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The power to provide Future sources of PP supply in Europe

The power to provide Future sources of PP supply in Europe. Eric Hogenboom SABIC EuroPetrochemicals Business Unit Director PP. Intermediates. Polymers. Fertilizers. Metals. Basic Chemicals. SABIC: Saudi Arabian Basic Industries Corporation.

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The power to provide Future sources of PP supply in Europe

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  1. The power to provide Future sources of PP supply in Europe Eric Hogenboom SABIC EuroPetrochemicals Business Unit Director PP

  2. Intermediates Polymers Fertilizers Metals Basic Chemicals SABIC: Saudi Arabian Basic Industries Corporation • Started from scratch in 1976, produced first tons in 1983 • 40 Million tons in 2002 • Broad chemical and polymers product portfolio • Turn-over of € 11,4 bln in 2002 • Is 70% owned by Saudi government and 30% by private sector • 16.000 Employees in 22 countries

  3. SABIC is a major global PP supplier • SABIC EuroPetrochemicals B.V. (SABIC EPC) • ownership: SABIC • capacity 1090 kt

  4. SABIC is a major global PP supplier • SABIC EuroPetrochemicals B.V. (SABIC EPC) • ownership: SABIC • capacity 1090 kt • Saudi European Petrochemical Company (Ibn Zahr) • ownership: SABIC, FORTUM, APICORP • capacity: 640 kt

  5. SABIC is a major global PP supplier • SABIC EuroPetrochemicals B.V. (SABIC EPC) • ownership: SABIC • capacity 1090 kt • Saudi European Petrochemical Company (Ibn Zahr) • ownership: SABIC, FORTUM, APICORP • capacity: 640 kt • Saudi Yanbu Petrochemical Company (Yanpet) • ownership; SABIC, EXXONMOBIL • capacity: 260 kt

  6. Global demand-supply balance for polypropylene • Asia is a large importer • Europe is main exporter 2002 Net import position (CTP < demand) Net export position (CTP > demand)

  7. Europe will show a continued healthy growth % 12 10 8 6 4 2 AAGR ‘02-’08 = 4 % AAGR ‘95-’02 = 7 % 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Realisation Forecast Source: PMRG

  8. WE capacity expansions have outpaced demand growth 1000 800 600 400 200 0 1996 1997 1998 1999 2000 2001 2002 Consumption growth Capacity growth

  9. Profit margins depend heavily on industry production rate Profit margin versus West European Production Rate Sustainable profit level Profit margin 94 82 83 84 85 86 87 88 89 90 91 92 93 Production Rate (%)

  10. Profit margins depend heavily on industry production rate Profit margin versus West European Production Rate Sustainable profit level Profit margin ’00 – ‘03 ’97 – ‘99 94 82 83 84 85 86 87 88 89 90 91 92 93 Production Rate (%)

  11. Cost decrease versus margin decrease • Surplus decrease: 4,5% per year (’96 – ’03) • Cost decrease: 2,5% per year (’96 – ’03) PP industry costindex development Surplus on C3 110 110 100 100 90 90 Cost index Surplus on C3 (Euro/mt) 80 80 70 70 60 60 1996 1998 2000 2002 1996 1998 2000 2002

  12. European PP Industry health • Capacity additions and rationalisations have brought considerable cost savings into PP industry • Margin erosion fueled by overcapacity has eaten away more than these cost savings • Profitability level of PP industry is already for many years below sustainable level

  13. ME producers have a cash cost advantage over WE Cash cost delivered WE Typical ranges for gas and naphtha Structural delta in cash cost Low High Low High Gas price ($/mmBTU) Naphtha (EUR/t)

  14. Invest and grow Re-establishment ofsustainable profit levels Drivers for European industry: We enter a new era Period ’96 – ’02 • Scale and cost • Site integration • Technology and Catalyst Development Period ’03 – ’09 Cost & Rationalisation Bottomline cashflow

  15. W-Europe is predicted to evolve into a net import area 2002 2008 Net import position (CTP < demand) Net export position (CTP > demand)

  16. Summary • European PP demand continues to show a healthy growth • PP suppliers will focus on costs and cash flow • Rationalisation of European asset base is unavoidable • ME imports have a sound economical basis and will grow • W-Europe will turn into a net importing area

  17. SABIC in Europe • SABIC in Europe has already re-structered its asset base: • Closed down 50 kt slury line in Gelsenkirchen in 2000 • Closed down 350 kt slurry capacity in Geleen in 2002 • Invested in a world-scale 350 kt gasphase line in 2002 • SABIC in Europe has been established as cost efficient organisation with one single face to the customer • SABIC in Europe has been actively working on a concise multi-purpose product portfolio

  18. Closing remark SABIC PP Fit for future growth by combining the best of two worlds: • Strong European market and asset position • Leading low cost Middle East feedstock position SABIC PP The power to provide

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