Acrylonitrile - Agenda

Transcription

1 January

2 Acrylonitrile - Agenda Intro to CCC What is AN/How is AN manufactured Who makes AN Where is AN used Global Supply/Demand Cost to build / Barriers to build (reinvestment grid) Regional Conversion Cost history and impact of regional investment Lack of US Reinvestment/the why? Conclusions: US Future no change The massive dislocation of regional manufacturing costs from has eliminated opportunistic investment in acrylonitrile and major derivatives with the next major downstream investments only to come AFTER a demonstrated advantage in US feedstock cost position 2

3 Company Overview Cornerstone Chemical Company is a market-leading North American producer of critical intermediate and specialty chemicals Headquarters: Employees: 475 Market Position: Acrylonitrile Melamine Sulfuric Acid Capacity: Acrylonitrile Melamine Sulfuric Acid Waggaman, Louisiana 1 of 3 producers in North America Sole producer in North America Leading merchant producer in the Gulf of Mexico region 525 million lbs (240 kmt) 170 million lbs (75 kmt) 1.7 billion lbs (850 kmt) 200-acre facility on an 820-acre site located on the Mississippi River approximately 20 miles from New Orleans, LA Highly integrated operation with synergistic production processes and two on-site customers / producers of downstream products $1.5B+ Replacement Value

4 What is AN / How is it made Acrylonitrile is a colorless liquid organic compound formed from the catalytic ammoxidation of propylene utilizing technology invented by Sohio in Chemical Reaction Block Flow 2CH 3 -CH=CH 2 + 2NH 3 +3O 2 2CH 2 =CH-C N + 6H 2 O Chemical Symbol Propylene 1.1 lbs Ammonia 0.5 lbs Air C a t a l y t i c R e a c t i o n Acrylonitrile HCN 10% 78% CO/CO 2 10% 2% ACE Steam H 2 O 4

5 ,090 1,355 Who makes AN? Global Capacity is led by the 5 top producers which together account for nearly 70% of capacity Global leaders Ineos and Asahi alone represent more than 25% of the market Despite the small number of large producers, global price levels are presently dictated by the spot market, often through sales by small marginal producers 2013 GLOBAL CAPACITY KILOTONS 2013 CAPACITY GEOGRAPHY United States 24% South America 2% Western Europe 14% Eastern Europe 5% China 20% Japan 11% Other AP 24% Asia Capacity 55% Global Capacity is concentrated in the Asia region at almost 60% US is a large production source, primarily due to the legacy of cost advantaged propylene and strong derivative demand Data from PCI Acrylonitrile 5

6 Global Trade Flows (2013) EU: +179KT ME: -260KT CHN: -554KT Japan: +91KT US: +551KT Other Asia: +14KT LA: -21KT Data from PCI Acrylonitrile 6

7 Summary of End Markets (2013) Raw Materials Products and Intermediates Applications Styrene Butadiene ABS 34% Automotive, electronics, appliances, construction Competing products: Polycarbonate, PVC, PP Air AF 32% Garments, carpets, fabric Competing product: Polyester Propylene Acrylonitrile AMD 13% Water treatment, EOR, fracking Competing product: Specialty Water Treatment Ammonia Adipo 8% Nylon 6,6 (carpet, automotive) Competing product: Polyester or PP (also Invista route via BD vs. AN) NBR Automotive Rubber Competing product: Natural Rubbers 7% Carbon Fiber 2% Aerospace, automotive, wind Competing product: Aluminum/Steel Other Automotive, mining, etc. 4% Data from PCI Acrylonitrile 7

8 Regional Breakdown of Majors ACRYLONITRILE-BUTADIENE-STYRENE (ABS) 1.9MMT OR 34% OF GLOBAL DEMAND ACRYLAMIDE (AMD) 0.7MMT OR 13% OF GLOBAL DEMAND 10% 51% 29% 22% 46% 9% 11% 22% Asia Ex Chn China Americas Europe/Africa Asia Ex Chn China Americas Europe/Africa ABS and AF Represent 66% of Demand with 70% of the consumption in Asia (45% of Global Demand) ACRYLIC FIBER (AF) 1.8MMT OR 32% OF GLOBAL DEMAND 23% 35% 36% 6% Asia Ex Chn China Americas Europe/Africa 2013 PROJECTED GLOBAL ACRYLONITRILE END USE 34% 32% 13% 7% 2% 4% 5.5MMT 8% Acrylic Fiber ABS/SAN Acrylamide Adiponitrile NB Copolymer Carbon Fiber Other Data from PCI Acrylonitrile 8

