WILL ASIAN SM REMAIN A WINNER IN LOW COST ERA?

MICHELLE CHAEWON KIM SENIOR EDITOR, PETROCHEMICALS APIC May 20, 2016, Singapore

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KEY AGENDA ITEMS

Will SM remain a winner in low cost era?

• SM prices and margins were on an uptick in 2015. Will this trend continue in 2016?

• Will firm ethylene support SM prices?

• How will weaker feedstock BZ market impact on SM prices?

ABS Styrene

Toluene

Xylene

Ethylene

Benzene

6

SM VALUE CHAIN

6

Steam Cracker Natural Gas

BTX Extraction Coal

Reformer Crude Oil

Source: Platts

7

0 100 200 300 400 500

Ethylene

SM

Isomer-MX

BZ

PX

Toluene

2015 Annual Average Production Margin

SM MARGIN WAS THE BEST IN AROMATICS

ICEBrent

atSingaporeMOCMo01

Naphtha

C+FJapa

nCargo

BZFOB

Korea

PropylenePoly

GradeFOB

Korea

TLFOB

Korea

PXFOB

Korea

Iso-MX

FOBKorea

SMFOB

Korea2

EthyleneFOB

KoreaWeekl

y

YoY change(%) -46.217 -43.1 -43.396 -38.698 -36.296 -31.886 -31.603 -28.553 -22.081

2014 average($/mt) 99.6296 861.921 1212.07 1282.35 1038.07 1210.23 1028.39 1489.6 1375.52

2015 average($/mt) 53.5839 490.433 686.08 786.101 661.297 824.339 703.385 1064.28 1071.79

-50

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

0

200

400

600

800

1000

1200

1400

1600SM & C2 did not drop as much as crude

Source: Platts Unit: $/mt

8

SM IN Q1 SHOWS SIMILAR PATTERN -WHAT IT BE LIKE IN Q2-Q4?

•Jan, Feb

•Higher

Firm SM

Higher Firm

C2

•Loss in H1

•Similar TA

•Asahi •320

kt/y Scrap

•Mar avg

•Lower Stock

•Mar avg PS

•Higher Down

Similar Uptick in SM price?

Unit: $/mt

Source: Platts

Downtrend Begins?

0

200

400

600

800

1000

1200

1400

1/2/2015 2/2/2015 3/2/2015

Styrene FOB Korea Q1 2015

0

200

400

600

800

1000

1200

1400

1600

4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015

Styrene FOB Korea in Q2-Q4 2015

0

200

400

600

800

1000

1200

1/4/2016 2/4/2016 3/4/2016

Styrene FOB Korea Q1 2016 $1,128/mt Mar 7

$1,154/mt Mar 9

Bullish factors in Q1

DEMAND ANALYSIS

WHAT IMPACTS SM PRICES? - CHINESE EPS, PS, ABS MARKETS IMPORTANT

0.00

0.20

0.40

0.60

0.80

1.00

EPS FR GPPS Benzene HIPS Toluene ICE BrentFuture

Naphtha CIFJapan

Ethylene Paraxylene ABS

26%

32% 21%

4%

4% 5% 8%

Asia Pacific styrene demand (2014)

EPS

PS

ABS

SBR

SBL

UPR

Others

17%

13%

11%

1%

25% 33%

58%

Global SM demand by regions (%) Europe

N.America

Others

ME

Asis(ex China)

China

Coefficient of correlation

Source: Platts, Nexant, METI

WILL CHINA BUY MORE? A CLOSER LOOK AT CHINA’S SM IMPORTS

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

2010 2011 2012 2013 2014 2015

Annual SM imports into China

Others

Singapore

Taiwan

Japan

Iran

Kuwait

Saudi Arabia

US

Korea -20

-15

-10

-5

0

5

10

15

0

50000

100000

150000

200000

250000

300000

350000

400000

Jan Feb Mar

Monthly SM imports into China

2014 2015 2016 YoY (%)

