Highlights of a strong growth market –

Polyester fibers & PET

Ashish Pujari
Executive Director, Aromatics & Fiber
Polyester Fibers & PET

22 March 2018
Hilton Americas | Houston, TX, US

Confidential. © 2017
2018 IHS MarkitTM. All Rights Reserved.

Polyester has today become an inseparable part of our daily lives, across all regions and 
social strata. China has dominated the growth in this industry in the past 20 years and 
alone accounts for more than 70% of the global market share. The textile industry is 
labor intensive and low wages and high productivity attracted invested in China. On the 
other have, bottle grade PET production costs are more or less same across the world, 
but the fast demand growth and easy availability of raw materials has helped drive most 
of the new investments into Asia.

Although bulk of the industry in now in Asia, its integration with other streams like 
olefins and refining means that any changes in polyester outlook continues to have 
global ramifications. The global integration is not only on the upstream side, but even in 
the downstream, PET recycling has now become a globally integrated industry, with 
China accounting processing almost 75% of global PET waste.

The industry saw sub‐par demand growth between 2012 and 2016 leading to the poor 
margins for a considerable period of time. However, with crude oil prices bottoming out 
through 2015 and continuing to move up over the last 2 years, the industry is witnessing 
a strong rebound in demand as well as margins. China’s new policy on imports of PET 
waste has put extra pressure in virgin polyester fibers, but is also expected to put 
pressure on global recyclers now. 

Polyester industry is set for a strong 2018 – both for demand and margins, but there are 
developing mid term concerns which one needs to watch out!

1
 Polyester has seen anaemic growth rates in past 5 years
Global Polyester Melt Capacity & Demand Growth
100 Questions raised as confidence shaken
8% 9% 7% 2% 2%
80 • Short-term phenomenon or new trend line?
Million Metric Tons

60 • Reasons for slowdown

40 5%
5% 4% 3% 4% • Did market overestimate polyester potential?
20
• Has demand moved back to cotton?
0
12 13 14 15 16
N. America S. America W. Europe C. Europe
CIS & Baltics Africa Middle East Indian Subc.
NE Asia SE Asia Capacity
Source: IHS Markit © 2018 IHS Markit

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2
Polyester businesses passed through an extended downturn
Percentage,
POY – Return on Investment • Investments plans made at start of decade -
15
when margins & demand were strong

10
• Rise of PTA MegaTON in 2012 weighed down
Percentage, %

5
margins, not only for PTA but also polyester
0

-5

-10

-15
10 11 12 13 14 15 16

Return on Investment
Source: IHS Markit © 2018 IHS Markit

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3
Signs of recovery were already evident in early 2017

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4
What we’ll cover today

Polyester fiber

PET

Recycling

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5
 PET recycling
Chinese National Sword policy has a global impact

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6
PET growth attractive; but handling waste is growing concern
Globally - waste collection has grown faster than virgin PET demand
30 60

PET Bottle Collection , %

25 50
Million Metric Tons

20 40

15 30

10 20

5 40% 46% 50% 10

0 0
12 17 22
Bottle Collection PET Consumption
Source: IHS Markit © 2018 IHS Markit

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7
Fiber takes lion’s share in recycling
Recycling demand segments • Brand leaders continue to set big
recycling goals
Staple
Textile Filament • Some legislation also promotes “Bottle
BCF
to Bottle” recycling
Spunbond
• Costs currently prohibiting big growth in
Industrial Filament
this field
Film
PET Resin • Recycling back into fibers tends to be
Other Recycle Demand most cost effective way to recycle post-
2017 global demand:
consumer waste of polyester
7.2 million metric tons
Source: IHS Markit © 2018 IHS Markit

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8
Polyester recycling – caught between economics & regulation
PET recylate processed in China China’s own recycling standards faltering!
6 80%

Recyclate Collection
Million Metric Tons
Imports 4 70%
Domestic 43%
57%
2 60%

0 50%
2017 estimated processed volume: 12 13 14 15 16 17
5.1 million metric tons Domestic PET Consumption Recylate Collection
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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9
Economic incentive  primary driver for consuming fibers from recycle
Discounts over virgin PSF dropped to lowest levels after China’s ban on imports of PET waste as supply has tightened

China - Polyester chip price: Virgin vs recycle

Polyester Chip Price: Virgin vs Recycle

2,500 500

Dollars Per Metric Ton

Dollars per Metric Ton

2,000 400

Differentials,
Price,

1,500 300

1,000 200

500 100

0 0
2012 Q1 2013 Q3 2015 Q1 2016 Q3 2018 Q1

Crude Oil Virgin Recycle Differential

Source: IHS Markit © 2018 IHS Markit

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10
Recycled polyester has become an important source for staple fiber
China’s ban on import of polyester waste expected to benefit virgin fiber industry in 2018

Global PSF Production: Virgin vs recycled

20 40
Million Metric Tons

16 36

PSF Recycling, %
12 32

8 28

4 24

0 20
12 13 14 15 16 17 18 19 20 21 22

PSF Total PSF from Recycle

Source: IHS Markit © 2018 IHS Markit

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11
Policy measures delay growth of recycling, but economics favors more recycling
Global Fiber supply growth: Virgin vs. recycled
15%
10%
5%

