7. 2010 BZ – NPT SPREAD (monthly) ($/mt) $180 $140 *In the 2 half of 2010, BZ – NPT spread stayed in range – bound between $140 - $180 *2010BZ – NPT Spread Average : $185/mt, Highest : $309/mt (Jan) 7
8. 2011 BZ – NPT SPREAD ($/mt) * NPT: MOPJ BZ : FOB KOREA $185 *** ** $145 *In Feb, NPT – BZ spread was highest around $270 when US & Europe benzene rallied with tight prompt squeeze. **In April, NPT – Benzene spread shrunk as main down stream SM price kept falling and with less BZ consumption due to SM’s sub-economics. ***With exception of Jan/Feb (Two month average of $250 spread), BZ – NPT spread in March-May go back to $145 - $185, which has been during most of the last 12-month time-frame since June 2010. 8
9. 2010 SM - BZ SPREAD (SM vs BZ Price: molecule by molecule) ($/mt) AVG $280 *2010SM – BZ Spread Average : $280/mt Highest : $366/mt (Feb) Lowest : $192/mt(July) 9
10. 2011 SM - BZ SPREAD ($/mt) (SM vs BZ Price: molecule by molecule) * AVG $254 •2011SM – BZ Spread Average : $254/mt, Highest : $286/mt (Jan), Lowest : $235/mt(Mar & Apr) *2011 Jan-May SM-BZ spread Average : $254 ($25 lower than $278 of 2010 Average) • This reduction indicates slow SM market in Asia and Thus SM acts as constraint of BZ upward momentum. 10
11. SM Spread over BZ(0.8) + EL(0.3) ($/mt) * $100/mt *From March till May 2011, SM price is so stagnated as to stay only $100 over raw-material cost ( BZ 0.8 + EL 0.3) • As a result, operation cut-back in some of merchant SM units in Asia dampens BZ consumption to deter BZ spike-up from sustaining in prolonged period. 11
12. 2010 BZ – TL SPREAD ($/mt) * 2010 Average, $77 *2010BZ – TL Spread Average : $77/mt, Highest : $120/mt (Jan), Lowest : $37/mt(Nov) • Thismeager spread over TL in most of 2010 made TDP/HDA and even MTPX operation remained not robust. 12
13. 2011 BZ – TL SPREAD(Jan-May) ($/mt) Jan-May Ave, $125 *In Feb, BZ – TL spread hit $175 when BZ was supported by US/Europe short prompt squeeze in line with SM’s robust rally while toluene stagnated with not-yet-gasoline season demand and slow China TL market. **In April, BZ – TL spread hit lowest $70 as US toluene rallied with sky–rocketed blend value up to 430 cent and physical TL demand into PX production In April/early May, US toluene price equaled to US benzene which is very rarely seen. 13
15. Korea BZ Import 09-10 (kt) 2009 year total 148Kmt 2010 year total 110Kmt * * Heavy SM TA in Korea 15
16. Korea BZ Export 09-10 (quarterly) (kt) 2009 year total 1,252Kmt *Korea export has shown consistent volume (quarterly 300 KT plus/minus) in 2009 – 2010. • In 2011 1Q(Jan-Mar), Korea BZ export hit 374KT which is the highest quarterly volume in recent years as constant outbound shipment to mainly US Gulf and some to EU took place where happened a bid run-up in BZ-SM chain 16
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19. USA BZ Import 2010 2010 Import Total 1,445kmt *USA is net import country from Korea (40%), Brazil (20%), Canada(15%) and EU (12%) in supplying volume order. 19
21. US – Korea BZ SPREAD 2010-2011 ($) USG VS FOBK ** actual Arbitrage Range $40 – 60 * Arbitrage point ( Freight etc.) *For the most of 2010 – 2011, theoretical arbitrage ex Asia to USA remains open. Actual shipment depends on and varies with forward curve(backwardation or contango) and industry players actions **1Q 2011 Korea - US arbitrage was wide- open, result in Korea – USG 1Q 247 KT from 2010 4Q 137 KT 21
22. Quarterly Export from Korea to USA (kt) *There show strong correlation between the spread and export (Korea – USG) 2010 1Q $106 1Q Export 160 KT 2010 4Q $85 ->4Q Export 140KT 2011 1Q $115 -> 1Q Export surged to 247KT(record quarterly volume) 22
