Chemicals & Plastics Outlook

Big Picture: Basic Chemicals & Plastics Demand Distribution is Shifting

Economic Expansion: Basic demand to fast growth emerging economies is evident Investment Decisions: Two Options: Produce in demand centers or leverage a clear cost advantage Tomorrows Market: Sustainability includes a systematic addition of performance products

Distribution of Global Demand

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Basic Chemicals and Plastics
All Others Middle East W. Europe N. America Other Asia

China

1990 1995 2000 2005 2010 2015 2020

Center of demand has shifted to Asia

2

Crude Oil & Natural Gas: Building Blocks for the Industry
Butane Hydrogen BTX
o-XYLENE XYLENES TOLUENE PTA/DMT BENZENE PET m-XYLENE p-XYLENE PAN/DOP/Plasticizers PIA

Crude Oil

Refinery

Reformer

Naphtha Gas Oil Ethane Propane Butane Natural Gas

Gas Separation Unit

Reformate

BTX Extraction
Pygas Raffinate

ETHYLBENZENE/ STYRENE POLYETHYLENE POLYPROPYLENE ETHYLENE DICHLORIDE / PVC EO/EG ETHANOL EP RUBBER

Steam Cracker

Propylene

Ethylene
Butadiene
SBR / PBR

Methanol

The Energy Outlook

130 110 90 70 50 30 10 2004 2006 2008 2010 2012 2014
Oil, US Refinery Acqusition Price, $/barrel (left) Natural Gas, Henry Hub Spot, $/mmbtu (right)
4

13 11 9 7 5 3 1

North America: Natural Gas Advantage

Dollars Per MMBtu 18 16 14 12 10 8 6 4 2 0 06 07 08 09 10 11 12 13 14 15 16
5

Gas as a% of Crude, BTU Basis 70% 60% 50% 40% 30% 20% 10% 0% Crude (WTI) Natural Gas Gas as % of Crude

North American Feedslate Becoming Lighter

Wt% Produced From Feedstock

Monthly Ethylene Production By Feedstock

Given its high selectivity

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Ethane Propane Butane Naphtha Gas Oil

to ethylene & relative cost position to other feeds, ethane is consistently the most favored feed
Once oil & gas began to

diverge, producers have been shifting feedslates lighter to capitalize on the advantage

Ethylene & Polyethylene

North America Second Lowest Cost Region

2011 Global Ethylene Cash Costs
Dollars per Ton 1650 1450 1250 1050 850 650 450 250 50 0 U.S. Avg. U.S. Ethane Middle East Avg.

WTI Crude $95/Barrel Nat Gas $4.14/MMBtu Ethane 76.7 cpg

West Europe Avg. NE Asia Avg. SE Asia Avg.

Alberta Ethane

Middle East Ethane 20 40 60 80 100 120 140 160

CUMULATIVE ETHYLENE CAPACITY (million tons)

8

2012 U.S. Ethylene Production Losses Higher Than Expected

Million Pounds, Monthly 1,200 1,000 800 600 1,500 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Planned* '11 Cumulative Production Loss Series4 * Includes both confirmed and unconfirmed outages
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Million Pounds, Cumulative 3,500 3,000 2,500 2,000

1,000 500 0 Unplanned** Forecast '13 Cumulative Production Loss

Global Monthly Ethylene Prices

Dollars Per Metric Ton 2,100 1,900 1,700 1,500 1,300 1,100 900 700 500 300 10 A J O 11 A J O 12 A J O 13 A J O

Forecast

U.S. Large Buyer Contract Price

WEP Contract Price

SEA CFR Spot Price

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More Ethylene Capacity on the Horizon

North American Capacity Additions Leverage Ethane Announced (-000- MT)
BASF/Fina (Port Arthur) Chevron Phillips (Cedar Bayou) Dow (Taft / Freeport) Equistar (All locations) Exxon (Baytown) Formosa (Point Comfort) Ineos (Chocolate Bayou) Oxy (Ingleside) Sasol (Lake Charles) Shell (Northeast) Westlake (Lake Charles) Williams (Geismar) Nova (Sarnia) Braskem/Idesa (Mexico) Unidentified Total Cumulative Total
Dow, Shell, NOVA, and Oxy capacity additions shown are IHS estimates

2012

2013 180 386 121

2014

Future 1500 1500* 90 1500 800 550* 1400 1000*

310

50

57

30 20

110 70

80 210 250* 1000 110 9500 11,269

11

100 100

145 1069 1169

600 1769

Ethylene Market View

Development of Two Low-Cost Production Regions

*
Shale development has enabled the North American producer to become

one of the lowest cost producers in the world Combined with the Middle East, over 40% of the global ethylene capacity is now cost advantaged Other cracking capacity likely to trend towards increased LPG consumption in order to try and remain competitive Higher cost countries may respond with protectionist measures

