polyester value chainasian oil demand decline will peak in feb, reaching about 4 mmb/d relative to...

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Polyester Value Chain

2020: Challenges Galore

March 2020

Ashish Pujari, Executive Director (Aromatics & Fiber), +65 6439 6100,

[email protected]

mailto:[email protected]

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Presentation Outline

• COVID-19 Update

• Polyester

• Paraxylene

• PTA

• MEG

2


Global Economy

Covid-19 risk, increased pessimism

for Q1, but rebound is on the horizon

3


Coronavirus has significant economic consequences

Fall in tourism revenue, cancellation of flights, hotelnights etc

Chain not balanced. Stocking/overstockingsome value chains.

Fallout of the precautionarymeasures. Small enterprises going bankrupt.

Finished and semi-finished goods not trading in/out of China

Order backlogshowing up in otherregions.

Energy volatility – oilthrough fuels and chemicals

4

Impact on China Impact on the rest of world

44

4


5

World

Baseline 2.4% 2.3% 2.4% 2.4% 2.5%

Limited crisis 2.4% 2.2% 2.5% 2.4% 2.5%

China Mainland

Baseline 6.1% 5.8% 5.6% 5.5% 5.5%

Limited crisis 6.2% 5.4% 6.0% 5.5% 5.5%

Asia-Pacific

Baseline 4.0% 3.7% 4.0% 4.0% 4.2%

Limited crisis 4.0% 3.6% 4.1% 4.0% 4.2%

United States

Baseline 2.3% 2.1% 2.1% 1.7% 1.5%

Limited crisis 2.3% 2.1% 2.0% 1.7% 1.5%

European Monetary Union

Baseline 1.2% 0.9% 1.0% 1.2% 1.3%

Limited crisis 1.2% 0.9% 1.0% 1.2% 1.3%

Latin America

Baseline 0.9% 1.4% 1.8% 1.8% 2.2%

Limited crisis 0.9% 1.4% 1.8% 1.7% 2.2%

MENA

Baseline 0.6% 1.5% 2.6% 2.8% 2.8%

Limited crisis 0.6% 1.4% 2.7% 2.7% 2.8%

Sub-Saharan Africa

Baseline 0.9% 1.4% 1.9% 1.9% 2.2%

Limited crisis 0.9% 1.3% 2.0% 1.8% 2.2%

Real GDP - %change y/y - Baseline & Scenario

2019 2020 2021 2022 2023

Timing of back to normal is critical for 2020 GDP outlook2021 Bounce is the current view, but an evolving situation

Real GDP growth in severe coronavirus scenario

2019 2020 2021 2022

World

Baseline 2.4% 2.3% 2.4% 2.4%

Scenario 2.4% 2.0% 2.8% 2.4%

Mainland China

Baseline 6.1% 5.8% 5.6% 5.5%

Scenario 6.1% 4.2% 7.1% 5.5%

Asia-Pacific

Baseline 4.0% 3.7% 4.0% 4.0%

Scenario 4.0% 2.9% 4.7% 4.0%

United States

Baseline 2.3% 2.1% 2.1% 1.6%

Scenario 2.3% 2.1% 2.1% 1.5%

European Monetary Union

Baseline 1.4% 1.0% 1.1% 1.3%

Scenario 1.4% 1.0% 1.3% 1.2%

Latin America

Baseline 0.9% 1.4% 1.8% 1.8%

Scenario 0.9% 1.2% 2.0% 1.7%

MENA

Baseline 0.6% 1.5% 2.6% 2.8%

Scenario 0.6% 1.3% 2.8% 2.7%

Sub-Saharan Africa

Baseline 0.9% 1.4% 1.9% 1.9%

Scenario 0.9% 1.2% 2.4% 1.6%


Energy

Crude globally is long with drop in China demand

6


Asian oil demand decline will peak in Feb, reaching about

4 MMb/d relative to pre-virus forecast and mostly in China

Our base case assumes that normal business operation will resume by the end of February

and the government will subsequently issue stimulus packages to help economic growth.