31. Japan BZ Export (2009-2011) *Japan export tend to decrease with less economical supply from NCC and other BZ units, which is less and less competitive in international market. 31
37. 2010 Toluene Price (FOB Korea) In 2010, toluene started at $950 and dipped at $690 end May and then continued to recover to $940 at the year-end with 2010 year-average at $840 37
39. Jan-May Toluene Movement vs Naphtha vs Brent(Monthly average) (Monthly average) Toluene price moves basically in tandem with crude and naphtha in 2011 39
41. Toluene/Naphtha Spread Range $70~$100 (monthly) $100 ~ $ 70 Since July 2010 till now, the spread stay in $70-$100 box range 41
42. Toluene – Naphtha Spread (Quarterly) 4 Quarter’s average at $90 Since 2010 3Q, Toluene-Naphtha quarterly spread consistently remain $85~$95 with 4-quarters (2010 3Q ~ 2011 2Q till May) average at $90 42
43. 2011 TL–Npt Spread Change by Month EU/US Aromatic rally Subsided US aromatic and strong crude (npt) reduced the spread Strong US gasoline and blend value widened the spread 43
44. Impressive PX spread over TL in 2011 (Jan ~ May) (Jan ~ May) While 2011 MX and BZ spread over TL widens by $45-55 from 2010 average, PX shows $365 jump from 2010’s $225 to 2011 YTD $590. With this lucrative spread, MTPX operation has been robust to lead to continuous buying of Low Dioxine toluene in USA to hit 430 CPG peak early May 2011. 44
45. BZ-TL SPREAD To epitomize, 2011 1Q benzene rallied to widen the spread up to $175 but in 2Q, US toluene strengthened to reduce the spread back to previous level. 45
46. MX-TL SPREAD Strong PX and MX in USA in 2011 1H increased the average MX/TL spread by $55 from 2010’s average $55. In April 2011, when MX/PX chain rallied, the spread peaked at $180. 46
47. PX-TL SPREAD The first three month of Jan ~ March 2011, PX/TL spread stayed above $600 mark 47
48. Arbitrage between USA & ASIA Arbitrage shipment Point: Even below freight level, shippment tend to take place as strategic reason to “drain or make ample” the Asia physical balance Apparent Arbitrage: With exceptionally strong US toluene in April/May, arbitrage was wide-open ex Asia to US Gulf 48
49. Asia Net Trade with UG Gulf Net Import : US - > Asia Net Export : Asia -> US 49
50. 2011 Strong Gasoline Season in USA vs 2010 (Spread US toluene over RBOB) Average spread US Gulf toluene over RBOB (Jan~May 2011) is 80 cents, 20 cent up compared to 2010’s average of 60 cents 50
51. Monthly Regrade in USA (2010 VS 2011) Regrade (difference : premium – regular), which is critical for blend value, increased to 15 cents (Jan~May 2011), from 2010’s average of 10 cents. In April, monthly average in regrade hit exceptional 25 cents as refineries troubles, strong gasoline demand and low inventory drove the regrade into that level. 51
53. 2009 vs 2010 TL Import & Export by Major Countries 53
54. TL Import & Export (Korea, China, Japan, USA) 54
55. Korea TL Import (’09~’10) 2010 Korea Import TL increase to 270 KT from 2009’s 200 KT. Japan and USA comprise 95% of total import. 55
56. 2010 Korea TL Import (kt, %) ㆍKorea imports toluene mostly from Japan (63%) and USA (32%). ㆍQuantity of toluene imported from Japan takes more than 60% 56
58. Korea TL Export (’09~’10) Korea export 840 KT : decreased from 905 KT 2009. Notably export to China decreased most (90 KT) from 427 KT 2009 to 335 KT 2010. 58
59. ㆍKorea exports toluene to many countries even across the Pacific and to India. ㆍThe biggest volume moves to China (40%), USA (22%) and Taiwan (15%) in order. Total Export 840 KT 59
62. 2010 China TL Import (kt, %) ㆍChinese import around 800 KT per year. ㆍKorea is leading supplier (42%) and Japan (16%), Taiwan (14%) and Thailand(15%) are other major suppliers of toluene to China. ㆍChina export is negligible with 10KT only 62
