Heavy cracker turnarounds in Q4 2018 are expected to reduce naphtha demand while lighter refinery turnarounds will reduce supply less, lengthening the supply/demand balance in October and November. However, restarting crackers in December will tighten the balance. New crackers and reformers coming online in Q4 will outpace new naphtha supply from condensate splitters and refineries. Robust petrochemical margins and aromatics demand are expected to support strong cracker feed naphtha demand. The HFRN-OSN naphtha price spread is forecast to remain wider on-year due to new reformer startups and firm condensate markets.

1. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Asia Naphtha Market Q4 Outlook
Sep 27, 2018
Asia Petrochemical Feedstock Meeting
Level 4, Swissotel The Stamford
Jiwon Chung, Executive Director, jiwon.chung@ihsmarkit.com
Michelle Kim, Senior Market Editor, michelle.kim@ihsmarkit.com
Asia Naphtha Market Review-OPIS IHS Markit

2. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Asia Naphtha Market Review
2
Asia Naphtha Market Outlook Q4

3. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Regional naphtha market was on a downtrend on another round of heavy cracker TA,
restarting CDUs from TA, increased arbitrage volumes
Asia Naphtha Market Overview Sep 2018Naphtha Market Summary in Sep 2018
Sep market summary
DEMAND Cracker TA • Another heavy cracker TA commences in Sep
• Demand loss due to Cracker TA rose 13.16% on-month to 611,542 mt in Sep
New Cracker SU • No new naphtha-fed steam cracker SU in Sep
Petrochemical
margins
• Month-to date CFR China PX/CFR Japan Nap spread on Sep 20 at $665.58/mt
(above typical BE at $350/mt)
• Ethylene spot cash margins stood at $424/mt (slipped on-month, but still above BE)
Condensate • Firm condensate market continued in Sep
• As a result, S Korean condensate splitters continuously seek alternatives in
(H)FRN: HTC, Hyundai Chem, SK, S-Oil
LPG cracking • LPG cracking volume in Sep at around 367kt in JKT+SEA, slightly higher than Aug
at 361kt
• LPG/Naphtha ratio for H2 Nov at $97.1%, MTD average of Propane CFR JP/Nap
swap ratio at $95.9% on Sep 20, unattractive LPG cracking
SUPPLY Refinery TA • Production loss due to CDU TA in Sep at 185,600 mt, 8.24% lower than Aug
(202,267 mt), relatively moderate declines
New CDU SU • 100,000-b/d CDU at Hua Fen Energy in China, 10,000-b/d CDU at IOCL in India
could add 110,000 mt/q of new naphtha supply
Arbitrage • Total arbitrage volume in Sep-arrival at around 1.367 mmt, 45.58% higher than Aug
at 939 kt
• HFRN arbitrage in Sep-arrival at around 1.067 mmt, 32.87% higher than Aug at
803kt
• E-W spread averaged at $11.250/mt as of Sep 21, Aug ($8.524/mt)
ME • Ex-ME volume in Sep-loading at around 3125kt, higher than Aug at 2610kt
India • Ex-India volume in Sep-loading at around 675kt, lower than Aug at 730kt
ENERGY Brent • Range-bound between $70-80/bbl
Source: OPIS
Bullish
factor
Bearish
factor
Neutral
factor
60
80
100
120
140
160
180
200
500
550
600
650
700
750
Nap cracks/CFR JP flips to a downtrend in early Sep
NapCrk ($/mt) CFR Japan($/mt) Brent Future ($/b)
$693.75/mt
All-YR high

4. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Asia Naphtha Market Outlook in Q4
4
Asia Naphtha Market Outlook Q4

5. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Heavy cracker TA and lighter CDU TA to lengthen demand/supply balance in Oct-Nov, but
restarting crackers to tighten Dec balance, inter-month spread flips to a contango
Asia Naphtha Market Outlook Q4Naphtha Market Q4 Outlook 2018
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
-1000000
-500000
0
500000
1000000
1500000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Supply/Demand Balance based on Crackers/CDU TA
Balance Demand Loss (cracker TA) Supply Loss (CDU TA)
Source: OPIS
• Overall balance in Oct (876kt long) and Nov (808kt long) looks heavier than Sep (425kt long)
• However, Dec balance expected to dip in minus 125kt on cracker restarts
• Demand deficit in Q4 due to cracker TA is similar to that in Q3, but less supply deficit due to CDU
TA in Q4 comparing with that in Q3 may not ease lengthy balance
mt
-10
-5
0
5
10
15
20
1-Jan-18 1-Feb-18 1-Mar-18 1-Apr-18 1-May-18 1-Jun-18 1-Jul-18 1-Aug-18 1-Sep-18
OSN 1ST/3RD half-month cycle Inter-month spread
Short-lived contango flips back to a backwardation
2018 2017 2016
Source: OPIS
mt
• Inter-month spread for the 1st and 3rd cycle of the half-month flipped to a contango in
early Sep, nearly within 13-months, partly due to heavy cracker TA in Oct-Nov
• But, the inter-month spread flipped back to a backwardation on Sep 18
• In 2017 and 2016, the inter-month spread dampened in negative territory during the Q3

6. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
New crackers and reformer start-ups to outpace new naphtha supply in Q4
Asia Naphtha Market Outlook Q4Naphtha Market Q4 Outlook 2018
Facility Company Oct Nov
Crackers SXYCPC-Yan’an E&C
450,000 (mt/y)
0 (CTO)
Lotte Chemical, S Korea (LPG cracker)
200,000 (mt/y)
0 (LPG)
Reformers Dongying Yatong 27,970 (b/d) 98,718
CNOOC, Shandong 23,310 (b/d) 82,270
Petrochina Liaoning 21,000 (b/d) 74,118
Sinopec Changzhou 9,324 (b/d) 32,908
Dragon Aromatics 62,940 (b/d) 222,141
Petrochina Renqui-Hebei 31,000 (b/d) 109,412
Hengli PC 233,776 (b/d) 825,092
Total New LN+HN Demand (MT/M) -255,105 -1,189,553
CDUs Indian Oil Corp (IOCL) 10,000 (b/d) 3,380
Hua Feng Energy 100,000 (b/d) 33,796
Total New Nap Supply (MT/M) +3,380 +33,796
Demand/Supply Balance (MT/M) -251,725 -1,155,757
Supply/Demand Balance based on New Crackers/Reformers/CDUs Start-up in Q4
Source: OPIS
• Asia naphtha demand was largely driven by reformers in line with steam crackers
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Steam Cracker Reformer Others
Asia naphtha demand by end use
Source: IHS Markit
MMb/d
• Given new cracker/CDU start-ups in Q4, demand/supply balance shows new naphtha demand
outpaces new naphtha supply
• New reformer SU may boost HN demand in Q4

7. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Lucrative petrochemical margins to maintain robust cracker-feed naphtha demand in Q4
Asia Naphtha Market Outlook Q4
7
Naphtha Market Q4 Outlook 2018
-
100
200
300
400
500
600
700
800
900
1,000
-
100
200
300
400
500
600
700
800
900
1,000
4-Jan-18 4-Feb-18 4-Mar-18 4-Apr-18 4-May-18 4-Jun-18 4-Jul-18 4-Aug-18
Ethylene margin dips, but stays in positive territory
Ethylene Margin(NEA FRN) Ethylene Cash Cost (NEA FRN)
• Ethylene margin came off since end Aug with rising cash cost
• However, the ethylene margin has been in positive territory
throughout the year
Source: IHS Chemical
82
84
86
88
90
92
94
96
1220
1240
1260
1280
1300
1320
1340
1360
1380
1400
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
CFR NEA C2 price to rise in Q4/Cracker OR to rebound in Q4
CFR NEA Ethylene ($/mt) Cracker Utilization Rate (%)
Source: IHS Chemical
• CFR NEA ethylene expected to rise in Q4 amid seasonal demand
and tighter supply due to heavy TA in crackers
• Cracker OR expected to remain at high note above 90% in Q4 with
year-end festive season approaching, when plastic demand picks up

8. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Unfavorable propane/naphtha ratio signals fewer LPG cracking expected in Q4 amid
lingering US-China trade dispute, with approaching winter heating demand peak season
Asia Naphtha Market Outlook Q4
8
Naphtha Market Q4 Outlook 2018
• Month-to-date ratio of propane/naphtha above 90% level, which
discourages LPG usage in cracking pool
• US-Chain trade war may potentially deteriorate LPG cracking
economics going ahead
• Naphtha demand is likely to be boosted, instead
Source: OPIS
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
0%
20%
40%
60%
80%
100%
120%
1-Feb-18 1-Mar-18 1-Apr-18 1-May-18 1-Jun-18 1-Jul-18 1-Aug-18 1-Sep-18
Month-to-date ratio of Propane versus Naphtha dips below 90%
LPG Cracking Economics ProCfrJp/Mopj
• LPG cracking volume sharply declined in Oct on unfavorable
economics
• LPG prices have been volatile on lingering trade war between US-
China, upcoming winter heating demand peak
Source: OPIS
0
50
100
150
200
250
300
350
400
450
500
LPG cracking volume declines in Oct
JKT TOTAL JKT + SEA TOTAL

9. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Lucrative aromatics margins to strengthen splitter-grade naphtha and HN demand in Q4, HN-
OSN spread to peak at $27/mt on Sep 17 amid firmer HN demand
Asia Naphtha Market Outlook Q4
9
Naphtha Market Q4 Outlook 2018
• PX margin hit all-year high at $370/mt on Aug 31
• Robust PX margin triggered restarts of reformers at Indonesian TPPI (550,000 mt/
year PX) in Oct, Chinese Fuhaichuang (previously known as Dragon Aromatics, 1.6
mil mt/year PX) in Nov
• HN and HFRN demand expected to increase, TPPI issued tender for HN in end Aug
Source: IHS Chemical, OPIS
(200)
-
200
400
600
800
1,000
700.00
800.00
900.00
1000.00
1100.00
1200.00
1300.00
1400.00
1500.00
Lucrative PX margin to trigger firmer HN, HFRN demand
PX margin CFR China PX
0
5
10
15
20
25
30
35
2-Jan-18 2-Feb-18 2-Mar-18 2-Apr-18 2-May-18 2-Jun-18 2-Jul-18 2-Aug-18 2-Sep-18
HN-Osn
HN-Osn
$27/mt
• HN-OSN spread at $27/mt as of Sep 17 on firmer HN demand amid lingering trade
war between the US-China
• HN-OSN spread = HN diff.-OSN diff.
Source: OPIS
mt
mt

10. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Firmer HFRN-OSN spread on-year to continue in Q4 on strong cracker-feed naphtha demand amid new
reformer startups in Q4, robust aromatics margins, condensates could rangebound depending on
HFRN supply
Asia Naphtha Market Outlook Q4
10
Naphtha Market Q4 Outlook 2018
-10
-5
0
5
10
15
20
1-Jul-14
1-Sep-14
1-Nov-14
1-Jan-15
1-Mar-15
1-May-15
1-Jul-15
1-Sep-15
1-Nov-15
1-Jan-16
1-Mar-16
1-May-16
1-Jul-16
1-Sep-16
1-Nov-16
1-Jan-17
1-Mar-17
1-May-17
1-Jul-17
1-Sep-17
1-Nov-17
1-Jan-18
1-Mar-18
1-May-18
1-Jul-18
1-Sep-18
Wider HFRN-OSN spread continues until Q3
Hfrn-Osn Linear (Hfrn-Osn)
-$5.25/mt
$14/mt, 4-YR high
mt
Source: OPIS
• HFRN-OSN spread surged to more than 4-year high at $14/mt on Mar 20, backed by impending
re-imposition of Iranian sanction, new splitters startup in Iran, which tightened condensates
• Wide HFRN-OSN spread continued until early Q3 amid continuously tight and firm
condensates, robust petchem margins (PX & C2)
• But in Aug, HFRN-OSN spread dipped into red for a short-while, amid increase in HFRN
arbitrage inflows into Asia, overall, the spread was wider in 2018 compared to previous years
55
60
65
70
75
80
85
3-Jan-18 3-Feb-18 3-Mar-18 3-Apr-18 3-May-18 3-Jun-18 3-Jul-18 3-Aug-18 3-Sep-18
Condensate price to rangebound depending on HFRN supply
DFC Linear (DFC)Source: OPIS
• Asia condensate market on an uptrend this year, on tighter supply and re-imposition of Iranian
sanctions
• Condensate market could rangebound depending on HFRN supply in Q4

11. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
More arbitrage inflows into Asia to lengthen supply in Q4, widening E-W spread signals
increase in arbitrage volume amid post-summer driving season in the West
Asia Naphtha Market Outlook Q4
11
Naphtha Market Q4 Outlook 2018
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Jan Feb Mar Apr May Jun Jul Aug Sep
Naphtha arbitrage inflows into Asia
EU/CIS N.A/S.A Total
Source: OPIS
• Overall arbitrage inflows into Asia expected to increase in Sep
onward
• The arbitrage cargoes from the US rebounded on widening Brent-
WTI spread (relative weakness in WTI over Brent)
Source: OPIS
mt
mt
0
2
4
6
8
10
12
14
2-Jan-18 2-Feb-18 2-Mar-18 2-Apr-18 2-May-18 2-Jun-18 2-Jul-18 2-Aug-18 2-Sep-18
Widening East-West Spread
• Widening E-W spread on gasoline blending demand lull amid post-
summer driving season in the west signals more arbitrage cargoes
can come to Asia

12. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Widening Brent-WTI spread and softening gasoline blending demand to increase arbitrage
inflows from the West to Asia
Asia Naphtha Market Outlook Q4Naphtha Market Q4 Outlook 2018
-5.00
0.00
5.00
10.00
15.00
20.00
100.00
120.00
140.00
160.00
180.00
200.00
220.00
240.00
13SEP
5SEP
28AUG
20AUG
8AUG
31JUL
23JUL
13JUL
5Jul
27Jun
19Jun
8Jun
31May
22May
14May
4May
25Apr
17Apr
9Apr
29Mar
21Mar
13Mar
5Mar
23Feb
14Feb
5Feb
26Jan
18Jan
10Jan
2Jan
Widening Brent-WTI spread, RBOB on a downtrend
Brent-WTI RBOB
$/bbl
Source: OPIS
• Widening Brent-WTI spread to increase HN arbitrage inflows from the US to
Asia in Q4, which caps the increase in HN premium,
-80
-60
-40
-20
0
20
40
0
20
40
60
80
100
120
1/2/2018 2/2/2018 3/2/2018 4/2/2018 5/2/2018 6/2/2018 7/2/2018 8/2/2018 9/2/2018
Gasoline blending economics to wane in Q4
Gasoline Blending Economics Gasoline/Naphtha
$/mt
Source: OPIS
• Gasoline blending economics to wane amid post-summer driving season
demand lull in the West
• Weaker naphtha in the West could send more arbitrage avails to Asia

13. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Ex-India supply falls in Sep on-month amid monsoon off-peak demand season ending, Ex-
ME supply projected to dwindle in Q4 amid year-end festive demand peak season
Asia Naphtha Market Outlook Q4
13
Naphtha Market Near-Term Outlook 2018
• Ex-India supply in Sep fell on-month at 675kt, waning off-peak monsoon
season in Q4, CDU TA(Nayara), rising domestic consumption, less Ex-India
supply expected in Q4
• Ex-ME supply in Sep rose on-month at 3.1 mil mt, but, expected to fall in Q4
ahead of year-end festive demand peak season
Source: OPIS
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Jan Feb Mar Apr May Jun Jul Aug Sep
India/ME naphtha exports to Asia
India ME Total
mt
mt
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
Jan Feb Mar Apr May Jun Jul Aug
South Korea’s monthly naphtha imports by origin
UAE Saudi Arabia Kuwait Qatar Bahrain India Total
Source: OPIS
• South Korea’s monthly naphtha imports from ME and India was higher on-
month in Aug

14. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Asia Naphtha Market Outlook in Q4 Summary
14
Asia Naphtha Market Outlook Q4

15. Confidential. © 2018 IHS MarkitTM. All Rights Reserved.
Rangebound until H1 Nov, and could pick up from H2 Nov to H1 Dec
Asia Naphtha Market Outlook Q4Naphtha Market Q4 Outlook
Q4 Outlook Summary
DEMAND Cracker TA • Due to heavy cracker TA in Oct-Nov, demand deficit in Q4 stood similar levels to that in
Q2
New Cracker SU • SXYCPC-Yan’an’s 450,000 mt/y CTO in Oct, Lotte Chem’s 200,000 mt/y LPG cracker in
Nov will not generate new naphtha feedstock demand in Q4
New Reformer SU • 409,320-b/d of new reformers to start up in China, requiring around 4.3 mil mt/q of new
HN as feedstock
Petrochemical
margins
• Robust petchem margins expected to continue through Q4 backed by year-end festive
demand
Condensate • Condensate market to rangebound depending on HFRN arbitrage supply and economics
LPG cracking • Unfavorable LPG cracking economics to continue amid LPG heating demand peak
season in winter as well as escalating US-China trade dispute inflating tariffs on US
propane
SUPPLY Refinery TA • Production loss due to CDU TA in Q4 (331,334 mt) is lower than Q3 (506,158 mt)
New CDU SU • Indian Oil Corp (IOCL) 10kbd CDU in Oct, Hua Feng Energy’s 100kbd CDU in Nov will
generate around 3,380 mt/q and 33,796 mt/q or naphtha supplies, respectively
Arbitrage • Widening Brent-WTI to enable more US-Asia arbitrage inflows
• Widening E-W spread to signal more Europe-Asia arbitrage inflows, amid ending summer
driving season
• Healthy HFRN, HN demand from Asia splitters, reformers boost more arbitrage fixtures
ME • Ex-ME supply to decrease on quarter due to firmer domestic demand prior to year-end
festive season, when plastics and polyester demand pick up
India • Ex-India supply to decrease on quarter amid ending monsoon off-peak demand season,
healthy domestic consumption amid robust petchem margin, and firmer gasoline demand
ENERGY Brent • Range-bound between $70-80/bbl
Source: IHS Markit
Bullish
factor
Bearish
factor
Neutral
factor
620
640
660
680
700
720
740
70
72
74
76
78
80
82
84
86
$/mt
CFR JP Naphtha Outlook
Brent Future ($/b) CFR Japan($/mt)
• CFR Japan naphtha likely to be within $668-707/mt band during Q4
• Nap cracks to Brent likely to be within $75-79/mt band during Q4

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