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Asia Propylene & Derivatives Markets Kuala Lumpur October 17, 2000: 

Asia Propylene & Derivatives Markets Kuala Lumpur October 17, 2000 Asian Propylene and PP Markets: Structure and Outlook David Hanna Platts Asia Petrochemicals Managing Editor Energy Information Group

Asian PP Market structure, Trade flow: 

Asian PP Market structure, Trade flow Japan: Largest producer (cap = 2.9-mil t/y) Idemitsu, Grand Polymer(Mitsui + Ube), Montell Sunrise (1999) Consolidation from 14 to 7 PP players Korea: Largest exporter ('99 X = 1.35-mil mt = 55-60% output) Daelim + Montell --> PolyMirae in 2000 China: Largest importer ('99 M = 1.5-mil mt, 40% from Korea) WTO entry:PP duty 25%(‘95), 12%(‘00), 9%(‘05)

Asian PP Market structure, Trade flow: 

Asian PP Market structure, Trade flow Taiwan: Active buyer and seller via HK (‘99 M = 258kt, X = 165kt) Yung Chia, TPP, FCFC(300kt Q2’00) Southeast Asia: From buyer to seller (PP cap expands 30% 98-2004 from 2.3 to 3.0-mil t/y) TPC Singapore regional price leader,Exxon Mobil (275kt end’00) Tripolyta, Polytama in Indonesia Malaysia Titan expansion MHC, TPI Thailand

Asian PP Market structure, Trade flow: 

Asian PP Market structure, Trade flow India: A new exporter Reliance 600kt in 1999, Haldia 200kt in May’00 Middle East: New entrant Deepsea: Marginal but may grow (US = 6%[90kt] of Chinese imports) Arco California, US economic slowdown Weak Euro --> exports Yanpet 260kt Jul’00 Ibn Zahr expd to 300kt’00 Teldene 300kt ‘05

Issues facing the Asian PP Market: 

Issues facing the Asian PP Market PP import flood into Japan after 2004: 6.5% duty Concentration on copolymer grades Increasing Domestic-International Integration China: Daily Yuyao posting Indonesia: US dollar based domestic prices Japan: Shift from retroactive to forward pricing (+Y 1,000/kl naph --> +Y 2/kg C3)

Slide6: 

Increasing sensitivity to crude oil since 1999, Volatility (PP FEAsia, IPE Brent) H1 ‘97 H1 ‘00 r² = 0.04 / v = 4% r² = 0.4 / v = 6%

Issues in the Asian PP Market: 

Issues in the Asian PP Market Emergence of new players and Converge on Chinese market PP vs. PE profits

Asian Propylene market: 

Asian Propylene market Sellers : Japan '99 X = 500kt Showa Denko to Taiwan PP term, Tonen to Taekwang term Buyers : China '99 M = 95kt, +42% Taiwan '99 M = 200kt (but FPC also X's, may sell to China via Japan) ASEAN: Indonesia, Phil, Thailand Korea '99 X = 270kt S-Oil (Asia's largest spot exporter) Yeochon, Samsung, LG, Hyundai, SK

World Supply-Demand Balance for Propylene: 

World Supply-Demand Balance for Propylene 1998 2004 Asia 100 -100 Korea 100 0 Taiwan -200 0 China -100 0 ASEAN -200 -400 India 100 -100 Japan 300 500 NW Europe -200 -500 N America -700 -600 Mid East 100 400 (Units: 1,000mt. Sources: MITI)

World Supply-Demand Balance for Propylene: 

World Supply-Demand Balance for Propylene MITI's Outlook Asia will become net short Europe's deficit will grow, exceeding Asia US deficit will shrink Mid East will be largest seller

World Supply-Demand Balance for Propylene: 

World Supply-Demand Balance for Propylene Within Asia Japan's surplus will swell Korea's surplus will disappear Taiwan and China will become self sufficient Southeast Asia's import position will grow India will become a major buyer after SE Asia Asia to remain largest C3 consumer and producer D = 18.7-mil mt by 2004, 31% or world total

Asian C3 shortage peaks in 2000, shrinks in 2001: 

Asian C3 shortage peaks in 2000, shrinks in 2001 Shortage chg 1998 785 1999 716 - 2000 844 + 2001 689 - (Units: 1,000mt. Source: Marubeni)

Issues in the Propylene Market: 

Issues in the Propylene Market Asia-to-Europe arbitrage window, weak Euro Asia Exports to Europe

Issues in the Propylene Market: 

