1. No category

Polyethylene Price Drivers:
What To Expect And Why…..
Nick Vafiadis, Director Polyethylene
Flexible Packaging Association
February 2012
PE: Market snapshot
• Demand has been relatively weak… domestic and export
• Production costs have collapsed since November
• Ethylene spot price has steadily increased
• Integrated margins have been soaring since November
• Non-integrated margins have been struggling
• More PE price increases scheduled for February and
March
• Capacity constraints for ethylene and PE influencing
prices
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
2
1
Price Drivers
• Changes in cost
- energy prices
- feedstock prices
• Supply / Demand balance
- operating rates – outages (planned and unplanned)
- capacity changes
- inventory levels
- domestic
d
ti vs. exportt opportunities
t iti
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
3
Future Development Then Translates to
Lower Gas Prices
$ / MM Btu
30
Gas as a % of Crude
120%
25
100%
20
80%
15
60%
10
40%
5
20%
0
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Crude (WTI)
Natural Gas
Gas as % of Crude
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Copyright © 2005 IHS Inc. All Rights Reserved.
2
U.S. Natural Gas Liquids Price
Gas Liquids, Cents Per Gallon
250
Natural Gas, $/
$/MMbtu
MMbtu
15
200
12
150
9
100
6
50
3
0
0
06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3 13 Q3
Natural Gas
Ethane
Propane
N-Butane
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Ethane Price Drivers
• Ethane no longer follows natural gas, but is instead
more closely linked to competing feedstock prices
(propane butane,
butane naphtha etc
(propane,
etc…))
• Ethane is therefore priced as high as it can be without
loosing its competitive edge
• Ethane price spikes that we have seen are usually
associated with supply constraints linked to pipeline
capacity and fractionation capacity limitations – both
issues being addressed
• Ethane price also reflects fluctuating demand at the
cracker
•
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
6
3
Purity Ethane Price: A Supply/Demand story
Cents Per Pound
95.00
90.00
Supply constrained
85.00
Demand increase
80.00
75.00
Supply increases
70.00
Demand reduced
65.00
60.00
55.00
50.00
Jan--2011
Jan
Jul
Jul--2011
Jan
Jan--2012
Jul
Jul--2012
Jan
Jan--2013
Jul
Jul--2013
Purity Ethane
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North America Pipeline Expansions
Company/Pipeline
Capacity
Date
Enterprise/Yoakum-Mt.
Belvieu
70 Mb/d
1Q 2012
Oneok/Arbuckle
60 Mb/d
2Q 2012
Oneok/Bakken
60 Mb/d
1Q 2013
40/60 Mb/d
Late 2013
DCP/Southern Hills
150 Mb/d
Mid 2013
Enterprise/Texas
Express
200 Mb/d
2Q 2013
Oneok/Sterling III
350 Mb/d
Late 2013
70Mb/d
1H 2013
190 Mb/d
1Q 2014
Vantage/Bakken-Joffre
Crosstex/Cajun-Sibon
Enterprise/ATEX
Express
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Copyright © 2005 IHS Inc. All Rights Reserved.
8
4
NGL Fractionation Expansion
In MBD
USGC Capacity Additions
Targa Resources / CBF (Mt Belvieu, TX)
(Houston TX)
Copano Energy (Houston,
Formosa Plastics (Point Comfort, TX)
Enterprise Products (Mt Belvieu, TX)
Gulf Coast Fractionators (Mt Belvieu, TX)
Lone Star NGL (Mt Belvieu, TX)
Crosstex Energy (Eunice, LA)
All Other Capacity Additions
OneOK (Bushton, KS)
Caiman Energy (Fort Beeler, WV)
MarkWest Liberty (Houston, PA)
Dominion Resources (Natrium, WV)
Total
Cumulative Total
2011
2012
2013
78
22
100
75
43
75
75
100
40
13
60
173
173
60
15
36
229
402
23
413
815
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Ethylene: North America Current Situation
• Significant amount of capacity to be off-line 1H 12
− Huge inventory build at end of 2011
− Unplanned
p
p
production outages
g impacting
p
g market now
• Supply demand balance supporting a sellers market
− High spot prices relative to contract
− Unplanned production issues may provide additional lift to
prices
• Some additional supply will begin to enter the market
− Debottlenecks at Williams, Ineos, and Westlake
− However, cumulative amount not sufficient to change market
balance
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
5
Ethane/Ethylene North America
Cents Per Pound
80
70
60
50
40
30
20
10
0
Jan--08
Jan
Jan
Jan--09
Jan
Jan--10
NAM Avg Acquisition Price
NAM Ethylene Spot
Jan
Jan--11
Jan
Jan--12
Jan
Jan--13
Ethylene cash costs (Ethane)
