Transcript Document

Trends and Challenges
in the
European Polyolefin Industry
Mark Vester
18 February 2003
SABIC EuroPetrochemicals
Contents
Short introduction to SABIC EuroPetrochemicals
Typical project investment WE and ME
Global and European S/D balance for Polyethylene
The European Case
Managing the cycle: The Past and The Future
SABIC EuroPetrochemicals
The Power to Provide …
Resources to guarantee long term supply
Modern technology for efficiency and quality
Global marketing and distribution network to serve our customers
… for the long term
SABIC EuroPetrochemicals
SABIC’s vision: to be a leading global manufacturer
and marketer of hydrocarbon and metal products.
SABIC …
… is 70% owned by Saudi government and 30% by private sector
… started from scratch in 1976
… produced first tons in 1983
… now produces 40 million tons of products per year
… has a turn-over of € 11,4 bln in 2002
SABIC EuroPetrochemicals
Think about it:
2 mln tons of
new capacity
added annually!
SABIC EPC: the Powerhouse comes to Europe …
SABIC’s headquarters in Riyadh
SABIC’s Geleen site
SABIC …
… is number 3 global PE player
… markets almost 5 million tons of PE/PP
… is now established in Europe
… has technical centres in KSA, USA, India and
The Netherlands
… accelerates its expansion
SABIC EuroPetrochemicals
… with the Power to Provide …
4 highly integrated sites
direct access to low cost feedstock
world-scale facilities
direct market access
multiple lines per technology
Geleen
Ethylene C2
Polyethylene
Polypropylene
ktpa
1.250
910
585
Gelsenkirchen
Ethylene C2
Polyethylene
Polypropylene
ktpa
on-site
570
505
Gelsenkirchen
Al Jubail
Geleen
Ethylene C 2
Polyethylene
Houston
Al Jubail
Yanbu
Yanbu
Ethylene C2
Polyethylene
Polypropylene
Total SABIC
NPC (ktpa)
today Q4 2003
Ethylene C2
Polyethylene
Polypropylene
5.400
3.130
1.670
5.400
3.930
1.670
SABIC EuroPetrochemicals
ktpa
800
580
130
ktpa
( Q4 2003
Polypropylene
Vadodara
3.350
1.070
1.870 )
450
Riyadh
Kerteh
… anywhere !!!
Global Polyolefins position SABIC
SABIC, after acquisition DSM
Petrochemicals:
 number 4 global Polyolefins player
 number 3 global PE-player
 number 4 global PP-player
KTON
10000
8000
PP
6000
PE
4000
2000
0
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Ph
SABIC EuroPetrochemicals
ps
lli
/C
vr
he
F
on
os
m
or
a
as
Pl
...
.. and anything !!
Application
Process
Material
Automotive
Bi-axially oriented film
HDPE
Corrugated board
Blow moulding
High cristallinity polyolefin
Dustbins
Blown film
LDPE
Foam
Cast film
LLDPE
Furniture
Extrusion coating
Long glass fibre reinforced PP
Houseware and
appliances
Extrusion compression
moulding
Modified PP
Geomembranes
Foam extrusion
Masterbatches
Fibre, filament and tape
extrusion
Multi purpose
injection moulding
Packaging
Photo and imaging
Pipe
Sheet
Textiles
Wire and cable
…
SABIC EuroPetrochemicals
Injection moulding
Injection compression
moulding
Masterbatch compounding
Pipe extrusion
Sheet extrusion
Thermo forming
…
PP block copolymer MF
PP homopolymer
PP homopolymer MF
PP random copolymer
PP reactor elastomer modified
PP reactor elastomer modified
MF
Middle East PE has significant cost advantage
LLDPE gasphase
350 kta
HDPE slurry
Take into consideration:
License cost
300 kta
PP gasphase
Infrastructure
Marketing and Sales cost
2*200 kta
Research and Development
Cost of overhead
Co-products
Working capital
Naphtha cracker revamp cracker
Europe
650 kta
Middle East
Low cost feedstock !!
Investment scale
Investment cost
650 kta
HDPE gasphase
350 kta
LLDPE gasphase
2*350 kta
Utilities cost are lower
Ethane cracker
No co-products credit
1050 kta
SABIC EuroPetrochemicals
Structure of typical projects vary
LLDPE gasphase
350 kta
HDPE slurry
300 kta
PP gasphase
Europe
2*200 kta
Co-products
revamp naphtha
cracker 650 kta
HDPE gasphase
350 kta
LLDPE gasphase
Middle East
2*350 kta
Ethane cracker
1050 kta
SABIC EuroPetrochemicals
Distribution
Warehouse to customer
Warehouse
Customer
Warehouse to customer
Import Duties
Hub
Document cost
Plant
Outbound cost
Inbound cost and storage
Sea port to hub
Europe
Terminal cost
Sea freight
Middle East
Terminal cost
Warehouse to sea port
Warehouse
Plant
SABIC EuroPetrochemicals
Using ethane for ethylene leads to propylene deficits …
propylene sourcing
71,5 mio
other
70000
60000
54 mio
50000
FCC
40000
30 %
30000
20000
10000
FCC
32 %
Steam
cracker
Steam
cracker
68 %
65 %
0
2001
2007
… which leads to improved co-product contribution
SABIC EuroPetrochemicals
ME suppliers will export most PE to Asia, however …
2002
Global overcapacity will be
reduced from 3700 kton in 2002
+ 800
+ 950
to potentially 200 kton in 2007
+ 2750
+2700
- 1400
2007
- 1300
- 800
+ 700
- 600
Surplus: + 3,7 mln t
+ 1300
+6100
(= 6,4 % of CTP)
- 4700
Net export position (CTP > demand)
Net import position (CTP < demand)
-1700
- 900
Asia is growth market
ME export net backs will make European pricing follow Asian balance
Note: Balance is calculated as Local CTP -/- local demand (trade is excluded)
SABIC EuroPetrochemicals
Surplus: + 0,2 mln t
(= 0,3 % of CTP)
… West Europe leaves opportunity window …
1000
consumption growth
kton
capacity growth
800
600
400
200
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-200
-400
Realisation
Forecast
West European demand will outpace capacity growth in coming years
SABIC EuroPetrochemicals
… for ME to further increase its market share.