9 Growth and Capacity Utilization of Majors AF: A 25% reduction in capacity due to high cost position relative to competitive products, no growth anticipated, now only specialty product ABS: Growth slowing with the Chinese economic conditions, butadiene cost and availability, product content/size AMD: High global growth due to technology improvements/fracking Acrylic Fiber Capacity Utilization 85% 84% 86% 89% 91% 89% 90% 86% 88% 86% 87% 83% 86% 87% 88% 89% 89% 90% 90% 91% 73% Forecast Period -1% 3% -3% -3% -1% -5% -1% 2% 0% 1% 0% 0% 0% 0% 0% 0% 0% -7% -5% -12% Global AF Capacity (MT) Global AF Demand (MT) Utilization (%) Growth Rate 100% 80% 60% 40% 20% 0% -20% % ABS Capacity Utilization 80% 83% 84% 87% 86% 88% 90% 75% 80% 88% Forecast 77% 75% 72% 71% 74% 75% 78% 81% 83% 84% 100% 90% 80% 70% 60% 50% 40% 30% 20% AMD Capacity Utilization Forecast 79% 79% 80% 83% 85% 89% 89% 88% 89% 89% 90% 89% 89% 83% 76% 76% 77% 70% 70% 70% 66% 25% 100% 90% 80% 70% 60% 50% 40% 30% % 5% 8% 2% 5% 2% 4% 5% -1% 3% 7% 5% 8% 6% 2% 3% 0% 0% 1% 2% 10% 0% % 6% 3% 5% 6% 5% 2% 4% 4% 9% 10% 12% 6% 7% 15% 9% 8% 7% 9% 6% 20% 10% % % Global ABS Capacity (MT) Global ABS Demand (MT) Utilization (%) Growth Rate Global AMD Capacity (MT) Global AMD Demand (MT) Capacity Utilization (%) Growth Rate (%) Data from PCI Acrylonitrile 9

10 Thousand Metric Tons Growth Rate Major Elements of Demand AN Growth Rate % 87% 88% 86% 86% 85% 85% 84% 82% 84% 81% 80% 80% 79% 79% 78% 78% 77% 77% 77% 77% 100% 80% % % % 6% -2% 2% 2% 3% 5% 4% 4% 3% 4% 3% 20% 500-4% 5% 3% 3% -1% 0% 0% -15% 0% AF ABS AMD Growth Demand Share -20% AF: No growth, however product performance limits downside from current levels ABS: Growth tied to global economic growth rates, primarily electronics, appliances, and automotive demand growth rates AMD: High growth potential due to rapid growth of fracking applications Share of demand by Big 3 remains ~80% over forecast period Data from PCI Acrylonitrile 10

11 US Customer Differentiation 2013 PROJECTED GLOBAL ACRYLONITRILE END USE 34% 32% 13% 7% 2% 4% 5.5MMT 8% Acrylic Fiber ABS/SAN Acrylamide Adiponitrile NB Copolymer Carbon Fiber Other 2013 PROJECTED NORTH AMERICA ACRYLONITRILE END USE 0.8MMT 0% 5% 19% 4% 4% 20% 48% Acrylic Fiber ABS/SAN Acrylamide Adiponitrile NB Copolymer Carbon Fiber Other US growth is Adiponitrile (global demand for nylon 6,6) and AMD (fracking) however fracking is only 20% of the base with tremendous overhang of overall capacity Driver for US investment in capacity by 2018 relies on predictable and sustainable raw material advantage Data from PCI Acrylonitrile 11

12 Thousand Metric Tons US Supply and Demand Domestic Demand 56% 50% 49% 50% 48% 47% 41% 39% 38% Exports Forecast Period 33% 34% 34% 29% 28% Acrylic Fiber ABS/SAN Adiponitrile Acrylamide NB Copolymer Carbon Fiber P Other Production Export 60% 50% 40% 30% 20% 10% 0% US market is totally disconnected from global market US exports ~40% of capacity US demand by AF is 0. Demand for ABS is <10% of capacity versus global share of 70% First Speculative Capacity in 2018, however FEED for that facility would need to begin by 2015 Data from PCI Acrylonitrile 12

13 Given the US Cost advantage to come, who will build? and what barriers exist to prevent future build out. 13

14 Investment Decision Criteria What are the barriers to construct capacity? How does the regional conversion cost differential impact decisions? Does China have plans? 14

15 Barriers to Construction Technology Capital Raw Materials HCN Outlet Energy Outbound Logistics Waste Treatment Limited Availability (Ineos, Asahi, Ascend, Sinopec, maybe Dupont) $1500 per ton, M$450 for World Class Propylene and Ammonia Globally challenging to transport (source proximity) Must have an economic offtake Alternative to fuel or flare is a non-starter Units are Exothermic Long steam in reactors and pollution control AN transport heavily regulated In China, for example, no river transport on Yangtze Large quantities of hazardous effluent Permits Regulatory environment for AN and co-products AN investment decisions are complicated, Existing or new facilities must meet ALL criteria for success 15

