Can consumerism, and

packaging demand lead

the way for Asian SM?

Genevieve SoongManaging Editor,

Asia Petrochemicals

S&P Global Platts

Agenda

Can consumerism and packaging demand keep the SM party going?

• Will the e-commerce boom breathe a second wind in the styrenics chain?

• New capacities outstrip downstream demand: What does not ADD up?

Demographics is a natural advantage for China

Population

China: 1.37 Billion

World: 7.25 Billion

18.9% of global

population

10 year growth rate

China: 0.29%

World: 0.97%

Urban

Population

China: 56%

Rural

Population

China:

44%

Source: S&P Global Platts Analytics

Macroeconomic indicators remains healthy

-10

-5

0

5

10

15

20

0

200

400

600

800

1000

1200

1400

1600

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

2016 (10,000mt) 2017 (10,000mt) 2018 (10,000mt) 2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

China's primary plastics output (10,000 mt)

54.6

52.9

54.0 54.1

54.6 54.4

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

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

2017 2018

China's monthly PMI index (%)

Source: S&P Global Platts, China statistics

5

Wild card: Imports tariffs on feedstock SM/ACN,

devaluation of Yuan exerts pressure on producers

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7

01/01/2017 03/01/2017 05/01/2017 07/01/2017 09/01/2017 11/01/2017 01/01/2018 03/01/2018 05/01/2018 07/01/2018

Chinese Yuan-US Dollar

Impact of ADDs on ABS

Volume of SM imports impacted by ADD 1.7-2.2 mil mta

Import cost increment of SM due to ADD (based on

$1,400/mt CFR China, 3.8-7.5% duty)

$51-98/mt

Volume of Chinese ACN imports impacted by tariffs 60kta

Amid an ongoing US-China trade war, the Yuan has depreciated 7.3% against the dollar since May 1

Source: S&P Global Platts

Can downstream markets support SM?

31%

24%

20%

5%

20%

EPS GPPS/HIPS ABS/SAN UPR Others

80%

20%

Resins

SyntheticRubber

Share of styrene downstream sector demand in 2017

Source: S&P Global Platts Analytics

Major styrenics applications

• Insulating Concrete Foam (ICF)

•Floor, Ceiling and Wall Insulation

•Piping

Construction •Picnic Coolers/Shipping Containers

•Food Packaging

•Foam Cups/Take-out box

Packaging

•Automobile dashboards

•Electronics/Home appliances

•Toys

•Tires

Automotive/Electronics

Source: S&P Global Platts

Firm ABS margins provide strong support for Asian styrene

-100

-50

0

50

100

150

200

250

300

350

400

0

500

1000

1500

2000

2500

3000

3500

01/01/2017 03/01/2017 05/01/2017 07/01/2017 09/01/2017 11/01/2017 01/01/2018 03/01/2018 05/01/2018

Margin Butadiene CFR China

Styrene CFR China Marker LC 90 days ACN CFR FE Asia Weekly

ABS Inj CFR China Weekly

$/mt$/mt

2017 Avg margin: $191.77/mt H1 2018 Avg margin: $188.39/mt

Source: S&P Global Platts

9

ABS/HIPS benefit from strong automobile growth

2017-2018

020000400006000080000

100000120000140000160000180000

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

China’s monthly ABS imports

2017 2018 5-year average

Source: National Bureau of Statistics China, China Association of Automobile Manufacturers

13.6 1.212.3 12.8 5.8

0

5

10

15

20

0

500

1000

1500

2000

2500

3000

3500

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

2017 Output of motor vehicles (1,000 units)

2018 Output of motor vehicles (1,000 units)

2018 Growth rate (Y-o-Y%)

China’s monthly motor vehicle output

China’s monthly motor vehicle sales

10.7

4.7

11.59.6

4.8

0

2

4

6

8

10

12

0

500

1000

1500

2000

2500

3000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2017 Sale of motor vehicles (1,000 units) Commercial

2017 Sale of motor vehicles (1,000 units) Passenger

2018 Sale of motor vehicles (1,000 units) Commercial

2018 Sale of motor vehicles (1,000 units) Passenger

2018 Growth rate (Y-o-Y%)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

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

2017 2018 5-year average

China’s monthly HIPS imports%

%

10

Trade tariffs may support Chinese automobile

output in the short run

0

50000

100000

150000

200000

250000

300000

350000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Number of motor vehicles exported from the US to China from 2002-2017

Number of vehicles

In retaliation against US tariffs, China imposed 25%

tariffs on imports of US motor cars on July 6. It has

drawn up a second list that targets $16 billion worth

of US energy commodities and chemicals.

