To Rise Up Look Down


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ICIS Methodology - presentation by Salmon Lee

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To Rise Up Look Down

  1. 1. An ICIS pricing Presentation To Rise Up, Look Down: The growing importance of downstream markets on PX pricing Korea & Japan, October 2008 Salmon Aidan Lee 李沭福 Senior Editor Asia Paraxylene & Terephthalic Acid ICIS pricing
  2. 2. An ICIS pricing Presentation Today’s Agenda • The Energy Factor on PX • Energy, Aromatics and PX • PX and the downstream markets • Watershed years for Asian PTA and PX sectors • The PTA and polyester rebellions • The start of the PX Dilemma • The PTA (and PX) Nightmare • PX vs PTA vs Polyester: Must we all fight? • The need for a long-term solution • Conclusions Disclaimer: All information from, and ICIS affiliated units. ICIS pricing accepts no liability for commercial decisions based on information given in this presentation. The view(s) expressed herewith are those of the presenter alone and does not necessarily represent the view(s) of ICIS, Reed Elsevier, Reed Business or any affiliated units.
  3. 3. An ICIS pricing Presentation The Energy Factor on PX • For a long time, single most-important factor in determining PX pricing in Asia and globally • Most PX (and aromatics) producers are oil companies • Aromatics (toluene and xylene) used in gasoline blending, thus close association with energy price trends • US Gulf a major production base of PX • Asia’s major PX producers all oil companies • Asia’s use of naphtha as the cracking feedstock; naphtha’s close link to energy price trends
  4. 4. An ICIS pricing Presentation Energy & Aromatics: We’re Family • Price trend graph on naphtha, toluene, xylenes and PX Trend follows energy prices
  5. 5. An ICIS pricing Presentation Downstream: Lady in Waiting • PX in short supply in Asia since 1990s • Tight supply worsened from 2006 as more PTA starts up • PTA and downstream markets influence on PX was there, but never superseding energy trends • Main reason was PTA and polyester still generally healthy enough to accept high PX
  6. 6. An ICIS pricing Presentation PX & downstream: Who’s boss? PX, PTA & Fibres: to each his own
  7. 7. An ICIS pricing Presentation 2006: Watershed Year for PTA • Rise of Chinese PTA producers • Rise of Chinese way of doing business • Loss of competitiveness of other Asian PTA producers • PTA overcapacity & oversupply become reality • Asian PTA makers start making losses for first time ever • PTA sellers buy highest-price PX, sell lowest-priced PTA • Trouble started to brew
  8. 8. An ICIS pricing Presentation New PTA Capacities YPC, Nanjing 600K Ningbo MCC Samsung Petchem, 600K(I); 1000KT(II) Tae Kwang, Ulsan 650K (500K) Korea (TBC) Samnam, Qingdao Liaoyang, 530K NPC I&II, (TBC) Iran 350K Jinan Zhenghao, Dalian 1500K OPC, Pudong Shandong 500K Hualian Sunshine, Shaoxing 600K No1-3, 1800K; No4 (TBC) RIL India 1000K Sinopec Jinshan 700K FCFC, Loong-der Chongqing Fuling, 600K 400K IOC, India 550K BP Taicang (TBC) XLP, Xiamen (debottlenecking) Hanbang, Jiangyin 600K XLP, Zhangzhou, 1500K FCFC, Ningbo RIL, Hazira 640K 600K Tongkun/KP, Zhapu (TBC) ONGC India TBC Polyprima, Indonesia Yisheng I&II, Jialong, Shishi 600KT Ningbo 1300K (debottlenecking) MCC India II 800K Three TBC projects: Xiang IOC India 560K Sheng, Cifu & Yuan Dong Siam Mitsui, Map Ta Phut 500K Indorama, Map Ta Phut, 700K BP Zhuhai II, 900K; No3 (TBC) Tuntex Thailand Yizheng III, 1000K (debottlenecking)
  9. 9. An ICIS pricing Presentation PTA: The Downstream Rebels PTA no longer follows PX
  10. 10. An ICIS pricing Presentation Polyester: The Earlier Rebellion • Serious polyester overcapacity since 2003, margins squeezed by feedstock costs and stiff competition • Rebelled against feedstock producers • Caused sharp price decline every few months • Since 2006, PTA sandwiched between polyester & PX