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Weekly Ethylene Cash Costs & Spot Price
Cents Per Pound
80
70
60
50
40
30
20
10
0
9/30/2011
10/28/2011
Price/Cost Spread
11/23/2011
12/22/2011
Weighted Avg Cash Cost
1/20/2012
Weekly Spot Price
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
2/17/2012
12
6
U.S. Ethylene Daily Cash Costs
Dollars Per Metric Ton
Cents Per Pound
80
1543
Spot Cash Cost Drivers
70
1323
60
1102
50
882
40
661
30
Ethylene Cash Costs as of Feb 13
Purity Ethane = 17 cpp
Light Naphtha = 51 cpp
Weighted Average = 24 cpp
Coprod. Int. Lt. Naphtha = 47 cpp
Propane = 27 cpp
Butane
= 39cpp
B t
39
Gas Oil = 52 cpp
20
10
0
Dec 20
Dec 28
Jan 05
Jan 12
Light Naphtha
Weighted Average
Propane
Jan 20
Jan 27
Feb 03
441
220
0
Feb 10
Purity Ethane
Coprod. Int. Lt. Naphtha
Butane
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
13
World Ethylene Cash Cost Comparison
U.S. Dollars Per Metric Ton
1,600
Ethylene Cash Costs From
1,400
Ethane in Saudi Arabia
U.S. Cents Per Pound
73
63
1,200
54
1,000
45
800
36
600
27
400
18
200
9
0
0
Western
Canada
U.S.
Ethane
U.S.
Northeast Southeast
U.S.
Weighted
Asia
Asia
Coprod.
Average Naphtha Naphtha Int. Light
Naphtha
January 2012
West
Europe
Naphtha
U.S. Light
Naphtha
December 2011
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Copyright © 2005 IHS Inc. All Rights Reserved.
7
2012 North America Ethylene Operating
Schedule
Thousand Pounds
700
600
500
400
300
200
100
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
BASF/FINA
Chevron Phillips
Eastman
Equistar
ExxonMobil
Flint Hill
Huntsman
Shell Chemical
West Lake
Unplanned Outage
Ineos
Forecast Unplanned
Outage
15
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
2012 U.S. Ethylene Production Loss
Forecast
Monthly, Million Pounds
1,000
900
800
Cumulative, Million Pounds
5,000
4,000
700
600
500
400
300
200
100
0
3,000
2,000
1,000
Jan Feb Mar Apr May Jun
Planned
Unconfirmed
'11 Cumulative Production Loss
Jul
0
Aug Sep Oct Nov Dec
Unplanned**
'12 Cumulative Production Loss
** Forecast period assumes a forecast of unplanned outages
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
8
Ethylene Inventory levels
Inventory, Billion Pounds
1.6
Historical Inventory Source: NPRA
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
01 Q3 02 Q3 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3
Inventory
17
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. Ethylene Supply/Demand Outlook
Operating Rate
Billion Pounds
16
15
95%
14
90%
13
85%
12
80%
11
75%
10
70%
9
65%
01 Q4 Q3 Q2 04 Q4 Q3 Q2 07 Q4 Q3 Q2 10 Q4 Q3 Q2 13 Q4
Total Demand
Effective Operating Rate
Nameplate Operating Rate
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Copyright © 2005 IHS Inc. All Rights Reserved.
9
Global Monthly Ethylene Prices
Dollars Per Metric Ton
2,100
1 800
1,800
1,500
1,200
900
600
11
A
J
O
12
A
U.S. Large Buyer Contract Price
SEA CFR Spot Price
J
O
13
A
WEP Contract Price
J
O
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. Ethylene Market Quarterly Economics
Large Buyer Contract Cash Margins
Cents Per Pound
80
Dollars Per Metric Ton
1,764
70
1,543
60
1,323
50
1,102
40
882
30
661
20
441
10
220
0
0
05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3 13 Q3
Wtd. Average Cash Cost
Average Spot Price
Wtd. Average Cash Margin
Large Buyer Contract Price
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Copyright © 2005 IHS Inc. All Rights Reserved.
10
U.S. Ethylene Margins
Cents Per Pound
30
Dollars Per Metric Ton
551
25
441
20
331
15
220
10
110
5
0
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
U.S. Wtd. Avg Contract Cash Margin
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
NA Ethylene Expansion “Talk” In The Press ~
9.36 Million Tons
Company
2012
2013
2014
193
75
193
460
Future
Announced (-000- MT)
Chevron Phillips (TBD)
Dow (Taft/TBD)
Equistar (All locations)
Formosa (Point Comfort)
Ineos (Chocolate Bayou)
Oxy (Ingleside, TX)
Sasol (Lake Charles)
Shell (Northeast)
Westlake (Lake Charles)
Williams (Geismar)
Nova (Sarnia)
Braskem/Idesa (Mexico)
Total
1500
1300*
114
506
943
250*
1000
7800
Cumulative Total
114
620
1563
9363
800
57
58
550*
1400
1000*
30
27
110
70
80
210
•Dow, Shell, NOVA, and Oxy capacity additions shown are CMAI estimates
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Copyright © 2005 IHS Inc. All Rights Reserved.
