ICIS Methodology seminar - presentation by Mahua Chakravarty

1. The Changing Aromatics
Market And ICIS
The Changing Aromatics
Market And ICIS
Mahua Chakravarty
Seoul
27th October, 2008

2. AgendaAgenda
• The rise and fall of crude, naphtha and its
impact
• New capacities and the benzene oversupply
• Toluene and its dependence on China
• Aromatics at ICIS

3. What’s affecting aromatics in
Asia….
What’s affecting aromatics in
Asia….
• Volatility in crude and
upstream markets
• The bleak economic and
financial scenario
• Asia’s dependence on China

4. Crude’s epic rise and fallCrude’s epic rise and fall
+120%
WTI
40
60
80
100
120
140 02/01/2007
02/03/2007
02/05/2007
02/07/2007
02/09/2007
02/11/2007
02/01/2008
02/03/2008
02/05/2008
02/07/2008
02/09/2008
Jan 07-Oct 08
USD/bbl
138%
45%
Source: ICIS pricing

5. Naphtha and its impact on aromaticsNaphtha and its impact on aromatics
Source: ICIS pricing
Naphtha-BZ,TL Spread
400
600
800
1000
1200
1400
05/01/2007
05/03/2007
05/05/2007
05/07/2007
05/09/2007
05/11/2007
05/01/2008
05/03/2008
05/05/2008
05/07/2008
05/09/2008
Jan 07-Oct 08
USD/TONNE
The rapid rise and fall in naphtha plays
havoc on margins
Source: ICIS pricing

6. Annual average increase in
prices
Annual average increase in
prices
0
200
400
600
800
1000
1200
2006 2007 Oct-08
Year
Naphtha Toluene Benzene
+20%
+3.4%
+18%
+17%
+10%
+5%
3Q 2008 losses wipe away gains seen until
July 2008
3Q 2008 losses wipe away gains seen until
July 2008
Source: ICIS pricing

7. Naphtha and Benzene, Toluene
Spread
Naphtha and Benzene, Toluene
Spread
129
(-18%)
159
(-35%)
245190249Spread
216
(-33%)
325
(+15%)
284
(-15%)
335440Spread
1,0781023868822830Benzene
945857829677639Toluene
2008 (Until
10 Oct)
2007200620052004US
$/Tonne
Despite naphtha falling below $500/tonne
levels, margins remain thin
Source: ICIS pricing

8. Impact on benzene & toluene
(1)
Impact on benzene & toluene
(1)
• As the petrochemical chain face
pressure from upstream to
downstream, margins of
producers remain under pressure
• Slowing growth in key economies
like China heavily impact demand
for products

9. Impact on benzene & toluene
(2)
Impact on benzene & toluene
(2)
• From 3Q 2007, BTX producers forced to consider or implement
operation cutback
Japan- Japan Energy, Nippon Oil, Maruzen
South Korea- SK Energy, GS Caltex
Southeast Asia- PCS, IRPC
• The need to use alternative feedstock- from May 08 some crackers
switchover to butane or use light naphtha
• Liquidity drop as caution prevails
• Tug-of-war to maintain prices- producers buy and end-users sell
• The spread between FOB Korea and CFR values narrow as
demand for physical cargoes slacken across Asia

10. Benzene-Toluene spreadBenzene-Toluene spread
Benzene-toluene Spread
600
700
800
900
1000
1100
1200
1300
1400
1500 05/01/2007
05/03/2007
05/05/2007
05/07/2007
05/09/2007
05/11/2007
05/01/2008
05/03/2008
05/05/2008
05/07/2008
05/09/2008
Jan 07-Oct 08
USD/TONNE
Benzene Toluene
TDP/HDA margins face pressure from end
2007
Source: ICIS pricing

11. Toluene to benzene spreadToluene to benzene spread
133
(-20%)
166
(+325%)
39
(-73%)
145191Spread
1,0781023868822830Benzene
945857829677639Toluene
2008
(Until 10
Oct)
2007200620052004USD/ton
ne
Market uncertainty and poor demand
maintain pressure on producers through
2008
Source: ICIS pricing

12. Impact of the benzene-toluene
trend
Impact of the benzene-toluene
trend
• Production margins remain under pressure all through 2008
• TDP/HDA operators who reduced operating rates from Q4
2007-
South Korea- SK Energy, GS Caltex
Japan- Taiyo Oil, Maruzen, Japan Energy
• Excess availability of toluene in northeast Asia for most of the
year

13. Benzene oversupplyBenzene oversupply
• Net surplus in Asia expected to
increase further in 2009
• Additional SM capacities,
expected in 2008 and 2009 but it
cannot fully absorb the excess
benzene

14. New capacities from 2008New capacities from 2008
2002009ChinaShaanxi Yanchang
Thailand
Thailand
Philippines
Indonesia
Korea
Japan
China
China
Country
1902008Kashima
1202009Chandra Asri
363+4502008PTT
22.82008Petron
170
120+200
50
250
BZ (t/yr)
2008Thai PX
2008Lotte Daesan
Zhoushan Hebon
Dalian
Plants
2008
2008
Start-up
An estimated 1.6 million tonnes of production
added in 2008-09

15. New/Expanded SM capacitiesNew/Expanded SM capacities
250China2009Panjin Ethylene
777Saudi ArabiaSep 2008Chevron Philips
500Kuwait2009Equate
150South KoreaApr 2008Lotte
Petrochemical
Iran
South China
East China
Location
600Q1 2009 (delay
expected)
Pars
150Mid 2009
(postponed from
mid 2008)
BP-Secco
200Mar-Apr 2008Lishide
Capacity (kt/yr)Start-up timePlants
2008-09