65. 2010 Japan TL Export (kt,%) ㆍJapan exports excess toluene to only near-by destination due to limited port facilities ㆍJapan is main exporter to Korea (56%). ㆍExport to China is second largest (40%). ㆍJapan’s import is only 32KT in exceptional purchase in strong gasoline season. 65
67. USA TL Import (’09~’10) ㆍIn 2010 US toluene import increased 61 KT from 2009’s 269 KT to 2010 330 KT. Korea remain main exporter to US 75% of import volume (2009 180 KT->2010 230 KT) ㆍIn 1Q 2011, US imported 33 KT smaller than 2010 4Q’s 50 KT. 18 KT in 1Q was imported from Korea. 67
68. 2010 USA TL Import (kt, %) ㆍIn USA, about 70% toluene is imported from Asia (mainly Korea) via Deep-sea. ㆍ West Coast receives Korea toluene 7-10KT per month due to logistic advantage. ㆍWith US Gulf, Korea-USA has two way shipment (USG to Asia & Asia to USG) depending on arbitrage and/or strategic shipment in & out of Korea. ㆍRest comes from America continent. Very a few cargoes moves from Europe. Total Import 330 KT 68
69. USA TL Export (’09~’10) ㆍIn 2010, US toluene export surged 170 KT from 2009’s 200 KT to 2010’s 376 KT. Export to Canada increased by 100 KT. Export to Asia increased by 100 KT to Korea (2009 51 KT -> 2010 98 KT) , China (2009 24 KT->2010 48KT) and Taiwan (2009 none->2010 31 KT) ㆍIn 1Q 2011, US exported 50 KT, smaller than 2010 4Q’s 85 KT. To Korea, 1Q volume was 16 KT and to EU 13 KT. 69
70. ㆍUS export to Asia (mainly Korea and China) , 50% of total volume. ㆍ30% moves to Canada and the rest to other America and Europe. 70
71. Toluene Factors in Up-Coming Weeks Crude Direction : WTI $90-95 vs $95-100 vs $100-105 Gasoline Season ended OR still alive? - Current US regrade (Prem-Reg) at 15 cent from 25 cent early May - Current Blend Value 340 from 430 early May - Low Dioxine (for MTPX) demand subsided as PX lost momentum (early May $1600 PX -> end May $1500 PX) => After current macro-economic uncertainty, will US gasoline season come back strong again? => then, Arbitrage to USA ex. Asia to be reopened? * US Hurricane season approaches as well Slump in China : Continued to limit Korea/Japan’s toluene outlet in both direct and via BZ/SM route. => When China resume its restocking? Possibility of Tight PX Era : Big expansion in New PTA start-up -> potential PX run-up -> then LD Toluene strength in US Gulf -> support to Asia toluene (Asia PX -> US PX -> US Toluene LD -> Asia TL : Chain Reaction) 71
76. 2010 FOB K & CFR China Price CFR China LC 90 days and Fob Korea difference averaged at $16 in 2010 76
77. 2011 FOB K & CFR China Price CFR China LC 90 days and FOB Korea difference averaged at $10, which cannot cover freight and credit term cost. It shows China market has been very slow as an outlet of Korea toluene 77
78. 2010 CFR CH & RMB Price RMB < CFR China gap (RMB slump) widens to show China domestic market remain slow and weak in 3Q / 4Q 2010 and makes it difficult to import and sell to domestic market. 78
79. 2011 CFR China & RMB Price In 2011, RMB < CFR China gap get widening in escalating credit control to show China domestic market slow and weak. This trend become more apparent in recent China slowdown in economy. 79
81. Executive Summary I. PX Market Overview (2010~2011) II. Background Analysis of PX Rally III. Key Changes in New Supply/Demand Balance in 2011 IV. Appendix - Trade Statistics - ACP vs. Spot 81
82. I. PX Market Overview (2010~2011) NPT, WIT, Brent PX Price PTA Price Downstream Products -Cotton, MEG, PSF, DTY 82
83. 2011 PX & PTA (PX-NPT) PX’s run-up to $1,820 -> 3/11 Japan earthquake Downfall afterward Downtrend in Cotton/PTA/Polyester Soil’s new supply Crude collapse PX -- PTA -- PX-NPT -- 83
