To Rise Up Look Down

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


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 www.icis.com, www.icis.com/pricing 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.


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


Energy & Aromatics: We’re Family

• Price trend graph on naphtha, toluene, xylenes and PX
Trend follows energy prices


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


PX & downstream: Who’s boss?

PX, PTA & Fibres:
to each his own


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


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)


PTA: The Downstream Rebels

PTA no longer follows PX


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


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


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


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


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


PX: Lost Control Over
Downstream

PX loses control over
downstream trends


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”


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


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”?


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


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)


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


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 *


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*



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?


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


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


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


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


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


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


Thank You

謝謝

To Rise Up Look Down

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