Growth Rate
0%
-5%
-10%
-15%
-20%
12 14 16 18 20 22 24 26
Virgin fibers Recycled fibers
Source: IHS Markit © 2018 IHS Markit

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12
 PET
Most producers see better days, as few majors falter

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13
PET is globally well spread out, with most regions having the flexibility to meet own
demand regionally
PET
PET demand PET
PETCapacity
capacity PET
PETCapacity
production
21.5 Million Metric Tons 27.4 Million Metric Tons 21.6 Million Metric Tons

Europe MDE/AFR Europe MDE/AFR Europe MDE/AFR

N. America S. America N. America S. America N. America S. America
CIS & Baltics China CIS & Baltics China CIS & Baltics China
Non-China Asia Southeast Asia Non-China Asia Southeast Asia Non-China Asia Southeast Asia
Indian Subc. Indian Subc. Indian Subc.
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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14
…yet PET remains a widely traded product
Regional PET net trade • Asia continues to be in surplus, led by
4 continued capacity growth in China
Forecast
3
• Latest technology and integration with
Million Metric Tons

2
upstream helped Asian producers remain cost
1
competitive in global surplus market
0
-1 • Tariff and non-tariff trade barriers most
-2 actively used against PET trade in past few
-3 years
-4
12 13 14 15 16 17 18 19 20 21 22 • Barriers will alter trade flows – but not reduce
N. America S. America W. Europe
C. Europe CIS & Baltics Africa
it in long term
Middle East Indian Subc. China
NE Asia (Ex. China) SE Asia
Source: IHS Markit © 2018 IHS Markit

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15
North America & Europe supply faced disruptions in 2H 2017
Temporary stoppages as 2 largest producers face bankruptcies; operations remain below capacity until today

North America: PET bottle resin producers West Europe: PET bottle resin producers

Lotte
JBF RAK Chemicals UK
LLC 14%
DAK 15%
Americas
35% Mossi & Equipolymers
Ghisolfi 13%
28%
Nan Ya Indorama
Ventures Novapet
8% Indorama 9%
23%
Ventures Others
29% 19% M & G Polimeri
7%
Capacity = 4.8 Million Metric Tons Capacity = 2.6 Million Metric Tons
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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16
Asian exporters have benefitted from global supply disruptions
Trade barriers altering trade flows, overall trade volumes still increasing

PET: Exports from China PET: Exports from South Korea

250 50
Thousand Metric Tons

Thousand Metric Tons

200 40

150 30

100 20

50 10

0 0
Feb-17

May-17

Feb-17

May-17
Jan-17

Mar-17
Apr-17

Jun-17
Jul-17

Oct-17

Jan-17

Mar-17
Apr-17

Jun-17
Jul-17

Oct-17
Aug-17
Sep-17

Nov-17
Dec-17
Jan-18

Aug-17
Sep-17

Nov-17
Dec-17
Jan-18
NAM SAM USA NEA SEA JAP NAM SAM USA NEA SEA JAP
ISC WEP CEP AFR CIS MDE ISC WEP CEP AFR CIS MDE
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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17
Global supply disruptions have pushed up spreads since late 2017
PET Spreads • European and US spot margins spiked in 2H
400
2017 as significant capacity outages led to
shortages during the peak demand period
Dollars per Metric Ton

300
• Europe & US markets primarily trade against
annual contracts, agreed pricing formulas for
200
2018 indicate a healthy increase in spreads
100 • Asian export spreads are usually at cash
break-even levels, but these have also
0 increased through 2017
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17

Mar-18
Sep-17
Nov-17
Jan-18

• Domestic spreads tend to be higher, due to

Asia Europe US tariffs and non-tariff barriers
Source: IHS Markit © 2018 IHS Markit

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18
PET: All developing markets continue to show strong demand growth
PET: Per capita consumption vs demand growth
11
Per Capita Consumption, 2017 (kg)

-1
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Demand CAGR (2017 – 2022)
NAM SAM WEP CEP CIS AFR ISC NEA SEA MDE
Source: IHS Markit © 2018 IHS Markit

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19
PET capacity addition accelerates in China
Global PET capacity growth • In past couple years, demand has increased
3 100%
faster than capacity
Million Metric Tons

2 90%
• In 2018, expected capacity addition to far

Operating Rate
1 80% outweigh projected demand growth!