7


Oil: What comes during/after Coronavirus?

• Oil and NGL’s inventory are building globally

• Decisions in Vienna, new cuts put in place

and additional ones under assessment, but

significant output policy changes are in limbo

even with downward price movement. Will

Russia finally cut and/or will Saudi Arabia

take the lion’s share of new cuts?

• The US tight oil in flux with expectation of

money flowing back to investors and less on

new drilling.

• There are changes to our liquids demand

growth outlook (oil and NGL’s), and the

broader picture is a slowdown from the

exceptionally strong 2015–18 production

growth period.

• More supply chasing less demand.

8


Supply surplus leads to lower and volatile prices in 2020

• COVID-19 drops demand in China

trickling to the rest of the world.

Once demand is lost it unlikely it will

come back. Miles not driven are

miles lost forever. Read as

“inventory builds”.

• Will/can US cut back production?

• Crude volatile in IHSM forecast with

bottom in Q1/2 some recovery then

dipping again.

• Depletion curves and slowdown in

exploration will eventually pull back

supply and offer price support post

2020. But, we need demand to

return.

9

Note: For our monthly Dated Brent and WTI price outlook, please see the accompanying “IHS Markit Global Crude Oil

Markets Short-Term Outlook: Fundamentals” file.

40

45

50

55

60

65

70

75

80

201

8 Q

1

201

8 Q

2

201

8 Q

3

201

8 Q

4

201

9 Q

1

201

9 Q

2

201

9 Q

3

201

9 Q

4

202

0 Q

1

202

0 Q

2

202

0 Q

3

202

0 Q

4

202

1 Q

1

202

1 Q

2

202

1 Q

3

202

1 Q

4Dated Brent WTI-Cushing

Dated Brent and WTI-Cushing Crude Oil Price

Source: IHS Markit © 2020 IHS Markit

Qu

art

erl

ya

ve

rag

e p

ric

e (

$/b

bl)


CoronaVirus

China and the Rest of the World

10


High Level Perspective: L&L – Labor and LogisticsEnergy demand is lost forever, oil/refining cuts back ups system…….

………...Petchem demand could rebound quickly starving system of feed

11

Refining and

Petchem

production

All about Labor Pool:

where is it assigned?

Logistics, refining,

chemicals ops, etc.?

Domestic

Feeds:

Oil, Coal, NGL

Import Feeds:

Oil, Coal, Nap,

NGL, MeOH,

petchem

Domestic

Products:

Fuels and

Petchem

Export

Products:

Fuels and

goods


China Chemicals Supply Chain Disruption Creates Volatility – what

does and does not run is key and where inventory is built for future pulls is also critical.

Crude Refining Chemicals Conversion End Use

Methanol

Naphtha/LPG

Pace of Investment

Net Equivalent Ethylene, Benzene, etc.

Strategic Reserves End Use

Raw Material -

Domestic or

Import?

Products -

Domestic or

Export?

Inventory In system

12


Presentation Outline

• COVID-19 Update

• Polyester

• Paraxylene

• PTA

• MEG

13


0

10

20

30

40

50

60

70

80

90

100

110

13 14 15 16 17 18 19 20 21 22 23

N. America S. America W. Europe C. Europe CIS & Baltics Africa Middle East Indian Subc. NE Asia SE Asia

World: Melt Demand by Region

Millio

n M

etr

ic T

on

s

Source: IHS Markit

4% 4% 7% 8% 6% 4%3% 4%

World: Melt Demand by Region

Millio

n M

etr

ic T

on

s

Source: IHS Markit

4% 4%

© 2019 IHS Markit

4%

Total Polyester Demand

14

• The industry has seen relatively healthy growth in the recent past helping absorb surplus in many sectors


Polyester Staple: back to historical slow growth

15

• China bounced back in 2019 as new capacity was added and recycled fiber availability also improved

20%

30%

40%

50%

60%

70%

80%

90%

0

4

8

12

16

20

24

28

32

14 15 16 17 18 19 20 21 22 23 24

World Capacity World Demand World Operating Rate

Global PSF Demand


Millio

n M

etr

ic T

on

s

Op

era

tin

g R

ate

0% 2% 5% 3% -3% 8% 3% 3%


Polyester Filament: most economical; hence preferred

16

• Highest investment interest in this segment. Slower growth drives down O/R. Large number of idle capacities across Asia

with low potential of restart.