16 Raw Material Cost Air Propylene Ammonia Acrylonitrile The massive dislocation of regional manufacturing costs from has eliminated opportunistic investment in acrylonitrile and major derivatives with the next major downstream investments only to come AFTER a demonstrated advantage in US feedstock cost position Geographies of AN demand will drive incremental production into the lowest cost regions, with the largest component of cost = Propylene 16

17 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 cents/lb PGP basis Regional Raw Material Cost $1.05 $0.95 $0.85 Hurricane Impact (US) Propylene Global Qtly to Monthly (EU) $0.75 $0.65 $0.55 $0.45 US EU AP $0.35 $0.25 $0.15 Ethane Preference (US) Naptha crack > demand (AP) Step change in Asian economic advantage in early 2007 due to investment in crackers outpacing derivative units. Since recovery in 09, US shift to ethane clearly shows with relative price point and volatility 17

18 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Regional Raw Material Cost $0.30 US Advantaged Propylene Differences and Export Spread $0.20 $0.10 $0.00 -$0.10 -$0.20 US Disadvantaged -$0.30 US/EU Diff US/AP Diff Spread High Utilization Period US spread over inputs disappears in 2007 as Asia lengthens feedstock propylene availability Profitability in 2010 and 2011 is demand driven despite feedstock disadvantage 18

19 The China to Come China Capacity (KMT) 132% 128% 129% % % 79% 79% 78% 83% 83% 86% % PetroChina Daqing PetroChina Lanzhou PetroChina Fushun PetroChina Jilin Sinopec Jinshan Sinopec Qilu Sinopec Anqing Sinopec Secco Sinopec Wanda Sinopec Shenghong Shangdong Haili Ineos Tianjin China Capacity/Demand 120% 100% 80% 60% 40% 20% 0% China Imports (KMT) A (Jul) 550 Other Thailand Japan US Taiwan Korea Existing Capacity Expansion Capacity Timing Approval Technology Propylene HCN Anquing Y Sinopec Purchased MMA Wanda Y Sinopec Purchased MMA SECCO Q2015 Y Sinopec PDH/Steam Cracker MMA Shenghong Q2015 Y DuPont MTO? Hali Chemical ???? Ineos Bohai Q2016 N Ineos PDH MMA Probable Capacity 1170 KMT Wanda II N Sinopec CPDC N Relocate Taiwan Plant to China Qinghua After 2017 N Dazhou After 2017 N Jiangsu After 2017 N Yangkou After 2017 N Tieshan After 2017 N Pingluo After 2017 N Kuytan After 2017 N Possible Capacity 1590 KMT 2012 Global Capacity 6359 KMT 43% Increase in Global Capacity if all built Expected Rationalization - Japan Inc. : Current Cracker Rationalization Process will also result in AN casualties. Asahi cracker announced to shut down, limiting propylene (current AN capacity of 790KT expected to fall by 260KT) - Europe: Exposed naptha feedstock cost and geographical challenges, ~300KT at risk - Taiwan/Korea: Heavy export reliance, ~800KMT of capacity under heavy threat of China to come - China Capacity: Exports not expected, industry believes 75% cap utilization a likely outcome 19

20 US Investment Likelihood? Limited at best. #1 REASON: HISTORICAL BEHAVIOR OF US PROPYLENE PRODUCERS = Risk #2 Global Supply: US is structurally long and is not in need of additional AN capacity #3 Global Demand: AF cannot compete with Polyester so largest use has no growth #4 Reinvestment is complicated and expensive: to be successful one must also have a use for HCN and energy balance. Waste handling is a consideration #5 Strategic entities have sold AN units due to poor historical performance, current US producers will only invest given certain and predictable returns The Focus of AN production remains in Asia, NOT the US 20

21 Conclusions Globally The two largest end uses for AN are ABS Plastic and Acrylic Fiber, with the former dependent on a Chinese recovery and the latter permanently reset as a specialty niche player with poor growth potential China engaging in a wave of investment over the next 5 years which will necessitate another global restructuring in AN production North America AN manufacturing has migrated toward private ownership over the last 10 years due to poor return on investment. US propylene producers have been content to let the market determine the survivors rather than support local production in the International marketplace due to the extremely tight market during the period in which ethane crackers went light The recent history on propylene pricing in the US (since 2003) shows a market marked by volatility and one that frequently disconnects (and at times significantly disconnects) from the International comparative indexes as a result Producers will manufacture for local demand with the US focusing on the growing AMD segment No major capacity will be constructed in the USA unless a major structural advantage appears in the USA 21