US exported 267,473 vehicles worth 11 billion to

China in 2017. Domestic automobile makers in China

, especially EV makers, stand to gain in the short run

through displacement of US imports

Source: S&P Global Platts, National Bureau of Statistics China

11

Increased protectionist measures: the new normal

On June 22 2018, China imposed anti-dumping duties on imports of SM originating from the US, South Korea and Taiwan

0

5

10

15

20

25

30

35

40

-3 -2 -1 0 1 2 3

South Korea (14.2)

Japan (2.5)

Kuwait (2.6)

Taiwan (2.9)

SEA (2.2)

Saudi Arabia (8.1)

Iran (1.1)

USA (3.8)

Shar

e o

f to

tal C

hin

ese

imp

ort

s (%

)

Change in value of exports to China 2016-2017 ($ 100million)

Note: Area of bubble = value of imports in 2017 ($ 100million)Source: S&P Global Platts, National Bureau of Statistics China

ADD imposed on June 22, 2018:

No ADD imposed:

Chinese ADDSouth Korea origin: 6.2% to 7.5%

USGC origin: 13.9% to 55.7%Taiwan origin: 3.8% to 4.2%.

12

Demand from consumer electronics on the wane,

producers feeling the pinch from ongoing trade tensions

%

-6.0

-12.7

-1.4

-4.2

-15.2

-20

-15

-10

-5

0

5

10

15

0

200

400

600

800

1000

1200

1400

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

2016 (10,000sets) 2017 (10,000sets) 2018 (10,000sets) 2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

%China’s monthly washing machine output

Source: National Bureau of Statistics China

25.5

9.8

20.4 24.3

4.2

-15

-10

-5

0

5

10

15

20

25

30

0

500

1000

1500

2000

2500

3000

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

2016 (10,000 sets) 2017 (10,000 sets) 2018 (10,000 sets) 2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

China’s monthly colour TV output

13

Demand from consumer electronics on the wane,

producers feeling the pinch from ongoing trade tensions

-26.7

-10.5

7.2

-2.9

-32.1-35

-30

-25

-20

-15

-10

-5

0

5

10

15

0

50

100

150

200

250

300

350

400

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

2016 (10,000sets) 2017 (10,000set) 2018 (10,000sets)

2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

%

China’s monthly air-conditioner output

%

Source: National Bureau of Statistics China

-12.0

-21.4

-9.8 -10.7

-18.1

-25

-20

-15

-10

-5

0

5

10

15

20

0

200

400

600

800

1000

1200

1400

1600

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

2016 (10,000sets) 2017 (10,000set) 2018 (10,000sets) 2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

China’s monthly refrigerator output

14

Wild card: Imports tariffs on feedstock SM/ACN,

devaluation of Yuan exerts pressure on producers

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7

01/01/2017 03/01/2017 05/01/2017 07/01/2017 09/01/2017 11/01/2017 01/01/2018 03/01/2018 05/01/2018 07/01/2018

Chinese Yuan-US Dollar

Impact of ADDs on ABS

Volume of SM imports impacted by ADD 1.7-2.2 mil mta

Import cost increment of SM due to ADD (based on

$1,400/mt CFR China, 3.8-7.5% duty)

$51-98/mt

Volume of Chinese ACN imports impacted by tariffs 60kta

Amid an ongoing US-China trade war, the Yuan has depreciated 7.3% against the dollar since May 1

Source: S&P Global Platts

-250

-200

-150

-100

-50

0

50

100

150

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

01/01/2017 04/01/2017 07/01/2017 10/01/2017 01/01/2018 04/01/2018

EPS-FR Margin (-200) EPS F-R FOB NE Asia Weekly Styrene CFR China Marker LC 90 days