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

70

80

13 14 15 16 17 18 19 20 21 22 23 24

World Capacity World Demand World Operating Rate

Global Filament Demand


Millio

n M

etr

ic T

on

s

Op

era

tin

gR

ate

7%7% 4% 4% 5% 10% 10% 6% 6%


Polyester Growth stable in long term, but subject to annual variances

50%

60%

70%

80%

90%

100%

0.0

40.0

80.0

120.0

160.0

200.0

14 15 16 17 18 19 20 21 22 23 24 29

Demand (5.6/3.9) Production (5.6/3.9)

Total Capacity (3.8/3.6) Operating Rate

World: Polyester Melt Supply & Demand

(% AAGR = 14-19/19-29)

Forecast

Mil

lio

n M

etr

ic T

on

s

Op

era

tin

gR

ate


17


Paraxylene

18

Key Factors to Watch

• Gasoline OR Aromatics?

• Feedstock costs

• MegaTON project announcements in China

& progress

• Rationalizations


Routes to MX and PX

19

19

Naphtha

Mixed Xylenes

Toluene

Benzene

To Gasoline

Light

Naphtha

Heavy Naphtha

Pygas

Paraxylene

Orthoxylene

Distillation

Olefins Unit

Reforming Extraction

Dis

till

ati

on

Crystallization or Adsorption Distillation

TDP/TA

Gasoline Blending Solvents


Aromatics & Gasoline Compete for Reformate –

The Real Reason is Octane

20

0

20

40

60

80

100

Arom, % vol Road Octane (RON)

BOB

Octane & Aromatics of Gasoline Streams


ReformateLt. HDC

FCC Gasoline

Alkylate

LSR Gasoline

Isomerate

Butane

Reformate Lt. HDC FCC Gasoline Alkylate

LSR Gasoline Lt. Coker Nap Isomerate Butane

Gasoline Composition



Paraxylene – Large investments come on-stream

21

40

50

60

70

80

90

100

-4

0

4

8

12

16

20

14 15 16 17 18 19 20 21 22 23 24 29

Americas Europe, Middle East, Africa

Asia Global Demand Growth

Excess Capacity Operating Rate

Global Paraxylene Capacity Growth


Millio

n M

etr

ic T

on

s

Perc

en

t O

pera

tin

g R

ate


0

2

4

6

8

10

12

14

16

18

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

South Korea Japan Taiwan SEA Middle East North America Indian Subc.

China PX Import

Source: IHS Markit

Millio

n M

etr

ic T

on

s

© 2019 IHS Markit

China PX Imports

22


PX margins are now in a downturn and expected to decline over the next few years

23

-150

-100

-50

0

50

100

150

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Reformate Xylenes Merchant Xylenes STDP Weighted Average

By Feedstock


Do

lla

rsP

er

Me

tric

To

n


PTA

24


• China adds another surplus in the market. Will

investments continue unabated?

• Diminishing trade volumes has lead to regional

pricing

• Profitability – Only the MegaTON units to survive

in the Long term!

• How to incentivize investment outside of China?


PTA capacity growth continues to outstrip demand

25

20

30

40

50

60

70

80

90

100

-4

-2

0

2

4

6

8

10

12

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Demand Growth Americas Europe Africa & Middle East Asia Excl. China China CIS & Baltic States Operating Rate

Global PTA Net Capacity Growth


Millio

n M

etr

ic T

on

s

Op

era

tin

g R

ate

, %


50%

60%

70%

80%

90%

100%

0

20

40

60

80

100

120

13 14 15 16 17 18 19 20 21 22 23

Demand Total Capacity Operating Rate

World: PTA Supply & Demand

Millio

n M

etr

ic T

on

s

Op

era

tin

gR

ate


4% 3% 5% 4% 7% 8% 4% 5% 4% 4% 4%

PTA supply not as long if we ignore shutdowns!