Korea 33%

US 9% Saudi

Arabia 13%

Kuwait 6%

Iran 5%

Japan 12%

Taiwa

n 12%

Singapore 5%

Others 5%

China’s SM imports by origin

Unit: $/mt Unit: $/mt

+9.4%

Source: METI, China customs

WILL CHINA BUY MORE? A CLOSER LOOK AT CHINA’S DOMESTIC MARKET

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

E. China monthly SM inventory

2015 2016 5-Year Average

Unit: mt

+50%

-120

-70

-20

30

80

130

0

200

400

600

800

1000

1200

1400

1600

3/2

6/2

015

4/2

6/2

015

5/2

6/2

015

6/2

6/2

015

7/2

6/2

015

8/2

6/2

015

9/2

6/2

015

10/2

6/2

015

11/2

6/2

015

12/2

6/2

015

1/2

6/2

016

2/2

6/2

016

3/2

6/2

016

RMB SM < USD SM in 2016

Styrene CFR China MarkerChina domestic SM import parityUSD/RMB spread

Unit:$/mt

USD/RMB spread widens

-$110.97/mt

41.0

43.0

45.0

47.0

49.0

51.0

53.0

55.0

57.0

Ja

n 1

1

Ma

y 11

Se

p 1

1

Ja

n 1

2

Ma

y 12

Se

p 1

2

Ja

n 1

3

Ma

y 13

Se

p 1

3

Ja

n 1

4

Ma

y 14

Se

p 1

4

Ja

n 1

5

Ma

y 15

Se

p 1

5

Ja

n 1

6

Improving China’s PMI

Apr 49.4

Source: Platts, Caixin

WILL DOWNSTREAM REQUIRE MORE SM? – EXPANDABLE POLYSTYRENE

-100

-50

0

50

100

7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016

EPS margin improves

Unit: $/mt

+24%

-30

-20

-10

0

10

20

30

0

5000

10000

15000

20000

25000

30000

Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015 Output of Cement(10000 tons) 2016 Output of Cement(10000 tons)2015 Growth Rate(Y-o-Y %) 2016 Growth Rate(Y-o-Y %)

China’s monthly cement output

0

10000

20000

30000

40000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

China’s monthly EPS exports

2015 2016 3-year avg

+7.5%

Source: Platts, China customs, National Bureau of Statistics of China

+9.7%

-10

-5

0

5

10

15

0

5000

10000

15000

Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015(100 million yuan) 2016(100 million yuan)2015 Growth Rate(Y-o-Y %) 2016 Growth Rate(Y-o-Y %)

China’s monthly real estate investment

WILL DOWNSTREAM REQUIRE MORE SM? -POLYSTYRENE

-1500

-500

500

1500

2012 2013 2014 2015 2016 2017 2018

Asia PS net balance India

Japan

Indonesia

Vietnam

China

Thailand

Singapore

Korea

Taiwan

Unit: kt

+8.4%

-5

0

5

10

15

0

200

400

600

800

1000

1200

Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015(10000 tons) 2016(10000 tons)2015 Growth Rate(Y-o-Y %) 2016 Growth Rate(Y-o-Y %)

