Presentation on theme: "Trends and Challenges in the European Polyolefin Industry"— Presentation transcript:
1Trends and Challenges in the European Polyolefin Industry Mark Vester18 February 2003
2Contents Short introduction to SABIC EuroPetrochemicals Typical project investment WE and MEGlobal and European S/D balance for PolyethyleneThe European CaseManaging the cycle: The Past and The Future
3The Power to Provide … … for the long term Resources to guarantee long term supplyModern technology for efficiency and qualityGlobal marketing and distribution network to serve our customers… for the long term
4SABIC’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 2002Think about it:2 mln tons of new capacity added annually!
5SABIC’s headquarters in Riyadh SABIC EPC: the Powerhouse comes to Europe …SABIC’s headquarters in RiyadhSABIC’s Geleen siteSABIC …… 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 andThe Netherlands… accelerates its expansion
6… with the Power to Provide … 4 highly integrated sites direct access to low cost feedstockworld-scale facilities direct market accessmultiple lines per technologyGelsenkirchenGeleenHoustonAl JubailYanbuVadodaraRiyadhKerteh… anywhere !!!
7Global Polyolefins position SABIC SABIC, after acquisition DSM Petrochemicals:number 4 global Polyolefins playernumber 3 global PE-playernumber 4 global PP-playerKTON
11Distribution Customer Warehouse Hub Plant Europe Middle East Warehouse Warehouse to customerWarehouse to customerImport DutiesWarehouseHubDocument costOutbound costInbound cost and storageSea port to hubTerminal costSea freightWarehouse to sea portPlantEuropeMiddle EastWarehousePlant
12Using ethane for ethylene leads to propylene deficits … 71,5 miootherFCC32 %54 mioFCC30 %Steam cracker65 %Steam cracker68 %… which leads to improved co-product contribution
13ME suppliers will export most PE to Asia, however … 2002+ 2750+ 950- 1400+2700- 1300- 800+ 800Surplus: + 3,7 mln t(= 6,4 % of CTP)Global overcapacity will be reduced from 3700 kton in 2002 to potentially 200 kton in 20072007+ 1300- 600- 4700+6100-1700- 900+ 700Surplus: + 0,2 mln t(= 0,3 % of CTP)Net export position (CTP > demand)Net import position (CTP < demand)Asia is growth marketME export net backs will make European pricing follow Asian balanceNote: Balance is calculated as Local CTP -/- local demand (trade is excluded)
14… West Europe leaves opportunity window … ktonRealisationForecastWest European demand will outpace capacity growth in coming years
15Room for 100 kt extra imports per year … for ME to further increase its market share.Room for 100 kt extra imports per yearRealisationForecastMiddle East imports will make up for WE production deficit.
16Despite ME producers’ cash cost advantage over WE … NWE producerTypical ranges forgas and naphthaStructuraldeltain cash costLow High Low HighGas price ($/mmBTU)Naphtha (EUR/t)Delta depends on oil price and co-product values
17contributing to deterioration of margins … … WE capacity has outpaced demand,ktoncontributing to deterioration of margins …Margin as C4 LL -/- C2 (EUR/t)… and resulting in poor profitability; even for WE leaders!
18Re-investment level required for IRR of 20% ME re-investment level is lower than average WE levelME producerNWE producerRe-investment level required for IRR of 20%Delta inre-investment levelDelta incash costLow High Low HighGas price ($/mmBTU)Naphtha (EUR/t)Within WE players differ in site scale and integration, portfolio, …Only strong WE super sites (cost leaders) remain
19Pricing in Europe will be affected Re-investmentlevelWEMEMiddle East attracts investment at lower levels than Europe
20Future PE flow over the globe ddp NWE cif FERevenue Platt’s low ’96-’Discount -/-25 -Import duties (4%) -/-35Inland logistics -/-50 -Transport overseas -/-45 -/-20Contribution 745 EUR/t 730 EUR/tAsia is growth marketExport to Europe is EUR/t more expensiveEuropean price will follow Asian balance and average at EUR/t above Asia
21Cyclicality in Petrochemicals is “a fact of life” The cycle……is due toLong lead time of investmentsNo reliable forecast global economic gowthGlobalisation……affects mainly margins but also volumesand…… leads to strong fluctuations in cash flow
22Essentials of the Petrochemical Business Global Utilisation Ratedrives the marginsPosition on the global cost curveindicates the chance to survive the dip in the cyclePosition on the learning curvingquantifies the yearly needed cost improvement
23Cracker margins correlate with the global utilisation rate CTP = Capacity to ProduceGlobal Utilisation rates > 92 % are needed for a healthy cracker margin
24Position on the global cash cost curve A low cost position is essential to survive the dip in the cycle and is determined by:ScaleIntegrationTechnologyCracker feedstock position / flexibilityUpgrading cracker co-productsLogisticsEmployees
25Global cash cost curve crackers Small scaled LaggardsCash costs/ton C2Naphtha/ethane/LPG in Europe/USALow cost ethaneCumulative ethylene capacity
26Learning curve of ethylene production Cash costs/ton C2Cumulative ethylene production
27Managing through the cycle LosersFirst QuartileSitting ducksCash costs/ton C2(Potential) Super sitesHors categoryCumulative ethylene capacity
28ConclusionsNo rationale for investment in additional integrated ethylene and PE capacity in EuropePotential for scrap and buildLittle further improvement of cost positionAll cost laggards in Europe will disappearCentral and Eastern Europe have the same future as WEEuropean cost leaders will be able to competeFuture PE source for West EuropeWE super sitesGrowth will come from Middle East
29Drivers for European industry: We enter a new era Period ’95 – ’02Scale and costSite integration and M&ATechnology and Catalyst DevelopmentPeriod ’02 – ’09Cost & RationalisationBottomline cashflowInvest and growscale cash flowRe-establishment of sustainable profit levels