  11. 11. An ICIS pricing Presentation PTA & Polyester: Downstream Rules • Graph to Downstreampolyester brings about price crashes of PTA show how brings down PTA between Jan 2004 and Dec 2006 Downstream ignores PTA
  12. 12. An ICIS pricing Presentation 2007: Start of PX Troubles • Rising energy and naphtha prices • PTA producers start to cut back on operating rates • Occasional drop in demand for PX • Downstream flexes muscles over influence of PX price trends • Breakdown of the Asian contract price system
  13. 13. An ICIS pricing Presentation PTA & PX: Vicious Cycle since 2006 PTA PTA ops overcapacity resume Tight PX supply PTA margins return Vicious cycle High PX prices PX price fall Squeezed Temp PX PTA supply glut PTA ops margins cut
  14. 14. An ICIS pricing Presentation 2008: Watershed Year for PX • Record-high energy and naphtha prices • Squeezed margins for PX producers • Failure to transfer costs to PTA sector • Asian PX producers make losses for the first time • Massive cutbacks on PX ops not a viable option
  15. 15. An ICIS pricing Presentation PX: Lost Control Over Downstream PX loses control over downstream trends
  16. 16. An ICIS pricing Presentation The Reality for PX Producers • Polyester & PTA overcapacity not necessarily a boon to PX sellers • Squeezed – or lack of – margins “moving from downstream to upstream” • Energy prices may correct downwards but still high • Double whammy necessitates recognition of “The Power of Downstream”
  17. 17. An ICIS pricing Presentation PX Looks Down: Some actions • Japanese producers start to understand polyester & downstream • Western producer hangs on to ACP system, tries to find consensus with PTA and polyester sectors • Korean producers increase participation in open-market trading to get their views across • Some producers look to more spot price-related formulae to hedge against uncertainties
  18. 18. An ICIS pricing Presentation The Years of Nightmares • 2006: Beginning of the “PTA Nightmare” • 2007: Intensification of the “PTA Nightmare” • 2008: Start of the “PX Dilemma” • 2009: The “PX Dilemma Becomes a Nightmare”?
  19. 19. An ICIS pricing Presentation 2009: The PX Nightmare? • Based on assumption that PX will go into oversupply • Based on assumption that new PTA capacities will be delayed PX market to flip from sellers’ to buyers’ market in 2009
  20. 20. An ICIS pricing Presentation New PX Capacities PetroChina Urumqi, China, 1000K S-Oil, Korea 900K Ras Tanura, Saudi Liaoyang, China 450K Fujia Dahua, Arabia 460K Cepsa/Hyundai Oilbank, Korea 600K China 800K IOC, India 400K Qingdao Lidong, China 700K Kuwait Aromatics, 820K Sinopec Jinling 600K & SK Energy, RIL, India (debottlenecking) China (TBC) Jinshan 600K, China Essar & Hindustan, Yangzi, China (debottlenecking) Dragon Grp, India (TBC) Aromatics Oman, 900K China 800K Japan Energy, 420K RIL, India 2600K IOC, India, 3 CNOOC/Kings lines 2220K Zhenhai, China 650K Grp, China 800K ONGC Mangalore, India 905K PTT Thailand 616K Sinopec/ExxonMobil Total/Saudi Aramco, /Saudi Aramco, FCFC No3, Taiwan 700K ExxonMobil, Japan GPPC-led Saudi Arabia (TBC) China 700K (debottlenecking) Kuokuang, Taiwan 800K Borzouyeh, Iran Sinopec Hainan, China 600K 750K TPPI No1 (550K) & No2, PetroVietnam 480K Sinopec Tianjin, Indonesia PetroChina Sichuan, China 600K China Takreer Abu (debottlenecking) ASMB, Malaysia (debottlenecking) Dhabi, 800K Zhuhai, China (TBC) Jurong Aromatics, ExxonMobil, Thailand Singapore 800K (debottlenecking) Sinopec Luoyang Thai PX, Thailand 450K, China (debottlenecking)
  21. 21. An ICIS pricing Presentation PTA vs PX: PX wins 2006-08 • PTA ~ 2005 to mid-2008: – 16 new lines (excluding debottleneckings) – Average capacity of 546K tonnes/year • PX ~ 2005 to mid-2008: – Only eight new lines (excluding debottleneckings) – Average capacity of 561K tonnes/year • Based only on new PTA capacities 2005 to date*: – Another 5.85 million tonnes/year of PX needed – But only 4.49 million tonnes/year* added • Balance possible perhaps only in end-2009 * On annualised basis; not counting debottleneckings
