New Normal Emerges From Chinese Bubble

Tecnon OrbiChem Marketing Seminar at APIC 2015

Seoul, 7 May 2015

Kim Hyun-Min

APIC 2015

AGENDA
Review of Chinese Economic Background
Bubbles in the Polyester Chain
Bubbles in Other Sectors

Caprolactam

Acetic Acid

2-EH

Acrylic Acid
New Normal in Chinas Economy
New Normal in the Polyester Chain
Conclusions
Source: Tecnon OrbiChem

APIC 2015

THE START OF THE BUBBLE IN CHINA

Central Government Stimulus Package

Huge spending in 2009-2010 as it sought to boost flagging economic growth

Local Government

To meet GDP targets, raised revenue by selling land for petrochemical projects

Real Estate

Losses from projects could be covered by high real estate appreciation

APIC 2015

CHINESE POLYESTER CHAIN CAPACITY BUBBLES

Annual Capacity Addition (Million Metric Tons)
12.0
Paraxylene
10.0

PET Resin

8.0

PTA

6.0
4.0
2.0
0.0
1997

1999

2001

2003

Source: Tecnon OrbiChem

2005

2007

2009

2011

2013

2015

2017

APIC 2015

CHINA PTA IMPORTS & EXPORTS

China PTA Imports

China Must Export PTA?

(1,000 Metric Tons)

(1,000 Metric Tons)

8000

From

2009

2014

% Change
14 /09

6000

South
Korea

3,215

Taiwan

1,907

73

-96

4000

Others

1,134

391

-65

2000

Total

6,256

1,163

-81

699

-78

Import
Export

463 in
2014

0
2009 2010 2011 2012 2013 2014

Source: Tecnon OrbiChem

APIC 2015

CHINESE POLYESTER FIBRE CAPACITY (VIRGIN)

& PRODUCTION
CAPACITY

PRODUCTION

(Million Metric Tons)

(% Y-o-Y)

50

15.0

40

Growth Rate

10.0

Million
Metric Tons

2009

2015
(est.)

2019
(est.)

World

27.5

41.3

53.3

China

17.4

29.6

42.2

China % of
World Total

63%

71%

79%

30
5.0
20

Capacity
increased by
71.4% from
2009 to 2015

10
0

0.0

-5.0
2006

2008

2010

Source: Tecnon OrbiChem

2012

2014

APIC 2015

CHINA PET RESIN SUPPLY/DEMAND & EXPORTS

SUPPLY & DEMAND

EXPORTS

(Million Metric Tons)

(1,000 Metric Tons)

Export

Demand

2500

2.7 Million
Tons Surplus

10

Korea
2000

Capacity

Taiwan
China

1500

1000

4
3

500

2
1

0
2006

2008

2010

2012

2014

2016

2006 2008 2010 2012 2014 2016

China capacity grows from 3.3 to 9.4 million tons in 2016 (+180%)
Total world capacity to reach 32 million tons by 2016
Future growth projections have been lowered to between 4-5% per year
Source: Tecnon OrbiChem

APIC 2015

OTHER CHINESE CAPACITY BUBBLES

Capacity Additions (Y-o-Y%)
100
2-Ethylhexanol

90

Acetic Acid

80
70

Acrylic Acid

60

Caprolactam

50
40
30
20
10
0
2009

2010

2011

Source: Tecnon OrbiChem

2012

2013

2014

2015

2016

2017

APIC 2015

CHINA CAPROLACTAM SUPPLY & DEMAND

(1,000 Metric Tons)
4,000
Imports
3,500

Production
Consumption

3,000

Capacity

2,500
2,000
1,500
1,000
500
0
2005

2007

2009

Source: Tecnon OrbiChem

2011

2013

2015

2017

APIC 2015

CHINA ACETIC ACID SUPPLY & DEMAND

(1,000 Metric Tons)
12,000

Capacity increased by 111.6% from 2009 to 2015

Consumption

10,000

Production
Capacity

8,000
6,000
4,000
2,000
0
2005

2007

Source: Tecnon OrbiChem

2009

2011

2013

2015

APIC 2015

CHINA 2-EH SUPPLY & DEMAND

(1,000 Metric Tons)
2,500

Production
Imports

2,000

Consumption
1,500

Capacity

1,000

500

0
2011 2012

2013 2014

Source: Tecnon OrbiChem

2015 2016

2017 2018

APIC 2015

CHINA ACRYLIC ACID SUPPLY & DEMAND

(1,000 Metric Tons)
4,000
3,500

Capacity

3,000

Consumption

2,500
2,000
1,500
1,000
500
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Tecnon OrbiChem

APIC 2015

THE NEW NORMAL IN CHINAS ECONOMY

Shift from high-speed growth to medium-high growth

Shift from quantity and speed to quality and efficiency
Shift to an innovation-driven growth model.
2015 GDP growth target approximately 7%