15

EPS shows signs of recovery after a difficult 2017

$/mt

2017 Avg margin: - $7.60/mt2018 Avg margin: $17.48/mt

Source: S&P Global Platts

$/mt

1.5 1.51.6 2.0

2.5

0

2

4

6

0

200000

400000

600000

800000

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

2016 (10,000sq.m) 2017 (10,000sq.m) 2018 (10,000sq.m)

2016 Growth rate (Y-o-Y%) 2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

4.1

-15.6

3.21.9

0.0

-18

-14

-10

-6

-2

2

6

0

5000

10000

15000

20000

25000

30000

2016 (10,000mt) 2017 (10,000mt)

2018 (10,000mt) 2017 Growth rate (Y-o-Y%)

16

9.910.4 10.3 10.2

9.7

0

2

4

6

8

10

12

0

5000

10000

15000

2016 (100 million yuan) 2017 (100 million yuan)2018 (100 million yuan) 2016 Growth rate (Y-o-Y%)2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

%

China’s monthly real estate investment

mt

Construction grade EPS/PS demand supported

by positive real estate growth in Q1China’s monthly cement output %

Total floor space under construction

%

Source: National Bureau of Statistics China

17

E-commerce boom a key driver for packaging grade EPS in China

0

200

400

600

800

1,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019* 2020*

Retail e-commerce sales in China

billion $

Source: National Bureau of Statistics China, PwC

*Based on projected figures

5

10

12

70

6

42

20

28

0 10 20 30 40 50 60 70 80

Others

Online via Mobile

Online via PC

In store

China Global

%

Preferred method of FMCG purchases in 2017

19

Packaging EPS demand to come mainly from East and South China

45

55

5

Packaging

Construction

Others

80

20

70

30

15

85

Overall breakdown

Hebei/Shandong

Zhejiang/Fujian

Guangdong

Source: S&P Global Platts

Increased environmental awareness to curb

polystyrene growth?

21

Fibre-based packaging materials are competing

against plastics for market share

Corrugated board

Compostable plastics

Kraft paper

Wood

Plastics

Metal

Glass

Fibre-based

Non Fibre-based

Above average growth materials

Legend:

Substitution direction and intensity

0

100

200

300

400

500

600

0

500

1000

1500

2000

2500

01/01/2016 04/01/2016 07/01/2016 10/01/2016 01/01/2017 04/01/2017 07/01/2017 10/01/2017 01/01/2018 04/01/2018

HIPS-PP Copol Spread ABS-HIPS SpreadABS Inj CFR China Weekly HIPS CFR China WeeklyPP Copol CFR FE Asia Weekly

22

“Lightweighting” and death by substitution: High

ABS/HIPS prices may nudge end-users to switch

2016 Avg spread: ABS-HIPS: $145.09/mtHIPS-PP Copol: $197.18/mt

2017 Avg spread: ABS-HIPS: $424.35/mtHIPS-PP Copol: $326.19/mt

PP block copolymer is used increasingly bythe automobile industry as a substitute material to build lighter cars, known as "lightweighting."

23

Tire makers switch to natural rubber due to high

costs of SBR

-500

-400

-300

-200

-100

0

100

200

300

400

500

0

500

1000

1500

2000

2500

3000

3500

01/01/2016 05/01/2016 09/01/2016 01/01/2017 05/01/2017 09/01/2017 01/01/2018 05/01/2018

Margin Butadiene CFR China Styrene CFR China Marker LC 90 days SBR1502 CFR NE Asia Weekly

$/mt $/mt

H1 2018 Avg margin: -$148.21/mt

-9.70-6.70

-5.40

-11.20

-13.70

-20

-15

-10

-5

0

5

10

15

20

0

2000

4000

6000

8000

10000

12000

14000

16000

Jan-Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2016 (10,000 lines) 2017 (10,000 lines) 2018 (10,000 lines) 2017 Growth rate (Y-o-Y%) 2018 Growth rate (Y-o-Y%)

China’s monthly tire output

Source: S&P Platts

Shandong Haili山东海力ABS: 200kt/a (Jul 2018)

Qingdao Soda Ash青岛海湾GPPS/HIPS: 200kt/a (2019)

Ningbo Keyuan宁波科元ABS: 400 kt/a (2018)

LG Huizhou phase IILG惠州2期ABS: 150kt/a (Q4 2018)

Wuxi Xingda无锡兴达ABS: 400kt/a (2020 TBC)

New downstream capacity kt/a (eststartup date)

New SM capacities outstrip downstream expansions: What does not ADD up?