  22. 22. An ICIS pricing Presentation PTA vs PX: PTA wins in end-2009? • End-2009 to 2010: new PTA capacities starting up… Fujian Jia Long: 600K * Dragon Group / Xiang Lu: 1.5m * Jiangyin Hanbang: 600K * Yisheng Dahua (Dalian): 1.5m * Chongqing Fuling: 600K * FCFC Loong-der: 400K * MCC India: 800K * Total: 6m tonnes/year * * On annualised basis; not counting debottleneckings
  23. 23. An ICIS pricing Presentation PTA vs PX: PTA wins in end-2009? • End-2009 to 2010: New PX capacities starting up… Cepsa / Hyundai: 850K* ExxonMobil / Sinopec and S-Oil: 900K* affiliates in Fujian: 800K* Shanghai Petchem: 600K* Petrochina Chengdu: 600K* Urumqi Petchem: 1m* Jinling Petchem: 600K* CNOOC Huizhou: 800K* Oman: 900K* Fujia Dahua: 700K* Takreer Abu Dhabi: 800K* Dragon Group: 800K* Kuwait : 820K* Total: 17.55m tonnesyear* * On annualised basis; not counting debottleneckings
  24. 24. An ICIS pricing Presentation PTA vs PX: post-2010 • At least ten more PTA lines planned with capacities 600K-1.5m tonnes/year each • At least 15 more PX lines planned • BUT… Will all the lines come onstream as planned? If no, will PX market flip into sellers’ market again? What about polycondensation, when oversupply recurs and squeezes PTA margins from bottom again? What would be the consequence for PX and the reactions?
  25. 25. An ICIS pricing Presentation PTA vs Polyester: PTA keeps losing • End-2007, approx 21-22m* polycondensation capacity in China needs around 19.5m* of PTA • End-2007, around 43-44m* of PTA capacity worldwide (38-39m* in Asia, including around 10.6m* in China) China satisfies >50% of own PTA needs Rate of PTA capacity increase faster than polyester capacity increase Imported PTA facing more competition from local Chinese PTA (price, taxes, geographical / logistical etc advantages) *calculated in tonnes/year and on an annualised basis
  26. 26. An ICIS pricing Presentation PX & downstream: Can’t we all win? Oversupply in PX may not last beyond two years; oversupply of PTA may not last beyond two years; polyester capacities also expected to keep increasing
  27. 27. An ICIS pricing Presentation The Need for Long-term Solution • Buyers and/or sellers’ markets no longer last long • Downstream factors as important as upstream factors in PX pricing • Holistic approach should be the way to go • Long-term solution: Downstream and upstream voices need to be heard ACP system may collapse, but should preferably be preserved for stability and sustainability with modifications Own reality check every 1-2 years by each sector References to price mechanism which shows the real market situation
  28. 28. An ICIS pricing Presentation ICIS: Part of the Solution Independent & thus fair Rigorous & thus accurate Experienced & thus trustworthy More than 25 years of experience in petrochemicals Global reach, including China, Singapore & India in Asia Editor has 8 years of experience watching this chain Prices used by biggest corporations in Taiwan, China and rest of the world
  29. 29. An ICIS pricing Presentation Conclusions • What worked previously for PX producers may no longer work • Focus only on energy sector not wise, broad-based, holistic approach needed • Recognition of “The Power of the Downstream” • Recognition of changed market dynamics & the Rise of China • ICIS could be part of this solution • Concerted and pragmatic efforts from all sectors needed to find long-term solution …because petrochemical plants are for the long term
  30. 30. An ICIS pricing Presentation Some wise words… Know thyself and thy enemy; 知己知彼 知己知彼 A thousand battles, a thousand victories Sun Tzu 百戰百勝 百戰百勝 孫子 孫子
  31. 31. An ICIS pricing Presentation Thank You 謝謝
  32. 32. An ICIS pricing Presentation