84. PX Price (monthly) 2010 Jan – 2011 May ($/mt) High: 1717 Average: 1204 Low: 862 After PX hit the bottom in mid-July 2010, it started to going up backed mainly by Healthy downstream (PTA) and 2) Tight Supply 84
91. PX-NPT Spread (2011, Monthly) ($/mt) PX Price (Monthly Average) ---- $862 *From Nov 2010 (consecutive 7 months) , PX-NPT Spread has been above $500, and remained above $700 in 2011 Jan-March during “PX’s Firework” 90
92. WTI & PX(Correlation in various phases) ($/mt) Period III Period II Period IV ----PX Price Period I 91
93. WTI & PX Period I ($/mt) Stagnating with new PX supplies : NPT & Crude influence on PX price movement. ----PX Price 92
94. WTI & PX Period II ($/mt) PX run-up in tandem with Cotton/PTA/Polyester chain rally and strong spot buying from users. WTI & PX showed no consistent correlation with ever- widening PX-NPT spread. ----PX Price 93
95. WTI & PX Period III ($/mt) PX fly-up culminated in “Panic Buying” right after 311 Japan earthquake in shortage concerns (at that time, crude got weaker). PX began to sharply retreat while crude strengthened : Inverse relation between crude & PX. ----PX Price 94
96. WTI & PX Period IV ($/mt) PX showed downward correlation with further crude collapse : early May’s “Energy Collapse” Since then, PX sentiment moves with crude direction. ----PX Price 95
97. WTI & PX price Period I Period II Period III & IV Period I : Correlated : in slump market Period II: No Correlation : PX run-up while crude remained side ways Period III: Inverse Relation : PX hit the peak and declined while crude hit multi year-high Period IV: Downward Correlated : early May “Energy Collapse” and PX’s further retreat 96
98. PX & PTA: which one is leading the PX/PTA “up & down” in 2010 & 2011 ? PX/PTA remain same weak trend with macro economic concerns and crude weakness PX rally boosted PTA price PTA drop first 2010 2011 97
99. Monthly PTA-PX Spread: PTA- (PX *0.66) High 378 2011 Average: 320 2010 Average: 260 Low 214 During 2010 Nov to 2011 April, PTA enjoyed $300+ spread over PX feed stock cost , while (at the same time) PX enjoyed $500+ spread over NPT. Rarely seen before, combined (PX/PTA over NPT) spread has been exceptionally big. 98
101. 9 Month (July 2010 to March 2011) Rally of Whole MX/PX/PTA/Downstream Chain - PX’s impressive rally from July 2010 and fly-up in March 2011 basically synchronized with its downstream PTA and polyester and even cotton. - Cotton in “Ag” (Agricultural) Boom rallied up in draught-caused drop-in-crop and strong demand, which led PSF and Polyester related products rallied together since July 2010. - From July 2010 to Jan/Feb 2011, cotton price doubled and since 1Q 2011, it took downward path to lose 25% from peak PTA peak $1,530-> $1,200: $330 drop (-22%) PX Peak $1,820-> $1,520: $300 drop (-17%) 100
102. PTA & ZCE Cotton future(2010-2011) ($/mt) Up Down *PTA and Cotton showed same pattern in up & down in last 12 months. Cotton inflection point comes 1 month earlier than PTA. 101
103. Downstream Volatility (Future Market) : (2010 2Half & 2011 1Half) (1,000RMB/mt) (1,000RMB/mt) Cotton & PTA Future showed exactly same pattern in rise & fall Coincidental rally’s start in July 2010 Peaked in Jan/Feb 2011 Dropped since Mar 2011 102
104. MEG : compare with Cotton & PTA A B A: Even MEG, which has different feedstock, shows almost same rally and declining pattern with cotton. B: MEG and PTA has same pattern in rallying –declining timing and degree. 103
105. III. Key Changes in New Supply/Demand Balance in 2011 - Fundamental PX market Factor To Come : PX Balance Change in Recent Past and Coming Months 104