China’s monthly plastic products output

0

50,000

100,000

150,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

China’s monthly PS imports

2015 2016 5-year average

-200

-100

0

100

200

300

7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016

GPPS margin improves

GPPS production margin

-15.7%

Source: Platts, METI, National Bureau of Statistics of China

WILL DOWNSTREAM REQUIRE MORE SM? -ABS

0

50,000

100,000

150,000

200,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

China’s monthly ABS imports

2015 2016 5-year average

+4.5%

-200

-100

0

100

200

7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016

Improving ABS margin dips again

ABS production margin

Firm BD, SM Firm ACN, BD

-30

-20

-10

0

10

20

0

100

200

Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

China’s monthly car output

2015 Output of Cars(10000 units)2016 Output of Cars(10000 units)2015 Growth Rate(Y-o-Y %)2016 Growth Rate(Y-o-Y %)

-4%

-15

5

25

-500

500

1500

2500

Jan/Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

China’s monthly color TV output

2015 Output of Color TV(10000 sets) 2016 Output of Color TV(10000 sets)

2015 Growth Rate(Y-o-Y %) 2016 Growth Rate(Y-o-Y %)

+25.2%

Firm ACN

Source: Platts, METI, National Bureau of Statistics of China

SUPPLY ANALYSIS

GLOBAL SM SUPPLY – LAGGING EXPANSION, TIGHTER SUPPLY

0

5000

10000

15000

20000

25000

30000

35000

40000

2012 2013 2014 2015 2016 2017 2018

Global SM capacity expansion

Others

NorthAmerica

Middle East

Europe

Asia

Unit: kt

Region North

America Middle East Europe Asia Total

AVG Growth Rate (2012-2018) 0% 0% 0% 3% 1.6%

-6000

-4000

-2000

0

2000

4000

6000

2012 2013 2014 2015 2016 2017 2018

Global SM net balance Malaysia

Europe

India

S. America

China

Korea

Singapore

Japan

N.America

ME

Unit: kt

Source: METI

GLOBAL SM TRADE FLOW

Unit: kt

9%

33%

25%

12%

Source: METI

WILL MORE US SM FLOW INTO ASIA?

-300

-200

-100

0

100

200

300

400

500

0

200

400

600

800

1000

1200

1400

1600

US-Asia SM arbitrage window

Styrene FOB Korea Marker Styrene FOB USG cts/lb

US-Asia SM arbitrage window

Unit: $/mt

Company Location Capacity (kt/year)

Timing Estimated Loss(kt)

Styrolution Sarinia, ON, Canada

0.95(bil/lb) 431(7% among total 6,022)

May, 30 days 35.92

0

500000

1000000

1500000

2000000

2500000

2014 2015

Annual US SM exports by destination

S. America

Europe

Asia Total

Unit: mt

0

200

400

600

800

US NEA WEP

SM production cost comparison

Energy

Ethylene

Unit: $/mt

Source: Platts, Stylorution

SM TRADE FLOW US-ASIA

Source: U.S. Department of Commerce and the U.S. International Trade Commission

01000020000300004000050000600007000080000

Jan Feb Mar

US SM exports to Korea

2015

2016

Unit: mt

0

10000

20000

30000

40000

50000

60000

70000

Jan Feb Mar

US SM exports to China

2015

2016

Unit: mt

China

Korea

20%

6.3%

US

WILL EU SM COMPETE WITH ASIA FOR US SM?

-100

0

100

200

300

400

500

0

200

400

600

800

1000

1200

1400

1600

US-Europe SM arbitrage window

Styrene FOB USG Styrene FOB ARA US-Europe SM arbitrage

Unit: $/mt

Company Location Capacity (kt/year)

Timing Estimated Loss(kt)

Shell Moerdijk, NL

450 Late Mar, 35 days

43.75

Trinseo Boehien, Ger

300 Late Mar, 55 days

45.84

Synthos Oswiecim, PL

130 Q2 2016, 30 days

10.84

Total Capacity Affected

880(17% among total 5,165

Estimated Loss H1

100.43

Source: Platts

European SM TA schedule

SM TRADE FLOW US-EUROPE

Source: U.S. Department of Commerce and the U.S. International Trade Commission

0

10000

20000

30000

40000

50000

Jan Feb Mar

US SM exports to Europe

2015

2016

Unit: mt

Europe

26%

US

TIGHT ASIA-ORIGIN SM

-4500

-3500

-2500

-1500

-500

500

1500

2500

2014 2015 2016 2017 2018

Asia SM net balance

India

Thailand

Vietnam

Taiwan

Indonesia

China

Singapore

Malaysia

Japan

Korea

7% 7%

6%

5%

4%

4%

4%

3%

3%

3% 3%

51%

Asian major SM producers by capacity

Sinopec FCFC Hanwha Total CNOOC-Shell

SKGC LG Chem Secco Lotte

Ellba Idemitsu JP Asahi Kasei Others

Total= appx 17.9 mil mt Korea origin=appx 19%

Unit: kt

Source: METI, Platts

SM TRADE FLOW TO KOREA

13.62%

8.84%

73.75%

96%

Source: Korea customs

SM & DERIVATIVES STARTUP PLANS 2016-2018 – DOWNSTREAM EXPANSION EXCEEDS SM

Product Country Company Location 2016 2017 2018

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

SM

China

Abel Taxing Jiangsu 250?