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Key Issues: Polyethylene

Short Term:

Global demand growth for PE may be slowing as China demand weakens and Europe contends with recession

Longer Term: Two low cost regions (North America and the Middle East)

are set to compete for much of the global demand growth. The industry has never before included two major cost advantaged regions
Numerous capacity additions expected in North America as producers in the

region seek to leverage cost advantage driven by shale gas Continued demand strength anticipated for specialty polyethylene products

such as metalocenes and bio-based resins

While annual integrated margins are generally expected to trend higher,

most of the margin is forecast to remain upstream with the ethylene molecule
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Domestic PE Demand by Region

NEA EUR NAM AFR/MDE SEA SAM ISC 0.0 5.0 4.9% 5.8% 9.1% 10.0 15.0 20.0 25.0 30.0 35.0 6.7% 2.6% 2.8% 6.5% 2011 2016

2011-2016 Average Annual Growth Rate, Total Demand: 5.0%

%: 11-16 Average Annual Growth Rate

Demand by Region, Million Metric Tons

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Global Polyethylene Capacity Additions

Capacity, Million Metric Tons 10 8 6 4 2 0 -2 -4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Asia/Pacific South America

Africa/ Middle East Central Europe/ CIS

North America West Europe

15

North America New PE Projects

Company
Equistar Equistar Nova Braskem Idesa Nova Formosa ExxonMobil Dow CPChem Nova Sasol Shell

Location
LaPorte, TX Morris, IL Sarnia Coatzacoalcos Joffre Point Comfort, TX Mont Belvieu, TX Gulf Coast Sweeny, TX Sarnia Gulf Coast Marcellus,

Country LDPE 2014-2015

United States United States Canada 300 50 100 300

LLDPE

HDPE

Startup
Q1 2014 Q1 2014 Q1 2015

Type
Hypo (1) Hypo (1) Hypo (1) Hypo (1) (1) (1) Hypo (1) Hypo (1) Hypo Hypo

2016
Mexico Canada United States United States 250 300 650 550 500 350 500 500 750 Q1 2016 Q1 2016 Q4 2016 650 Q3 2016 650 Q3 2017 500 Q3 2017 Q3 2018 500 Q3 2018 500 Q3 2019

2017
United States United States

2018-2019
Canada United States United States

Totals, 000's MT

1050

3300

3550

7900

Notes: (1): Announced projects included in our capacity database; (2): Announced expansions with IHS estimate of product and size, also not included in database; Hypo (1): reported projects not fully verified or approved and not included in the database; Hypo: IHS estimates of product and size for announced ethylene crackers - PE not in database.
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Regional LLDPE Butene Prices

Cents Per Pound
100 90 80 70 60 50 40 30 20 10 0 07- 07- 08- 08- 09- 09- 10- 10- 11- 11- 12- 12- 13- 13- NAM Cash Cost, Integrated NAM LLDPE WEP LLDPE CHINA LLDPE (Spot)
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Polyethylene Chain Margins

Cents Per Pound Polyethylene 40 30 20 10 0 -10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Dollars Per Metric Ton 880 660 440 220 0 -220

PE Margin - Contract HDPE Blow Molding Non-Int. Including Discounts Ethylene Margin - Average Acquisition Ethylene Price Minus Ethane Cracking Costs
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PE North America: Near Term Pricing

Contract PE prices increased 6.0 cents Jan April due to

tight ethylene and high spot / contract ethylene prices, but later declined by 14.0 cents over May/June as supplies improved and ethylene prices collapsed. Prices rebounding with +5 in August achieved and +5 in October announced.
Integrated margins were recently at record levels = 28 cents

per pound in August versus year to date average of 28.75 cpp. Rest of year average margin is 25.5 cpp and 2013 average of 25.3 cpp. Margins forecast to move higher and peak in 2015/2016 prior to start up of new capacity.
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Implications for Buyers: Polyethylene

Nearly 6.7 MMT of cost advantaged new production capacity is

anticipated to be added within the region during the next five years* Nearly 5.4 MMT of the referenced capacity is expected in the US An additional 6.5 MMT tons of new production capacity is expected to come on line in the 2017 2022 timeframe
While most of the new production capacity will be targeted into the export

market, the domestic price premium that has existed within the region is expected to erode as competition for the domestic demand increases
The first new major complex to start up in the region (Braskem / Idesa) will

impact trade flows from the US to Mexico when production begins

US producers are likely to look further south in an effort to move any

displaced sales volume

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Propylene & Polypropylene

Propylene Supply Profile

Motor Gasoline Crude Crude Oil Unit Gas Oil Motor Gasoline Isobutane FCC Unit Alkylation Unit Other Fuel Uses High Octane Alkylate Gasoline

