0

15

30

45

60

75

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Capacity Projected Capacity Demand Operating Rate

CA

PA

CIT

Y,

MIL

LIO

N D

MT

OP

ER

AT

ING

RA

TE

NEA Caustic Soda Supply / Demand and Operating Rate


27


Capacity

Production

Operating Rates

• Potential for small plant closures in China; some increase in India

• Seasonal variations in operating rates; Northeast Asia operating rates go from 86% in2018 to 94% in 2022

• Production rises with operating rates

• Exports rise, but then decrease when constrained by high operating rates needed toaccommodate domestic growth

Prices&

Margins

• Increasing demand, especially as caustic consumption rises faster than chlorine with nosignificant capacity increases, will push prices up. Some seasonality of caustic pricingmay occur.

• ECU margin increase is countered by energy cost increases

Scoreboard

•

DomesticDemand,

AAGR

NEA SEA ISC

Chlorine 2.9% 0.7% 5.8%

Caustic 3.1% 2.2% 5.1%

Asia market outlook summary

• Overall caustic demand growth rate exceeds chlorine demand growth rate

28


Summary

29


Globally, the 5-year demand growth trajectory continues to support increasing operating rates

• GDP growth rate > 2.9 AAGR through 2020 supports healthy manufacturing and key consumables demand growth

• IHS Markit projects ~ 2.3-2.4% global demand AAGR for chlorine and caustic through 2020

• 2018 global chlor-alkali operating rate is ~ 84%, with significant differences by region

• Cycle peak operating rates are still projected in 2021-2022

• Global cycle peak operating rate exceeds all prior global operating rates since 1990, including historic 2007 peak of 89%.

30

50%

60%

70%

80%

90%

100%

0,0

25,0

50,0

75,0

100,0

125,0

13 14 15 16 17 18 19 20 21 22 23 28

Demand (3.3/2.2) Total Capacity (1.4/1.7) Operating Rate

World: Caustic Soda Supply & Demand


Forecast

OP

ER

AT

ING

RA

TE

MIL

LIO

N D

RY

ME

TR

IC T

ON

S


WEP, NEA and global chlor-alkali operating rates reach record levels

60

70

80

90

100

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

World North America Western Europe Northeast Asia

Global and Select Regional Chlor-alkali Operating Rates, %

© 2018 IHS Markit

CH

LO

RIE

OP

ER

AT

ING

RA

TE

(%

)

Source: IHS Markit 2019 World Chlor-alkali Analysis

31


Relative investment costs influence capacity addition geography

Construction Location Factors (2016)

USGC

1.00

NAM (ex UGGC)

1.03 - 1.16

SAM

0.91 - 1.15

CEP

0.75-0.82WEP

0.99-1.04

FSU

1.05 - 1.25

AFR

0.90 - 0.95

MDE

0.75 - 1.19

China

0.53 to 0.68?

NEA (ex. China)

0.82 – 0.95

SEA

0.85 - 1.10

Source: IHS Markit 2016 © 2018 IHS Markit

32


2023 Chlor-alkali capacity = approximately 99 million tons Chlorine basis

53.1

14.6

5.13.9

2.6

2.4

Source: IHS Markit Chlor-alkali World Analysis 2018 © IHS Markit

1.1

Intercontinental Caustic Soda Trade = 10.4 Million DMT

16.1

33

IHS Markit Customer Care

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

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global chlor-alkali market outlook · european chlor-alkali market: refreshed by new, modern...

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