Changzhou Xinri New Solar Jiangsu 300

CNOOC Ningbo Daxie Zhejiang 300

CNOOC-Shell 700

Total(kt/year) 600 NA 700

Total SM start up in 2016: 600 kt

ABS

China CNOOC-LG Chem Huizhou 150

Keyuan Plastic Guangxi 150

Korea Samsung SDI Yeosu 30

LG Chem Yeosu 100

Saudi Arabia Petrochemya(Sabic) Al-Jubail 50 150

Iran Jam PC Badar Assluyeh 200

Total(kt/year) 330 300 200

Total ABS start up in 2016: 330 kt

PS

China

Astro Chem(Chevron PS) Zangjiagang 120

Sunchem 120

Chimei Zhenjiagang 75

Korea Hyundai EP Ulsan 110

Iran Iran EPS 250

Entekhab Industrial Assaluyeh 100

Total(kt/year)

490 185 100

Total PS start up in 2016: 980 kt

SM SU balance 2016 SM new supply(600 kt) < SM new demand( 688kt)

Source: Platts

WILL TURNAROUNDS SUPPORT SM? PRODUCTION LOSS IN H2>H1

Company Location Capacity (kt/year)

Timing Estimated Loss(kt)

LG Chem Daesan, Korea 170 Mid May, 20 days 9.68

Asahi Mizushima, Japan

390 Mid Feb, 40 days 43.60

Idemitsu

Chiba, Japan 210 Mid Apr-May, 45 days

26.55

Pasir Gudang, Malaysia

240 Mid Apr, 50 days 33.50

Denka Chiba, Japan 270 End May, 60 days 45

NSSM Oita, Japan 190 End Feb, 30 days 15.90

Oita, Japan 230 End Mar, 30 days 19.20

Grand Pacific Tashe, Taiwan 220 Mid Apr, 50 days 31

Total Capacity Affected

1920 Estimated Loss H1 224.43

Company Location Capacity (kt/year)

Timing Estimated Loss(kt)

SKGC Ulsan, Korea 405 Oct, 30 days 33.90

Hanwha Total Daesan, Korea 650 Sep, 20 days 36.20

Idemitsu

Tokuyama, Japan

120 Sep, 30 days 10.20

Tokuyama, Japan

220 Sep, 30 days 18.60

Taiyo Ube, Japan 370 Sep, 30 days 30.90

Secco CaoJing, China 670 Sep, 30 days 56.10

FCFC Mailiao, Taiwan 600 Aug, 30 days 50.10

Shell Seraya, Singapore

360 Jul-Aug, 30 days 30

IRPC Rayong, Thailand

230 Nov, 30 days 19.20

Total Capacity Affected

3625 Estimated Loss H2 285.20

1.05 2.99 2.63

4.71

1.45 2.14

4.21

9.82

2.19 1.24

0.00

5.00

10.00

15.00

-200

-100

0

Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Production loss Percentage in total Asia monthly capacity(%)Unit: kt

Source: Platts

KEY AGENDA ITEMS

Will SM remain a winner in low cost era?

• SM prices and margins were on an uptick in 2015. Will this trend continue in 2016?

• Will firm ethylene support SM prices?

• How will weaker feedstock BZ market impact on SM prices?

28

ETHYLENE TO REMAIN FIRM?

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

2012 2013 2014 2015 2016 2017 2018

Asia ethylene net balance India

Thailand

Philippines

Taiwan

Indonesia

China

Singapore

Malaysia

Japan

Korea

Unit: kt

-400

-300

-200

-100

0

100

200

300

Weakening downstream PE, MEG margins

HDPE margin MEG margin

Unit: $/mt

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

2014 2015

China’s ethylene imports by origin Others

Philippines

Thailand

SG

US

Taiwan

Korea

Japan

Unit: mt

Company Location Capacity (kt/year)

Timing

CPC Kaohsiung, Taiwan

500 End Dec 2015

Sumitomo Chemical

Chiba, Japan 415 May 11 2015

Asahi Kasei Mizushima, Japan

470 Feb 15 2016

Total Capacity Affected

1.39 mil mt/year

3% of total Asia capacity(57.3 mil mt/year)

Permanent shutdown of ethylene plants

Source: METI, Platts

29

WILL FIRM C2 SUPPORT SM PRICES?