26


65

70

75

80

85

90

95

100

0

10

20

30

40

50

60

70

80

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

PTA Capacity PTA Domestic Demand PTA Operating Rate (%)

China


Millio

n M

etr

icT

on

s

Op

era

tin

g R

ate

(%

)

Status Update: Chinese PTA – From Surplus to Balanced to Surplus again!

• Operating rate shown above is only based on regional demand. Including exports, the units are operating at higher rates.

27


EurAsia (ex-China) PTA industry has recovered to healthy operating rates

• Supply is tight considering the planned and unexpected shutdowns

28

65

70

75

80

85

90

95

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

PTA Capacity PTA Domestic Demand PTA Operating Rate (%)

Global (excluding China & Americas)


Millio

n M

etr

icT

on

s

Op

era

tin

g R

ate

(%

)


COVID-19 impact : China PTA demand at lowest levels in last two years

• Relatively fast recovery is expected between the March – June period.

29

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

-5.00

5.00

15.00

25.00

35.00

45.00

55.00

Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Capacity At Beginning of the Year New Startups Idled Capacity Demand Operating Rate

China PTA Annualized Capacity & Demand


Millio

n M

etr

ic T

on

s

Op

era

tin

g R

ate

, %


Global Trade Flow - Diminishes

• China has gone from being the largest importer to balance and possibly could emerge as net exporter. Taiwan and now Korea producers

under threat.

30

-10

-8

-6

-4

-2

0

2

4

6

8

10

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

China NEA Excl. China SE Asia N. America S. America W. Europe C. Europe CIS & Baltics Africa Middle East Indian Subc.

PTA Global Net Trade

Source: IHS Markit

Millio

n M

etr

ic T

on

s

Net Importer

Net Exporter

© 2019 IHS Markit


PTA Spreads: COVID-19 & Excess capacity impact will push margins down in 2020

• Will this incentivise the industry to scrap & rebuild more efficient assets?

31

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

13 14 15 16 17 18 19 20 21 22 23

PTA Spread Over PX PTA Global Operating Rate

Asia PTA Spreads


Do

lla

rs P

er

Me

tric

To

n

Op

era

tin

g R

ate

Reinvestment Spread: $125 Per Ton

85% Operating Rate

An extended slowdown will

push margins lower


MEG

32


• Market balance – is now long and remain so for

next few years

• Coal – to – MEG makes way for conventional

investment

• China provides cases by case duty waiver on

US imports


Capacity ≈ demand Capacity > demand

75%

80%

85%

90%

95%

0

2

4

6

8

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Demand N. America CIS & Baltics

Mid. East Indian Sub. N.E. Asia (conventional)

S.E. Asia N.E. Asia (coal-based) Operating Rate (% RHS)

Net MEG Capacity Change by Region

Source: IHS Markit

Notes: 2020t balances

© 2020 IHS Markit

Millio

n M

etr

ic T

on

s Forecast

33


Naphtha based cost sets price in Asia. Margins expected to remain at breakeven

as capacity remains surplus

34

0

100

200

300

400

500

600

C2: @ Market (Spot) Naphtha Ethane C2: @ Market (Spot) Ethane Coal MEG

ASIA MIDDLE EAST NORTH AMERICA China

Fixed Variable Spot Price

27-Feb-20

Delivered Spot Asia MEG Economics Snapshot


Do

lla

rs P

er

Me

tric

To

n

34


Key takeaways

Raw Materials

Will remain

oversupplied over the

next few quarters –

possibly longer

Lower prices may

catalyze downstream

growth

Polyester

Margins will

remain under

stress in the first

half as inventory

remains high

Ex-China market

needs to attract

investment to

cater to growth

COVID-19

The epidemic is

threatening to hit

global economies

hard. Significant

downturn in short

term growth

Provides for a

Bounce back

35

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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36

polyester value chainasian oil demand decline will peak in feb, reaching about 4 mmb/d relative to...

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