APIC 2015

CHINA ECONOMY ENTERS INTO NEW NORMAL

NBS and HSBC PMI data

January & February 2015

54

Fixed Asset Investment

Increased by 13.9%
- The lowest for 13 years

53

NBS PMI

HSBC PMI

52

Property Sales
Fell 15.8% during Jan-Feb 2015 year-on-year
- The worst drop since 2012

51
50
49
48
47
2011

2012

2013

2014

2015

Y-O-Y %Growth in CPI

Retail Sales
Grew by 10.7%
- The smallest increase in a decade
Electricity Consumption
Only rose 3.8% in 2014, year on year
- The weakest in 16 years.

8
6

Industrial Production
Rose 6.8% in the first two months
- The lowest level since the 2008 financial crisis

4
2
0
2011

2012

2013

2014

2015

Source: National Bureau of Statistics of China & HSBC

APIC 2015

SLOW PACE OF DOWNSTREAM DOMESTIC GROWTH

CHINA RETAIL SALES OF
GARMENTS, FOOTWEAR, HATS &
KNITWEAR

CHINA SOFT DRINK PRODUCTION

(Y-o-Y % Growth)

(Million Metric Tons)

(Y-o-Y % Growth)
30

200

30

180

25

25

160
140

20

20

120
100

15

15

80

10

10

60

Single Month
Cumulative Value

40

20
0

0
2009

2010

2011

2012

2013

2014

Source: National Bureau of Statistics of China

0
2007 2008 2009 2010 2011 2012 2013 2014

APIC 2015

CHINESE POLYESTER FIBRE OVERCAPACITY (Virgin)

(Million Metric Tons)

(Y-o-Y %Growth)
Polyester Filament
Growth rate
Capacity
Production
Polyester Staple
Growth rate
Capacity
Production

Polyester fibre capacity growth rate expect to maintain over 10% in 2015.
However, polyester fibre production growth rate may drop to 4-5%
Source: Tecnon OrbiChem

APIC 2015

OVERCAPACITY & SLOW DEMAND DRAG

PET RESIN BUSINESS DOWN
ASIA PET RESIN MARGINS

PET RESIN - RESTRUCTURING

($/ton)

USA

DAK Americas (204 ktpa), Sep 2013

400

Europe

Indorama (168 ktpa), UK, Dec 2013

350
300

Asia

Japan Unipet (66 ktpa), Japan, Mar 2015

Daehan Synthetic Fibre (60 ktpa), Korea, Dec 2013

250
200

China

Nan Ya Plastic (150 ktpa) shut in 2012

Zhuhai Yuhua (140 ktpa) produces alternative

polymers

Sinopec Shengzhiye (240 ktpa) shut in 2013

Ningbo SK-Zhenbang (150 ktpa) shut in 2013

Liaoyang Petrochemical (105 ktpa) shut in 2013

150
100
50
0
-50
2004

2006

2008

2010

Source: Tecnon OrbiChem

2012

2014

APIC 2015

THE START OF PTA RE-BALANCING?

PTA PRODUCERS NOT OPERATING

ASIA PTA CAPACITY &

MARGIN 2005-2015

Company

(Million Metric Tons)

($/ton)
300

90
80
70

200

60
50
40

100

30
20
10

0
2005

2007

2009

Capacity

2011

2013

PTA Margin

Source: Tecnon OrbiChem

2015

China
PetroChina Liaoyang
Yangzi Petrochemical
Zhejiang Yisheng
Chongqing Pengwei
BP Zhuhai
Fujian Jialong
Xianglu Petrochemical
Yisheng Dahua
Zhejiang Yuandong
Total
Northeast Asia
SK Petrochemical
Lotte Chemical
CAPCO
Tuntex
Mizushima Aroma
Total

Capacity
(ktpa)
870
730
650
900
600
600
1,650
2,200
3,300
11,500
520
400
1,320
440
250
2,930

APIC 2015

CONCLUSIONS
Oversupply dominates Asian and world markets and is stressing global margins.
China PTA industry rationalisation is expected to continue with PTA plants
elsewhere in Asia under threat as already seen in Taiwan and South Korea.
With Zhejiang Yuandong announcing bankruptcy, it will be significant to see
whether this is the start of real PTA industry rationalisation in China.
However, the interdependence of PTA projects on each other and with local
economies and banks risks the start of a domino effect.
Recent health and safety concerns related to paraxylene are a symptom of the
problems that exist, but have the potential to become an issue in themselves
The polyester market is still growing in China, but it is difficult to expect the
speed of growth to be as fast as in the past.
Chinas economy has entered a New Normal. Economic growth has slowed
and structural change is needed to overcome the legacy of past stimulus policies.

Source: Tecnon OrbiChem

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