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Presentation
Global PVC Market Tightening?
13-15 March 2018
Eddie Kok, Executive Director, +65 6439 6060, [email protected]
Chemical Market Services
Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Agenda
Outlook risk
Outlook: market tightening?
Global overview
So what, who will benefit?
• Caustic/Chlorine Demand Imbalance
• Feedstock ( C2) availability
• PVC demand substitution/destruction
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Global Overview
Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Northeast Asia is world’s producing powerhouse
29 mmt6.09.3
1.7 2.21.3
0.5
1.9
1.0
1.3
2017 global PVC capacity = 54 mmt
Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Regional demand split is also lopsided
0%
20%
40%
60%
NAMWEP CIS SAM NEA SEA ME AFR ISC CEP
Source: World Analysis - Vinyls
NAM
WEP
NEA
ISC
ROW
Regional demand breakdown, 2017
Source: World Analysis - Vinyls © 2018 IHS Markit
Global demand 2017 = 43.8 million tons Global demand 2022 = 51.9 million tons
Contribution to global demand growth, 2017-22
© 2018 IHS Markit
Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Global trade 2017: defined by cost vs. proximity
200 -400 kmt
401 kmt -700 kmt
>1 mmt
North America
South America
W. Europe
Middle East
Indian sub-continent
NE Asia
SE Asia
Total trade: 9.4 MMt
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
0
1,000
2,000
3,000
4,000
Imports Exports
Africa
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Outlook: market tightening?
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Surplus capacity and production is drying up
NAM
WEP
NEA
CEP
CIS
SAM
SEA
ME
AFR
ISC
Capacity
2018
Spare capacity: 9.8 mmt
3,000
4,000
5,000
6,000
7,000
8,000
-8,000
-4,000
0
4,000
8,000
12,000
2018 2019 2020 2021 2022
NAM WEP CIS SAM
NEA SEA ME AFR
ISC CEP Net Total
Excess production
Source: IHS Markit © 2018 IHS MarkitR
egio
ns, th
ousand m
etr
ic t
ons
Ne
t to
tal, t
ho
usa
nd
me
tric
to
ns
…but
Source: IHS Markit © 2018 IHS Markit
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Collapse:
recession &
China
Recovery phase
More capacity needed ... and soon!
60
65
70
75
80
85
90
95
100
-9,000
-4,000
1,000
6,000
11,000
1980-1985 1986-1991 1992-1997 1998-2003 2004-2009 2010-2015 2016-2021 2022-2026
Net (demand less capacity change)** * Av. Op. Rate** *
Global incremental demand less incremental capacity
Source: IHS MarkitNotes: * Incl. hypo. capacity; ** Excl. hypo. capacity
Thousand m
etr
ic t
ons
Av. opera
ting r
ate
© 2018 IHS Markit
Tightening
Lengthening
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Why lack of investment to date?
• Past weak return & higher investment costs
• Caustic soda: an obstacle in past
• Better ethylene/polyethylene integration
• Focus on capturing more of upstream value
• Competing priority for C2, easier to monetize
elsewhere
• Export-based investment; added risk element
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S-PVC Capacity announcements: decelerated
Producer Country Timing Capacity
China (Various) 2017-20 2,970
Hanwha 2020 130
Philippines 2019 110
Asia 3,210
Westlake 2020 250
FPC 2020 140
North America 390
Trust Chem 2019-2020 200
Engro 2020 100
Navoi Azot 2020 100
Others 300
Source: IHS Markit © 2018 IHS Markit
…but gear change ahead?
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Outlook risk: caustic and chlorine demand imbalance
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Vinyls: driver for chlorine consumption
Vinyls33%
Organics21%
Chlorinated Inter.6%
Inorganics2%
Pulp & Paper
2%
Water Treatment
7%
All Others29%
Source: IHS Markit © 2018 IHS Markit
…but
Chlorine Caustic
Global = 2.5%
NAM = 1.0%
NEA = 2.8%
India = 5.2%
Global = 2.7%
NAM = 2.5%
NEA = 2.7%
India = 3.6%
2017-2020 Average Annual Demand Growth
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Surplus chlor-alkali capacity to decline due to limited capacity growth
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Capacity additions Demand growth Excess capacity as a % of demand
Global Chlorine Capacity vs. Demand Growth
Source: IHS Markit © 2018 IHS Markit
Thousa
nd M
etr
ic T
ons
>90%
capacity
additions
in China
19% av. excess capacity over demand
28% av. excess
15% av. excess
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Net trade: EDC the balancing mechanism
Source: IHS World Analysis - Vinyls
2017
2021, +10%
2017 total trade: 2.7 MMt
1.54mmt
0.95mmt
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Which markets stand to benefit from additional PVC production?