11
Polyethylene Snapshots: U.S. & Canada
• 2011 domestic demand ahead of 2010 levels 4.8%
• Export volumes trailed 2010 by 6.2%
• PE prices bottomed out in November, upward movement in Q1
• December five cent increase held – 6 cents for Jan rolled to Feb
and another 7 cents announced for March
• Production costs (integrated) declining – spot ethylene remains
high
• Year end inventories tightened (33.6 days in Dec vs 38.6 ytd avg)
• LDPE supply tight with Nova outage
• HDPE – HMW supply tight with ExxonMobil outage
• Integrated margins were well off high water mark in Nov (5.6
(5 6 cpp)
vs near 20 cpp Jan – Aug avg.----- Nov. lowest since Jan of 2010)…
strong margins returning – Jan 17 cpp and Feb 25 – 30 cpp
• Non integrated margins are near zero for some resins: spot
ethylene prices have recently been higher than PE prices for some
resins.
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
North America PE Demand: Negative To
Positive
Rotomolding
AAGR Domestic Demand
11--16 = 2.3 %
11
Wire & Cable
Blow Molding
Extrusion Coating
Pipe & Profile
Injection Molding
Film & Sheet
-4
-2
AAGR 0606-11
0
2
4
6
8
Growth Rate Percent
Demand Change 1010-11
10
12
14
AAGR 1111-16
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Copyright © 2005 IHS Inc. All Rights Reserved.
12
HDPE Film Resin Demand 2010 vs. 2011
HDPE
Film 12 Mils and Below
Packaging Film
Food Packaging Film
Non--Food Packaging Film
Non
Non--Packaging Film
Non
g
Retail Bags
Percent Change
19
-1.9
-1.4
7.9
-9.3
-2.2
-2.3
Trash and Can Liners
Other NonNon-Packaging Film
-6.3
11.4
Source: ACC, Plastics Division; Gov’t Trade Data
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
LLPE Film Resin Demand 2010 vs. 2011
LLDPE
Film (12 Mils and Below)
Packaging Film
Food Packaging Film
Non--Food Packaging Film
Non
Non--Packaging Film
Non
Percent Change
0.8
-2.5
-4.2
-6.6
6.7
Source: ACC, Plastics Division; Gov’t Trade Data
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Copyright © 2005 IHS Inc. All Rights Reserved.
13
LPE Film Resin Demand 2010 vs. 2011
LDPE
Film (12 Mils and Below)
Packaging Film
Food Packaging Film
Non--Food Packaging Film
Non
Non--Packaging Film
Non
Percent Change
-5.2
-5.2
-6.1
-5.9
-5.2
S
Source:
ACC
CC, Plastics Division; Gov’t Trade Data
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. & Canada PE Film Resin Quarterly
Demand
Billion Pounds
3.4
3.2
3.0
2.8
2.6
2.4
24
2.2
Q1--06 Q4Q1
Q4-06 Q3Q3-07 Q2Q2-08 Q1Q1-09 Q4Q4-09 Q3Q3-10 Q2Q2-11 Q1
Q1--12 Q4Q4-12 Q3Q3-13
PE Film Resin Demand
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Copyright © 2005 IHS Inc. All Rights Reserved.
14
PE Inventories: Monthly Change
Million Pounds
400
300
200
100
0
-100
-200
-300
Jan--10
Jan
MayMay-10
SepSep-10
Jan
Jan--11
Inventory Change HDPE
Inventory Change LLDPE
May
May--11
Sep
Sep--11
Jan
Jan--12
Inventory Change LDPE
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
LLDPE Cost Vs. Price
Cents Per Pound
110
100
90
80
70
60
50
40
30
Jan--07
Jan
Jan
Jan--08
Jan
Jan--09
Jan
Jan--10
NAM Cash Cost, Integrated
WEP LLDPE
Jan
Jan--11
Jan
Jan--12
Jan
Jan--13
NAM LLDPE
CHINA LLDPE (Spot)
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Copyright © 2005 IHS Inc. All Rights Reserved.