0 70%

-1 60%
11 12 13 14 15 16 17 18
Demand Growth Americas
However, with only China adding capacity,
Europe CIS & Baltic States will it be able to meet growing demand in
Africa & Middle East Asia Excl. China
China Operating Rate
other regions?
Effective Operating Rate
Source: IHS Markit © 2018 IHS Markit

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20
US PET trade story – from deficit to surplus
PET: US exports & imports
1.0
Exports
Million Metric Tons

0.5

0.0

-0.5

Imports
-1.0
12 13 14 15 16 17 18 19 20 21 22
NAM SAM NEA WEP ISC SEA MDE AFR Net Trade

Source: IHS Markit © 2018 IHS Markit

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21
 Polyester fibers
Broad-based economic growth leads to revival in
fibers demand

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Credit: Shutterstock

22
Economic growth drives fiber demand – polyester takes largest share of growth
Total fiber demand is estimated to have increased by 6% in 2017, fastest since 2010

Total
Fiber:Natural
Worldand Man-Made
demand Fibers GDP
vs global
130

2019 2022
Fibers, Million Metric Tons

2017
100

2015
2013
2011
70

2000
40
46,000 51,000 56,000 61,000 66,000 71,000 76,000 81,000 86,000 91,000 96,000
Source: IHS Markit
GDP (Billion 2010 $) © 2018 IHS Markit

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23
Global Fibers mix – dominated by polyester & cotton
World fiber demand in 2017

Acrylic Other Synthetic Fibers Polyester

2% 1%
Wool, Silk & Linen Cotton
Nylon
2%
Cellulosic 4% Olefin
6% Cellulosic
Nylon
Olefin
10% Polyester Acrylic
49% Other Synthetic Fibers
Cotton Wool, Silk & Linen
26%
2017 total fiber demand:
101.7 Million Metric Tons
Source: IHS Markit © 2018 IHS Markit

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24
Fibers provide one of the basic necessities
Fiber: World demand 2017 (by application)

Non-
woven
12% Apparel

Industrial Home Furnishings

12%
Apparel
Industrial
Home Furnishings 51%
25% Non-woven

2017 total fiber demand:

101.7 Million Metric Tons
Source: IHS Markit © 2018 IHS Markit

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25
Polyester fibers demand…heavily skewed towards China
World: Total Polyester Fiber Demand (2017) • In 2017, China alone accounts for
2017 demand: 49.8 Million Metric Tons • 66% of global demand
• 71% of global production
• up from a 25% share in the year 2000
• In total, Asia accounts for 86% of global
demand.
• Lower labor costs initially attracted
investments in the textile sector in Asia.
Europe MDE/AFR • Fast developing economies, rapid urbanization
N. America S. America and strong growth in disposable income is now
CIS & Baltics China
Non-China Asia Southeast Asia sustaining the growth in regional textile
Source: IHS Markit © 2018 IHS Markit industry.

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26
Investments run counter cyclical to margins
Polyester filament supply-demand and margins • Excessive capacity growth between 2011 and
2016 put severe pressure on polyester
5 60
margins

Dollars per Metric Ton

4 40
Million Metric Tons

• Demand accelerated in 2017 as capacity

3 20 growth stagnated, resulting in a quick increase
in product margins
2 0
• 2018 outlook is anticipated to be similarly
1 -20 positive, but continued profitability is expected
to result in excess capacity buildup again!
0 -40
11 12 13 14 15 16 17 18
Capacity Growth Demand Growth EBITDA
Source: IHS Markit © 2018 IHS Markit

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X:\GFFR\Charts and Presentations\Polyester Chain\HANDOUTS\Excel & 
Charts\WorldBook‐SDcharts\Current\PTF_SDgrph18T.xlsb
WS: WLD (CC92 to CQ108)

27
Polyester growth bounces back in 2017
Aided by healthy economic conditions, growth expected to be strong in 2018, but eventually slow down to trend line

World: Total polyester fiber demand growth (2012-2022)

80
5% 5% 2% 4% 4% 8% 6%
Million Metric Tons

60

40

20

0
12 13 14 15 16 17 18 19 20 21 22
N. America S. America W. Europe C. Europe CIS & Baltics
Africa Middle East Indian Subc. NE Asia SE Asia
Source: IHS Markit © 2018 IHS Markit

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28
Polyester expected to show strongest growth, others grow moderately
Fiber: 2017-2022 demand growth
7%
Demand CAGR (2017-2022)

6%
Olefin Polyester
5%

4%
Nylon
GDP 2017-2022
3%
Cellulosic
2%
Cotton
1% Wool, Silk & Linen
0% Acrylic
0 10 20 30 40 50 60
2017 Demand (Million metric tons)
Source: IHS Markit © 2018 IHS Markit

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29
Textile industry on the move to lower costs
Labor cost change (2012, 2017 and 2022) • Labour, not raw material, accounts for largest
6
costs in a finished garment
Aggregate Wages (USD/hr)

5 • China’s labour costs are no longer at lowest

levels and continue to increase rapidly
4
• Downstream industry already started to move
3
to low cost areas
2
• Will not be surprised to see new polyester
1 investments in under-developed regions
0
Bangladesh Indonesia Vietnam China
2012 2017 2022
Source: IHS Markit © 2018 IHS Markit

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30
 Key takeaways

PET Recycling Polyester fibers

Markets expected Sudden policy Demand growth
to remain tight changes affect expected to be
through 2018 short-term growth strong in 2018

Increasing brand Newer recycling Fastest growing

owner focus on avenues expected fiber for many
recycling in longer term years to come

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31
Contact details

Ashish Pujari
Executive Director \ Aromatics & Fibers
+65 6439 6100
Ashish.Pujari@ihsmarkit.com
Singapore

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33
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