Issues in the Propylene Market 6-7 More propane Dehydro units needed in Asia Cost-competitive gas crackers maximize C2 yield as the expense of C3 DH units in Asia: Taekwang, Hyosung(Korea), NPC(Thai), Petronas(ML) Propylene yield from…. Ethane = 3% Naphtha = 13% Propane = 18% ...But Saudi to use more propane (crackers, Cyclar process), Japan may have to burn PPY in place of LPG

Impact of Saudi Arabia: 

Impact of Saudi Arabia Korea may cut PE output  PE long, PP short 3 new crackers  reduce C3 output  cut cracking rates  More PE exports to Asia 

GRAPH: 1994-now, : 

GRAPH: 1994-now,

Slide17: 

94: Korea emerges from the red, takes pricing power from Japan

95: China cracks down on smuggling: 

95: China cracks down on smuggling

96: Southeast Asia moves away from net imports, high naphtha: 

96: Southeast Asia moves away from net imports, high naphtha

97-98: Financial crisis drives prices to historic low: 

97-98: Financial crisis drives prices to historic low

99: OPEC reins in output: 

99: OPEC reins in output

Continued cost-push, volatility: 

Continued cost-push, volatility

What lies ahead: 

What lies ahead Ten Asian economies 1997 2.0% - 1998 1.0% - 1999 6.2% + 2000 6.5%* + Chinese GDP growth rate to slow to 5-7% p.a. thru 2004 2000-2001: Peak of six-year price cycle Crude cost-push will not relent until mid-2001 2003: Peak in profit cycle (ChemSystems)

What lies ahead: 

What lies ahead Forecastes can be nullified by political factors N-S Korea unification Taiwan-China relation Chinese policy changes Leadership vacuum in Japan Post-Suharto Indonesia

Slide25: 

Platt's Price Assessment Methodology Sources Basis: Spot deals In the absence of deals Producers Consumers Traders Anyone deemed active and reliable in the market Marginalism: Repeatability test of deals Prices determined by spot tonnage, not absolute market share Consider highest bids vs. lowest offers, Prevailing market trend (no stair-casing) Platts does not set prices, but reflects the market Manipulation

Platt's Prices Assessment Methodology(Continued): 

Platt's Prices Assessment Methodology(Continued) Confirmed spot trades Fixed price, not formula-based Bids & Offers $500 $510 $520 Highest Bid $530 $540 $550 Lowest Offer Platts Assessment

Platt's strives for both precision and accuracy in assessments: 

Platt's strives for both precision and accuracy in assessments trading range ---------------| |--------------- $90 $100 precise but not accurate (off the mark) -----------| |--------------------- $86 $88 accurate but not precise (too wide) ---------------| |--------------- $90 $100 both accurate and precise ----------------| |---------------- $92 $98

Platt's Prices Assessment Methodology(Continued): 

Timing: Basis: CFR (enduser, trader, etc.), FOB Asia Credit: 0-30 days usance Cargo sizes Platt's Prices Assessment Methodology(Continued) Monomers: 20-40 day Sliding Window Polymers: 15-30 days out Polymers 100-500mt BTX 2,000mt + “Snapshot”, not weekly average

Platt’s Petchemical Alert PCA005: 

Platt’s Petchemical Alert PCA005 May23--Taiwan bids H2Jun 2.3kt ethylene at $510/mt CFR. May23-- Korea offers mid-Jun 5kt benzene at $375/mt FOB. May23-- French maker offers Jun 100-200mt LDPE at $710/mt CFR China/Singapore/Malaysia. May23-- Crude:1100 GMT: Jun Brent at $27.70-27.74/bbl. May23-- Crude:1100GMT: Jun WTI at $28.19/bbl; Jul $28.39/bbl. May23-- Indonesia bids end-Jul 4kt PX at $400/mt CFR. May23-- Trader bids Jun 100-200mt PVC at $700/mt CIF Hong Kong. May23-- Indonesia bids end-May 2-3kt PTA at $450-460/mt CFR Jakarta. May23-- Taiwan offers H1Jun 5kt SM at $650/mt FOB. May23-- Thailand offers H1Jun 50-100mt GPPS at $800/mt CFR Vietnam/Philippines. May23-- Thailand offers H1Jun 100-200mt GPPS at $780/mt CFR Hong Kong. May23-- Jul/Aug naphtha market closed Mon at $269.75/mt C+F Japan.

Flow of Information Platt’s Petrochemical Alert: 

Flow of Information Platt’s Petrochemical Alert Real Time Instant Feedback Price Discovery Transparency Heard in the markets PCA 5 PCA 5

Questions: 

Questions