15
Spot Ethylene Margin vs. LLDPE
Cents Per Pound
100
80
60
40
20
0
-20
Jan--2007 Jan
Jan
Jan--2008 Jan
Jan--2009 Jan
Jan--2010 Jan
Jan--2011 Jan
Jan--2012 Jan
Jan--2013
Differential: Spot Ethylene/Cash Cost
LLDPE Discounted
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
31
North America PE Prices
Dollars Per Metric Ton
2,205
Cents Per Pound
100
90
1,984
80
1,764
70
1,543
60
1,323
50
1,102
40
882
30
Jan--08 OctJan
Oct-08 Jul
Jul--09
LDPE GP
661
Apr
Apr--10 Jan
Jan--11 Oct
Oct--11
HDPE BM
Jul
Jul--12 Apr
Apr--13
LLDPE C4
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Copyright © 2005 IHS Inc. All Rights Reserved.
16
Margins On The Rise!
Cents Per Pound
90.00
80.00
9
18
21
70.00
30/25
13
60.00
50.00
40.00
40 00
30.00
Jan--07 OctJan
Oct-07 Jul
Jul--08 Apr
Apr--09 Jan
Jan--10 OctOct-10 Jul
Jul--11 Apr
Apr--12 Jan
Jan--13 OctOct-13
LLDPE Integrated Cash Costs
LLDPE Discounted Price
33
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Total PE Chain Margins
Cents Per Pound
100
Margin, Cents Per Pound
40
90
35
80
30
70
25
60
20
50
15
40
10
30
5
20
0
10
-5
0
Jan--08
Jan
-10
Jan
Jan--09
Jan
Jan--10
Ethylene Cash Margin
NAM PE Discounted Price
Jan
Jan--11
Jan
Jan--12
Jan
Jan--13
Total PE Non
Non--Integrated Margin
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
17
Global PE Capacity Additions
Capacity, Million Metric Tons
10
8
6
4
2
0
-2
Global Capacity AAGR 11
11--16 = 4.0%
Global Demand AAGR 1111-16 = 5.0%
-4
-6
2006 2007 2008 2009 2010 2011 2012
Asia/Pacific
Africa/ Middle East
Central Europe/ CIS
South America
Global Demand Change
2013 2014 2015
North America
West Europe
2016
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
PE Capacity Expansions
Thousand Metric Tons
HDPE
LDPE
LLDPE Startup
Type
2014
Dow Canada
Westlake
Prentiss, Alta
Lake Charles, LA
B k
Id
Braskem
Idesa
Nova
Formosa
C t
l
Coatzacoalcos
Sarnia
Point Comfort, TX
Nova
Sarnia
Chevron Phillips
Dow
Nova
US Gulf Coast
US Gulf Coast
Prentiss, Alta
Shell
Northeast US
Canada
United States
2015
M i
Mexico
Canada
United States
2016
Canada
2017
United States
United States
Canada
2018
United States
200
750
(200)
300
100*
400*
2Q 2014
3Q 2014
1Q 2015
1Q 2015
4Q 2015
hypo
hypo
4Q 2016
hypo
500*
300*
500*
300*
350*
3Q 2017
3Q 2017
3Q 2017
hypo
hypo
hypo
500*
500*
2Q 2018
hypo
* No firm announcements, CMAI speculation
Sasol announced
a ou ced a new
e cracker
c ac e in Lake
a eC
Charles,
a es, LA ((1.4 million
o tons
o s pe
per yea
year).
) The
e sstartup
a up yea
year was
as not
o released.
e eased
** Saso
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Copyright © 2005 IHS Inc. All Rights Reserved.
18
Global Operating Rates Accelerate
Polyethylene, Operating Rate, %
95
90
85
80
75
70
2006
2007
2008
North America
2009
2010
West Europe
2011
2012
Middle East
2013
2014
2015
Northeast Asia
2016
World
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
U.S. Trade Trends
Million Metric Tons
6.0
Production as a % of Exports
45
5.0
40
4.0
35
3.0
30
2.0
25
1.0
20
0.0
15
-1.0
10
-2.0
5
-3.0
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Imports
Exports
Production as a % of Exports
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Copyright © 2005 IHS Inc. All Rights Reserved.
19
U.S. Bag Imports
Billion Units
70
Percent
60
60
50
50
40
40
30
30
20
20
10
10
0
0
04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 2011 Q3
China Share of Total
World
China
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
What to Expect
• 2012 shaping up much like previous two years from a
US resin price perspective • Sellers market persist through 2Q 2012
• Price pressure begins to ease 2H 2012
• Producer shift more volume to export market as supplies
improve – keeping some pressure on operating rates
and inventories
• Resin demand for US packaging and film markets
remains positive, approximating gdp levels for the next
two years.
© 2012, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
Copyright © 2005 IHS Inc. All Rights Reserved.
20