107. Additions of Monthly PX Supply/Consumption of New PX&PTA Start-up 2011 *End Year (Per month) Supply Urumuqi (1000KT*40% O/R = monthly supply 30kt) Total 105KT Soil (900KT, monthly supply 75KT) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -130KT Total 240KT Hanbang (600KT, monthly consumption 30KT) Yisheng Dalian (750KT, monthly consumption 40KT) Yisheng Ningbo (2000KT, monthly consumption 110KT) Consumption *4Q 130KT additional monthly consumption from current Sanfangxiang (1200KT,55KT) 106
108. Additions of Monthly PX Supply/Consumption of New PX&PTA Start-up 2011 *End Year “Well-Supplied” Period: +70KT/month Due to Soil’s start-up, PX seems to turn into “well-supplied” in line with simultaneous slow PTA/Polyestermarket. Total 105KT Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -130KT Total 240KT June-July : “ Tightening Balance” Period (Projected) : Zero to - 50KT /month As Yisheng prepares feed stock for the PTA start-up “Apparent-Tight Balance” Period (Projected) Oct-Dec : -70KT to -100KT/month If SFX start up before 4Q or 2011 year-end “spot balance” reaches -130KT deficit. 107
112. Commodity-Run & Macro-uncertainty 1) Cotton & Crude 2) Strong Dollar and China’s tight money 3) India Credit Control 4) EU Debt Problem, ETC. 2. Impending Mega PTA Plants Start-up May Lead from Crrent “Well-Supplied” to “Tightening-Balanced”. : Currently, Sell-off in PTA future and CFR in acticipation of new supply-surplus PTA vs. Up-coming PX requirement Increase : Selling/Downward Pressure in PTA and at the same time PX tightness and boosting PX factor - Yisheng Dalian 750KT (Aug) Ningbo 2,000KT (Sep) - Sangfangxiang Sep or Dec? 108
113. PX Factors in Up-Coming Weeks 3. When Will Pre-emptive PX Buying Come Out? - Soil’s new supply (75KT/month) since April changes PX “Spot balance” from 100KT/month spot buying to 20-30KT/month :“well-supplied and ample-supplied spot balance” (From 2010 July – 2011 March, $100KT per month deficit boosted PX price.) : From April til June (or July), 20-30 KT “spot deficit balance” may be maintained. - If and when Yisheng new PX requirement starts, monthly 100KT/month spot deficit period comes back. (Urumqi’s unstable new supply may offset possible early SFX start-up in August 2011.) - If SFX starts up 4Q or earlier, “Spot PX deficit” may reach 120-130KT bigger than last 6-month PX rally’s 109
116. Major Country’s PX Ex-Im Statistics 2010 (KT) Apparently Japan’s net export position is over 2.3M m/t. Since 2003, Japan’s net export has been more than 2M m/t with 2009’s peak of 2.5M m/t. 3.3M Net Importer 1.0M Net Exporter 1.3M Net Importer 250KT Net Exporter 2.3M Net Exporter 112
117. Major Country’s PX Ex-Im Statistics 2011 1Q *China’s 1Q import surged to 1,120KT from 20104Q 832KT and 2010 1Q 853KT due to new PTA start-up end 2010/early 2011. 1Q export 125KT is higher than 2010 4Q 75 KT. **Taiwan 1Q export increased to 550KT from 2010 4Q 52KT. 113
118. Korea PX Trade (Quarter) *Korea export per quarter show consistently and evenly 300-330KT range, including 1Q 2011 114
120. Korea PX Export by Country(2011 Jan-Mar) 1Q Total: 180KT 1Q Total: 100KT *In 1Q 2011 Korea exported 305KT (2010 4Q 290KT) to China (60%) and Taiwan (30%) 25KT was exported via deep-sea to North America first time since 2005. 116
121. Korea PX Import by Country (2009-2010) In 2010, Korea imported 545 KT from Japan (54%) Import from ME surged to 301KT (30%) from 2009’s 147KT with new PX plant in Oman and Kuwait Import from China reduced to 90KT (9%) from 2009’s 205KT due to China’s increased domestic consumption and Lidong’s low operation 117
122. Korea PX Import (2011 Jan-Mar) * ** *** *In 1Q 2011, Japan supplied 124KT (47%, same as 2010 4Q 128KT) **China exported 72KT (27%): increase from 2010 4Q’s 30KT due to high international PX price and Lidong’s high operation. ***Import from ME export ranked the third at 67KT similar to 2010 4Q quantity. 118