16. Benzene- importance of arbBenzene- importance of arb
• Benzene-
Benzene net supply in Asia
on the rise
Volatility in oil and the US
threatens price stability and
exports
Due to rapid fluctuation in
prices, arbitrage is affected
in 07-08

17. US-Asia benzene spreadUS-Asia benzene spread
700
800
900
1000
1100
1200
1300
1400
1500
05/01/2007
05/03/2007
05/05/2007
05/07/2007
05/09/2007
05/11/2007
05/01/2008
05/03/2008
05/05/2008
05/07/2008
05/09/2008
Jan 07-Oct 08
USD/TONNE
FOB Korea FOB Barges
Source: ICIS pricing
Volatility in markets make it difficult to predict
arb
Volatility in markets make it difficult to predict
arb

18. US-Asia benzene spreadUS-Asia benzene spread
+53
(-9%)
+58
(-55%)
+129Spread
1,1481023868Asia- FOB Korea
1,2011081997US- FOB Barges
2008 (Until
10 October)
20072006USD/tonne
An estimated $70/tonne spread required for arb
to open
An estimated $70/tonne spread required for arb
to open
Source: ICIS pricing

19. Benzene exports to the USBenzene exports to the US
358,177 (-20%)882,2502008 (until
Sep)
446,157 (-7.7%)1,165,0912007
483,434 (+29%)1,221,4082006
374,5131,179,3272005
TO: USTotal
Exports
(tonnes)
Year
Source: Korea International Trade Association (KITA)
Despite heavy arb flow in 3Q 2008, overall
exports to the US drop
Despite heavy arb flow in 3Q 2008, overall
exports to the US drop
South Korea

20. Benzene exports to the US-
2007
Benzene exports to the US-
2007
26,707December
29,271November
8,851 (-63.3%)October
24,160 (-42.7%)September
42,149August
53,024July
33,315 (-62%)June
87,583May
To: US (tonnes)Month (2007)
Source: Korea International Trade Association (KITA)
Some traders forced to ship despite a closed
arbitrage window
Some traders forced to ship despite a closed
arbitrage window
South Korea

21. Benzene exports to the US- 2008Benzene exports to the US- 2008
17,899July
12,472August
23,612April
50,124May
5,717June
56,340
September
53, 569March
96,538February
To: US (tonnes)Month (2008)
Source: Korea International Trade Association (KITA)
Arb re-opens around Aug 2008 and exports
jump
Arb re-opens around Aug 2008 and exports
jump
South Korea

22. Where will toluene go?Where will toluene go?
• Demand for imports from
China on the decline since
2005-06
• Import demand from the US
has declined in the past few
years
Asia’s largest market for toluene has
progressively decreased demand for imports
Asia’s largest market for toluene has
progressively decreased demand for imports

23. China toluene imports - 06
onwards
China toluene imports - 06
onwards
588,664
444,547
196897
0
100,000
200,000
300,000
400,000
500,000
600,000
Tonnes
2006 2007 2008
Jan 2006-Aug 08
-24.5%
Average 15-20kt/mth
Source: China Customs

24. New toluene capacitiesNew toluene capacities
450July 2008LiaoningDalian
150May 2008ZhejiangZhoushan Hebon
1302007GansuLanzhou
70Oct 2008ShandongQiwangda Haizhong
145.7Oct 2008ShandongQilu
Shandong
Guangdong
Region/Province
160
140
TL (kt/yr)
Qingdao Lidong
Maoming
Plants
2006
2006
Start-up date
An estimated 1.25 million tonnes/year of production
added since 2006

25. Toluene imports to S. KoreaToluene imports to S. Korea
30,159 (-61.2%)173,8832008 (until Sep)
77,753 (-29%)265,1082007
109,400 (-64.2%)328,0352006
305,722530,6452005
From: USTotal imports
(tonnes)
Year
Source: Korea International Trade Association (KITA)
South Korea moves away from being a net
importer from the US
South Korea moves away from being a net
importer from the US

26. Toluene exports to US, ChinaToluene exports to US, China
166,466 (+10%)121,480120,8092008 (Until
Sep)
151,457 (+91%)234,486299,413 (-20.6%)2007
79,255 (+235%)140,924376,966 (-28%)2006
23,65594,773524,1932005
USTaiwanTo: ChinaYear
Source: Korea International Trade Association (KITA)
As China imports less, Korean exports to the US
grows
As China imports less, Korean exports to the US
grows
South Korea

27. Toluene exports to the US vs.
China- 2008
Toluene exports to the US vs.
China- 2008
-8,831July
13,9524,010September
16,6442,009August
23,51915,565June
21,83315,906May
USTo: ChinaMonth
(2008)
Chinese monthly demand for imports fall to about
10,000-15,000 tonnes
Chinese monthly demand for imports fall to about
10,000-15,000 tonnes
Source: Korea International Trade Association (KITA)

28. What lies ahead for AsiaWhat lies ahead for Asia
• Benzene
- Increase exports from S. Korea to
the US but volatility, freight costs, etc
could be a deterrent
- Reducing benzene operating rates
further and/or shutting down plants
• Toluene
- Increase exports from S. Korea and
Japan to the US and other regions
- Finding fresh outlets within Asia like
increased use for the gasoline pool

29. mahua.chakravarty@icis.com
Phone: +65 6780 4355