US extra-regional
China
Egypt
Turkey
Peru
UAE
WEP extra-regional
Turkey
Poland
Russia
NEA extra-regional
India
Malaysia
Bangladesh
Vietnam
Australia
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Outlook risk: feedstock ethylene availability
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Margins stay upstream, but less than before 2018
2015
323
378
32779
83
283
137
161
262
-21-4
256
North America Northeast AsiaWest Europe
255
263
196
PVC Cash Margin ECU Margin Ethylene Margin
307
291
233
PVC Cash Margin ECU Margin Ethylene Margin Dollars per Metric Ton
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Polyolefins loses some of its shine to an old rival
13 14 15 16 17 18 19 20 21 22 23 24 25
Ethylene (into PE) HDPE Ethylene (into VIN) PVC
North America integrated chain margins
Source: IHS Markit © 2018 IHS Markit
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Outlook risk: PVC demand substitution/destruction
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North America PVC to HDPE: some substitution possible?
0
5
10
15
20
25
0
20
40
60
80
100
Delta HDPE PVC
North America HDPE vs PVC netbacks
Source: IHS Markit © 2018 IHS Markit
HD
PE
& P
VC
,cts
/lb
Delta
• Product life cycle
• Relative densities
• Tensile strength
• Maintenance & reliability
• Installation
PVC more
competitive
But there are other considerations?
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Recycled PVC: threat to virgin PVC demand in developed economies
Growing role of PVC recycling in Western Europe
0%
5%
10%
15%
0
2,000
4,000
6,000
Recycled PVC (virgin equivalent)
PVC Demand (virgin)
Proportion recycled vs. virgin PVC (75% basis)
Source: IHS Markit and VinylPlus © 2018 IHS Markit
Thousa
nd m
etr
ic t
ons
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So what, who will benefit?
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Balances will tighten across all regions, with few exceptions
-1,200
-1,000
-800
-600
-400
-200
0
200
NAM WEP CIS SAM NEA SEA ME AFR ISC CEP
Change in surplus/deficit capacity, 2018-21
Source: IHS Markit © 2018 IHS Markit
Thousa
nd m
etr
ic t
ons
Surplus region, 2018
Deficit region, 2018
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Sales growth opportunities: largely function of maturity
0
3
6
9
0 2 4 6 8 10 12 14
Regional demographic and economic metrics
Source: IHS Markit © 2018 IHS MarkitPer capita (kg) PVC consumption, 2018
GD
P (
%)
gro
wth
, 2017
-22
SAM
NAM
ISC
WEP
CEP
CIS
NEASEAMEAFR
= population size
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Capacity/population disparities: investment or export?
0
500
1,000
1,500
2,000
0
7,500
15,000
22,500
30,000
NAM WEP CIS SAM NEA SEA ME AFR ISC CEP
Capacity Population
Regional PVC capacity and population
Source: IHS Markit © 2018 IHS Markit
Capacity,
thousand m
etr
ic t
on
s
Po
pu
latio
n, m
illio
n in
ha
bita
nts
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North America’s advantage looks assured, in longer-term
-100
0
100
200
300
2017 2018 2019 2020 2021 2022 2023 2024
WEP NEA China non-integ.Source: IHS Markit © 2018 IHS Markit
Dolla
rs p
er
metr
ic t
on
NAM PVC production cash cost advantage
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Progress across the board, but NAM PVC producers still rule the waves
-50
0
50
100
150
200
250
300
350
400
0
10
20
30
40
50
60
70
80
90
100
15 16 17 18 19 20 21 22 23 24
NAM Margin WEP Margin NEA Margin NAM OR WEP OR NEA OR
Regional PVC margins and operating rates
Source: IHS Markit
Opera
tin
gR
ate
, P
erc
enta
ge
Ma
rgin
, D
olla
rs p
er
Me
tric
Ton
© 2018 IHS Markit
Cycle peak
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Global capacity build is over. What’s next? Evolution or revolution
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
12 13 14 15 16 17 18 19 20 21 22 23
NAM WEP NEA ROW NAM Hypo
ISC Hypo NEA Hypo SEA Hypo ME Hypo Demand
Year-on-year PVC capacity changes
Source: IHS Markit © 2018 IHS Markit
Thousa
nd m
etr
ic t
ons
Actual Expected Hypo.
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Who are the winners?
Integrated vinyls
producers &
Feedstock
suppliers
Converters
Standalone PVC producer
& Resin end-users
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Market
tightening
Key takeaways
Buyers
beware in
most markets
Cycle peak
2021-22CAV better
positioned
for
feedstocks
Margins
expansion
to support
investment
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