123. China PX Import (2009-2010) * *** ** * In2010, import from ME surged to 496KT from 2009’s 58KT ** Indonesia supply increased to 392KT from 2009’s 173 due to TPPI normal operation *** Import to Taiwan reduced to 292KT from 2009’s 483 due to PX trouble in Taiwan 119
124. China PX Import (2011 Jan-Mar) * ** *** * Taiwan’s export to China increased to 126KT from 2010 4Q’s 50KT ** Indonesia export increased to 113KT from 2010 4Q’s 90KT *** Singapore exported 55KT, increased from 2001 4Q’s 12KT 120
125. China PX Export (2009-2010) *China’s PX export only to Korea and Taiwan 121
131. Consistency between Spot Price in last 5 days prior month and next month ACP ($/mt) Prior month 5day Spot > Next month ACP “Spot” > ACP less than $20 * June ACP : not decided yet * Last one week spot average in Prior month tends to decide the settlement of ACP next month. 127
137. 2011 SM FOB Korea (Jan-May) ($/mt) May 3rd $1,495/mt Avg. $1,415/mt Mar 30th $1,340/mt 133
138. Phase I (SM vs MOPJ) ($/mt) ($/mt) Up on the back of Expectation of supply tightness in Mar~May T/A Crude and Benzene run up Expectation of demand increase in spring (MOPJ) (SM) SM MOPJ * NPT-SM correlation was low. 134
139. Phase II (SM vs MOPJ) ($/mt) ($/mt) Down due to Low demand in China with lack of money flow (money reserve ratio increased from 18.5~21% in 2011) EPS Regulation to reduce spot demand (MOPJ) (SM) * NPT-SM correlation was low. 135
140. Phase III (SM vs MOPJ) ($/mt) ($/mt) Up on the back of Increased upstream sectors Expectation of demand aftermath of 9.0 magnitude earthquake in Japan China’s temporary restocking before Labor day holiday (MOPJ) (SM) * NPT-SM correlation increased. 136
141. Phase IV (SM vs MOPJ) ($/mt) ($/mt) Down due to 1. Energy collapse (by $13~15/mt) and aromatics tumble 2. Continued lack of money in China ; slow purchasing (MOPJ) (SM) * NPT drop (by $150/mt) influenced SM in high NPT-SM correlation. 137
143. Surging upstream sectors ($/mt) ($/mt) For 10 months increased by $490/mt From $610/mt to $1,100/mt (Crude) (MOPJ) MOPJ For 11 months increased by $45/mt From $70/mt to $115/mt WTI 139
144. Volatile Crude Oil ($/mt) $17/mt down in 1 week $20/mt up in 3 weeks 140
145. Earthquake in Japan (11th of Mar) Japan earthquake rattles commodity, energy sectors The earthquake, of magnitude 8.9, hit commodities prices across the board on fears over its impact on the world's third largest consumer of commodities. One-third of Japanese refining capacity shut and ports closed - Reuters Mar 12, 2011 141
146. China 1. Inflation Control The central bank yesterday raised banks’ reserve requirements for the fifth time this year. The half-point increase takes effect May 18 and will boost levels for the nation’s biggest lenders to a record 21 percent. -Bloomberg Businessweek May 13, 2011 2. EPS Regulation 142
147. Asia SM ; the lowest among 3 regions ($/mt) U.S EU Asia 143
148. Asia SM ; the lowest among 3 regions Less deepsea inflow from the U.S and EU into Asia Almost first time in recent days Arbitrage flow reversed from USAAsia to AsiaS. America & Europe - China SM ExportApril 2011 (cf. Total China SM Export in 2010 : 11 KT)Total : 17 KTTo 1 Brazil 10 KT 2 Korea Rep 4 KT 3 Chile 2 KT 4 India 1KT 144
157. Where are we heading? Despite all bullish fundamental data- Squeezed spread over raw materialSM-MOPJ $400 or lower / SM-(BZ*0.79+EL*0.29) $100 or lower - Better spread (from $50/mt to $150/mt) SM-(GP)PS - Decreased China Inventory (from 180KT to 80KT) Asia SM hesitates to bottom out $1,400/mt with unclear demand resuming due to - Serious macroeconomic uneasiness - Euro-zone debt-strong dollar - US Economy and early exit-strategy etc - China & India Continue to tighten money 153