Refining Industry Chemical Industry

RG Propylene Market Cumene, Oligomers Isopropanol

Purification Splitter Unit

Propane to LPG

Polypropylene Unit

Naphtha Ethane Propane

Steam Cracker or Olefin Plant

Ethylene & Olefins

Injection Molding, Fibers, Films

PDH Metathesis MTO and MTP HSFCC Olefin Cracking Others

Other propylene consumers: acrylonitrile, propylene oxide, acrylic acid, oxo-alcohols PG & CG Propylene Markets

Other Technologies

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Ethane Cracking Chemistry Reduces Co-Product Volumes

Million Tons, Production Yield for World Scale 1 Million Ton Cracker 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Ethane Naphtha
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Other Benzene Butadiene Propylene Ethylene

Cracker Feedstocks Also Influence Pygas \ Benzene Yields

Benzene Produced Per Ton of Ethylene

0.30 0.25 0.20 Heavier Feeds 0.15 0.10 0.05 0.00 Ethane Propane Butane Light Naphtha Heavy Naphtha Gasoil

Cracker Feedstocks
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Global On-Purpose Propylene Production Increases

Million Metric Tons 25 20 15 10 5 0 01 02 03 04 05 Propane Dehydro Methanol-to-Olefins % Total Production 06 07 08 09 Metathesis HS FCC 10 11 12 13 14 15 16 Olefin Cracking Others
25

Percent, % 25 20 15 10 5 0

Global Monthly Propylene Prices

Dollars Per Metric Ton
2,200

Forecast
2,000 1,800 1,600 1,400 1,200 1,000 10 A J O 11 A J O 12 A J O 13 A J O

NAM Net Trans. Contract Price

WEP Disc. Contract Price

SEA CFR Spot Price

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Key Issues: Polypropylene

Expensive nature of polypropylene still affecting industry Relative prices versus other materials, but particularly to polyethylene, is high Demand will still grow Concerns with elevated prices do not translate into severe reductions in demand growth Improving economic conditions in developing regions that lift consumers from lower income categories, creates positive environment for demand growth Certain applications will benefit more than others (durable vs non-durable) Price differentials across regions to remain in place Asian prices remain depressed due to global oversupply North American prices remain volatile and elevated due to tight propylene supply Europe continues to track North American price trends Lower Asian prices have affected demand growth in regions that have trade protection for polymers but not for finished goods Global oversupply and increasing self sufficiency in China altering trade flows Investment in PP may resurface in North America, due to lower cost propane

de-hydro technology
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Domestic PP Demand by Region

NEA EUR NAM AFR/MDE SEA ISC SAM 0.0
%: 11-16 Average Annual Growth Rate
28

5.3% 2.8% 1.0% 6.5% 6.0% 9.0% 5.4%

2011 2016

2011-2016 Average Annual Growth Rate, Total Demand: 5.1%

5.0

10.0

15.0

20.0

25.0

30.0

Demand by Region, Million Metric Tons

In Recent Years, PP Cost Position Has Changed

Price Ratio
1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

PP/HDPE North America

PP/HDPE West Europe

PP/HDPE China
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Global Polypropylene Capacity Additions

Capacity, Million Metric Tons 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 2006 2007 2008 NAM 2009 SAM 2010 EUR 2011 AFR/MDE 2012 ISC 2013 NEA 2014 SEA
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Global Demand AAGR 11-16 = 5.1 %

2015

2016

Polypropylene Net Trade Flows

3622 121

444 53

2346

-1302 -1803 -893 -38 575

-154 2011 Net Trade 2016 Net Trade

(Thousand Metric Tons)

-524 -663 -702

-690

-392
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Asia PP Prices: Lowest Price Region

Price, Cents Per Pound Price, Dollars Per Metric Ton

110 100 90 80 70 60 50 40 30 08- 09- 10- 11- 12- 13-

2,425 2,205 1,984 1,764 1,543 1,323 1,102 882 661 North America Discounted North America Spot Export West Europe Discounted China Spot
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North America Price Volatility: Propylene Supply Affecting PP Price

Million Pounds 400 300 200 100 0 -100 -200 -300 10- 10- 10- 11- 11- 11- 12- 12- Monthly Growth PP Homopolymer Discounted Price
33

Cents Per Pound 110 105 100 95 90 85 80 75 70 65 60

Implications for Buyers: Polypropylene

Absolute level of PP domestic demand appears to be key in pushing

propylene prices higher and thus impacting volatility

Demand apparently grew in first half of 2012, but most of the growth was

related to inventory replenishment

Margins not improving; propylene plus formula pricing and refinery

integrated cost advantage affecting margin evolution

No relief in propylene supply on the short term; rash of additional

propylene supply in second half of the decade will help and may even result in additional capacity investments
Arbitrage to be sustained for next few years (resin and finished goods)
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Thank you!