2000
1800
1600
Imports
Room for
100 kt
extra
imports
per year
Exports
1400
1200
1000
800
600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Realisation
Forecast
Middle East imports will make up for WE production deficit.
SABIC EuroPetrochemicals
Despite ME producers’ cash cost advantage over WE …
ME producer
NWE producer
Typical ranges for
gas and naphtha
Structural
delta
in cash cost
Low
High
Gas price ($/mmBTU)
Low
High
Naphtha (EUR/t)
Delta depends on oil price and co-product values
SABIC EuroPetrochemicals
… WE capacity has outpaced demand,
kton
contributing to deterioration of margins …
Margin as C4 LL -/- C2
(EUR/t)
… and resulting in poor profitability; even for WE leaders!
SABIC EuroPetrochemicals
ME re-investment level is lower than average WE level
ME producer
NWE producer
Re-investment
level required
for IRR of 20%
Delta in
re-investment
level
Delta in
cash cost
Low
High
Gas price ($/mmBTU)
Low
High
Naphtha (EUR/t)
Within WE players differ in site scale and integration, portfolio, …
Only strong WE super sites (cost leaders) remain
SABIC EuroPetrochemicals
Pricing in Europe will be affected
Re-investment
level
WE
ME
Middle East attracts investment at lower levels than Europe
SABIC EuroPetrochemicals
Future PE flow over the globe
ddp NWE
cif FE
Revenue Platt’s low ’96-’01
900
750
Discount
-/-25
-
Import duties (4%)
-/-35
Inland logistics
-/-50
-
Transport overseas
-/-45
-/-20
Contribution
745 EUR/t
730 EUR/t
Asia is growth market
Export to Europe is 100 - 150 EUR/t more expensive
European price will follow Asian balance and average
at 100 - 150 EUR/t above Asia
SABIC EuroPetrochemicals
Cyclicality in Petrochemicals is “a fact of life”
The cycle
……is due to
• Long lead time of investments
• No reliable forecast global economic gowth
• Globalisation
……affects mainly margins but also volumes
and
…… leads to strong fluctuations in cash flow
SABIC EuroPetrochemicals
Essentials of the Petrochemical Business
 Global Utilisation Rate
drives the margins
 Position on the global cost curve
indicates the chance to survive the dip in the cycle
 Position on the learning curving
quantifies the yearly needed cost improvement
SABIC EuroPetrochemicals
gross margin W.E. cracker
Cracker margins correlate with the global utilisation rate
86
87
88 89 90 91 92 93 94 95 96 97
Utilisation rate crackers world wide as % of CTP*
98
CTP = Capacity to Produce
Global Utilisation rates > 92 % are needed for a healthy cracker margin
SABIC EuroPetrochemicals
Position on the global cash cost curve
A low cost position is essential to survive the dip in
the cycle and is determined by:
 Scale
 Integration
 Technology
 Cracker feedstock position / flexibility
 Upgrading cracker co-products
 Logistics
 Employees
SABIC EuroPetrochemicals
Global cash cost curve crackers
Cash costs/ton C2
Small scaled Laggards
Naphtha/ethane/LPG
in Europe/USA
Low cost ethane
Cumulative ethylene capacity
SABIC EuroPetrochemicals
Cash costs/ton C2
Learning curve of ethylene production
Cumulative ethylene production
SABIC EuroPetrochemicals
Managing through the cycle
Cash costs/ton C2
Losers
First Quartile
Sitting ducks
(Potential)
Super sites
Hors category
Cumulative ethylene capacity
SABIC EuroPetrochemicals
Conclusions
No rationale for investment in additional integrated ethylene and PE
capacity in Europe
Potential for scrap and build
Little further improvement of cost position
All cost laggards in Europe will disappear
Central and Eastern Europe have the same future as WE
European cost leaders will be able to compete
Future PE source for West Europe
WE super sites
Growth will come from Middle East
SABIC EuroPetrochemicals
Drivers for European industry: We enter a new era
Period ’95 – ’02
Scale and cost
Site integration and M&A
Invest and grow
Technology and Catalyst Development
scale
cash flow
Period ’02 – ’09
Cost & Rationalisation
Bottomline cashflow
SABIC EuroPetrochemicals
Re-establishment of
sustainable profit levels