Ningxia Baofeng宁夏宝丰EPS 200kt/a (2020)

Guangxi Keyuan广西科元ABS: 100kt/a (2019）

Huizhou Renxin phase II惠州仁信新材料2期GPPS/HIPS: 120kt/a (Q1 2018)

Guangdong Xinghui (SK Shantou)广东星辉（原汕头SK）GPPS/HIPS: 300kt/a (2020 TBC)

Huizhou Xingda phase II惠州兴达2期EPS: 180kt/a (Q1 2018)

Kunpeng Petrochemical鲲鹏石化EPS: 350kt/a (Q4 2019)

Petrochina Jilin吉林石化ABS: 400kt/a (2020)

Trinseo盛禧奥石化ABS: 75kt/a (Oct 2017)

New SM capacities (5.63 mil) > new downstream demand (2.47 mil)

Formosa Ningbo宁波台化ABS: 150 kt/a (2020)

25

5.63 mil Chinese capacity on the horizon: Is the Asian SM party coming to an end?

Location Major Planned Startups

China Qingdao Soda Ash

Anhui Haoyuan

CSPC Phase II

Hengli Petrochemical

Abel Chemical Phase II

Zhejiang Petrochemical

Kunpeng Petrochemicals

Wanhua Petrochemical

Sinochem Quanzhou

Jiangsu Sailboat*

Fujian Gulei*

South Korea Hanwha Total No. 3

Taiwan CPC Linyuan*

2018 2019 2020 post 2020

500

260

650

720

500

1200

420

650

600

450

600

600

600

250

Source: S&P Platts

*Projected timelines, construction have not commenced

27

Source: S&P Platts, China customs data

*Data is estimated based on Q1 2018 imports

**Data assumes domestic run rate of 85%

6.25

6.95

8.33 8.57

11.0

3.53.25

2.573.03

1.64

8.22 8.49

9.25

9.97

12.7

60

70

80

90

100

110

120

0

2

4

6

8

10

12

14

2016 2017 2018 2019 2020

Total domestic production Total imports Total production capacity Domestic demand Domestic run rate %

*

**

**

Despite downstream growth, strong Chinese

demand may not outlast 2020?

Mil mt

%

28

The race is on: Will new expansions draw demand away from China?

PT. Arbe Styrindo (Merak)ABS: 73kt/a (2019)

Lotte Advanced Materials (Banten)ABS: 300kt/a (2022)

Ineos Styrolution (Moxi)ABS/ASA: 100kt/a (2019)

LG Chem (Yeosu)PS to ABS conversion: 30kt/a (2017)

LG (Huizhou) phase IIABS: 150kt/a (Q4 2018)

Trinseo (Zhangjiagang)ABS: 75kt/a (Q4 2017)

Formosa (Ningbo)ABS: 150 kt/a (2020)

29

Key takeaways:

SM | PS/ABS

+ +• ABS growth remains robust on firm automobile output

• New expansions could startup in time to draw demand

away from China

• E-commerce boom will be a key driver for packaging

grade EPS demand

• Construction demand showing signs of recovery

• Uncertainty looms over US-China trade tensions

• EPS/PS makers unable to pass on higher feedstock SM

costs downstream, reduce OR

• PS/ABS under increasing threat from substitution

• Chinese ADDs hurt downstream margins in the short run

as China will still need to import SM

• More domestic Chinese SM expansions, SM capacities to

outstrip downstream demand by 2020.

• SM makers continue to enjoy good margins

• Higher domestic prices force end-users to import SM

- -

Thank you