-100

0

100

200

300

400

500

0

200

400

600

800

1000

1200

1400

1600

1/2

/20

15

2/2

/20

15

3/2

/20

15

4/2

/20

15

5/2

/20

15

6/2

/20

15

7/2

/20

15

8/2

/20

15

9/2

/20

15

10/2

/20

15

11/2

/20

15

12/2

/20

15

1/2

/20

16

2/2

/20

16

3/2

/20

16

Ethylene CFRNE Asia

Styrene FOBKorea Marker

EBSM Margin

Unit: $/mt Firm C2 erodes SM margin

Integrated

Non-integra

ted

Partly integra

ted

Most SM plants integrated in Asia

Integrated

Non-integrat

ed

Partly integrat

ed

Chinese SM plants less integrated

Company Location Capacity (kt/year)

Integration SU Timing

Changzhou Xinri New Solar

Jiangsu, China

300(SM)

C2(175) from MTO BZ from market

Mar-Apr 2016

CNOOC Ningbo Daxie

Zhejiang, China

300(SM) Fully integrated

Jul-Aug 2016

Source: Platts, Market

KEY AGENDA ITEMS

Will SM remain a winner in low cost era?

• SM prices and margins were on an uptick in 2015. Will this trend continue in 2016?

• Will firm ethylene support SM prices?

• How will weaker feedstock BZ market impact on SM prices?

31

WILL BENZENE MARKET REMAIN LONG?

-6000

-4000

-2000

0

2000

4000

6000

2012 2013 2014 2015 2016 2017 2018

US BZ deficit decreased CIS

Africa

Europe

China

N. America

ME

S. America

India

Thailand

Japan

Korea

Unit: kt

-100

-50

0

50

100

150

0

100

200

300

400

500

600

700

800

900

1000

Korea-US BZ arbitrage window shut

Benzene FOB Korea Marker BZ FOB USG Mo03 Korea-US BZ arbitrage

Unit: $/mt

Source: METI, Platts

WHERE ASIAN BENZENE SURPLUS CONSUMED?

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Korean BZ exports to US

2014 2015 2016

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Korean BZ exports to China

2014 2015 2016

Unit: mt

US Korea

Source: Korea customs, China customs

33

WILL LONG BZ WEIGH ON SM PRICES?

-100

0

100

200

300

400

500

600

700

800

900

0

200

400

600

800

1000

1200

1400

1600

1/2

/20

15

2/2

/20

15

3/2

/20

15

4/2

/20

15

5/2

/20

15

6/2

/20

15

7/2

/20

15

8/2

/20

15

9/2

/20

15

10/2

/20

15

11/2

/20

15

12/2

/20

15

1/2

/20

16

2/2

/20

16

3/2

/20

16

BenzeneFOB KoreaMarker

StyreneFOB KoreaMarker

EBSMMargin

Unit: $/mt

-120

-100

-80

-60

-40

-20

0

Mar Apr May Jun Jul Aug Sep Oct

Unit: kt

Weak BZ adds downward pressure on SM BZ monthly production loss due to TA in Asia

Source: Platts

High SM inventory in Apr

Increased US-origin SM in Mar

Weaker European SM

Weak feedstock benzene

Weak but improving demand

Firm feedstock ethylene

Delayed plants startups

TA loss in H2

Recovering crude

CONCLUSION

SM in H2

Another uptick in

Q3?

Stable to weak?

Good margins?

THANK YOU CONTACT DETAILS: MICHELLE CHAEWON KIM, SENIOR EDITOR, PETROCHEMICAL PHONE: +65-6530 6425 EMAIL: MIHEE.KIM@SPGLOBAL.COM