Global Market Report on PVC - VinylPlus

The Top Five Things
You Must Do To Be
Successful In Vinyls
Henry Warren, Principal Analyst - Vinyls
April 25, 2013
Istanbul, Turkey
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Winner and Losers
“Winning is not a
sometime thing, it is
an all the time thing.
You don’t do things
right once in a
while…you do them
right all the time.”
Vince Lombardi
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Number 1:
Be in the Right Place, Right Time
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Where Is the Demand Growth
U.S.
11%
ROW
20%
NEA (ex CHI)
8%
Region % AAGR 2012-17
ISC 7.7
China 5.0
U.S. 4.8
SEA 4.3
ROW 4.0
West Europe 2.9
W. Europe
12%
SEA
5%
ISC
7%
CHI
38%
Total <strong>Global</strong> Demand 2012 = 37.4 Million Metric Tons
NEA (ex China) 1.0
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

The Playing Field Is Construction
Wire & Cable
8%
Bottles
2%
All Others
13%
Pipe &
Fittings
42%
Rigid Film &
Sheet
17%
Profiles &
Tubes
18%
2012 Total <strong>Global</strong> Demand = 37.4 Million Metric Tons
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

<strong>Global</strong> Construction Spending Is Picking
Up in Most of the World
World
NAM
SAM
WEP
CEP
MDE & AFR
Asia
India
Turkey
2013 vs. 2012
0 5 10
Source: IHS <strong>Global</strong> Insight – <strong>Global</strong> Construction Outlook
Percent
• World construction on
track to surpass precrash
levels.
• Multifamily construction
drives growth in North
America.
• Brazil gets ready for the
World Cup and
Olympics.
• West Europe returns to
slight positive growth in
2013.
• Asia growth led by China
mostly into infrastructure.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

These Are the Attractive Construction
<strong>Market</strong>s for the Near Term
Annual Average Growth, 2011 - 2016
10%
9%
8%
7%
United States
India
Brazil
Indonesia
China
6%
Australia
5%
Mexico
4%
3%
2%
1%
0%
Canada
Japan
United Kingdom
SPHERE SIZE EQUALS MARKET SIZE IN 2012
0 10 20 30 40 50 60 70 80
<strong>Market</strong> Risk
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U.S. Housing Starts Ready for a Field Goal
Housing Starts, Total Privately Owned (Thousands)
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
Source: U.S. Bureau of Census
Forecast: IHS <strong>Global</strong> Insight
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
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Number 2:
Develop Superior Capabilities to Export
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NAM and NEA Will Be the Main Exporters
Million Metric Tons
6
4
2
0
-2
-4
-6
Net Imports
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ISC SAM Rest of world
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

NAM and NEA Will Be the Main Exporters
Million Metric Tons
6
4
Net Exports
2
0
-2
-4
-6
Net Imports
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SEA NEA ISC WEP NAM SAM Rest of world
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

The United States Exports to the World
2.5
3.3
0.3
1.0 0.7
-0.5 -0.7 -0.6
0.6
0.2
-0.1 -0.1 1.5
0.8
1.7
-1.1 -1.3 -1.2
-0.4
-0.7 -1.0
-0.4
-1.0
-1.9
2007
2012
2017
-0.5 -0.5 -0.7
Net Trade, Million Metric Tons
0.2
0.0 0.0
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And It Is Not Just PVC Resin!
Million Metric Tons United States Vinyls Exports
8.0
7.0
AAGR 2007 – 2017: 5.9 percent
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2007 2012 2017
PVC VCM EDC
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Number 3:
Take a Considerable Lead in Costs!
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NAM’s Low Cost Ethylene Is Hard to Beat
Ethylene Production Cash Costs, $/MT
Brent Crude
2012 = 111 $/bbl
NEA
WEP
Average Feedstock Basis
2012
SEA
MDE
NAM
Ethylene Aggregate Demand
0 20 40 60 80 100 120 140 160
Cumulative Ethylene Capacity, Million Metric Tons
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Also Because of Cheap Electricity
2012 Operating Costs, Dollars Per ECU Ton
400
350
300
250
200
150
100
50
≈
161
Electricity
Costs
(Cents/kWh)
NAM = 3.5
Europe = 8.0
Brazil = 8.0
0
West Europe
Membrane
Asia
Membrane
North America
Membrane
Middle East
Membrane
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However, North America’s Cost Advantage
Could Decline a Bit
Dollars per Metric Ton
400
350
300
250
200
150
100
50
0
*NEA excludes China
2010 2011 2012 2013 2014 2015 2016 2017
West Europe Delta
* Northeast Asia Delta
China Cash Cost (Acetylene Based) Delta
Avg. diff. all regions to US
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But NAM Profits Remain Highest
Cents Per Pound
20
Dollars Per Metric Ton
440
15
Avg. diff. = $130 US per MT
330
10
220
5
110
0
0
-5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-110
North America West Europe Northeast Asia China (Acetylene Based)
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Number 4:
Develop Stamina for the Long Haul
“Winners never
quit and quitters
never win.”
Vince Lombardi
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PVC Capacity Coming into Balance
Country Capacity, Million Metric Tons
6.0
5.0
4.0
3.0
Avg. Demand Growth
2007 – 2017:
1.1 Million Metric Tons
2.0
1.0
0.0
-1.0
-2.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
China United States Iran Egypt ROW
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

<strong>Global</strong> Operating Rates Will Recover
Million Metric Tons
70
60
50
40
30
20
10
Operating Rates, Percent
100
90
80
70
60
50
40
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Capacity Demand Operating rate
30
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

And <strong>Global</strong> PVC Margins, Too!
U.S. Dollars Per Metric Ton
400
350
300
250
200
150
100
50
0
-50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
North America West Europe Northeast Asia
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Number 5:
Be Ever Ready to Change the Play!
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“It is not necessary to change. Survival is
not mandatory." W. Edwards Deming
Regulations
Competition
Economy
Construction
Feedstocks
PVC
Demand
Inter-Polyme
r
Competition
Consumer
Preference
Mercury
Phase Out
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And the Winners Are….
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The U.S Scores a Major Cost Touchdown
• A shale gas driven
renaissance
• Price taker with substantial
margin buffer
• Excess is exported, mostly in
the form of PVC resins
• Substantial new capacity build
expected by 2017
• The export market remains
critical to future sales strategy
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In the U.S. the Outlook Remains Buoyant
U.S. Dollars per Metric Ton
350
300
250
200
150
100
50
Operating Rates, Percent
100
90
80
70
60
50
40
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Margins Average Margins Operating Rates
30
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

China Is Number One, but Not in Margins
• Largest PVC demand and
capacity
• Demand growth lags
supply expansion over
next few years
• Non-integrated carbidebased
producers under
increasing cost pressure
• Imports will decline, but
export growth is uncertain
• Cost disadvantage for
most coastal producers
China PVC Capacity 2012
Acetylene
Based
81%
Ethylene
Based
19%
Total Capacity: 23.5 Million Metric Tons
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India’s Demand Growth Will Be Met by
Imports
• Increasing need for housing
and infrastructure
• Per capita consumption of 1.7
kg/person is a fraction of the
U.S. rate of 13 kg
• No large scale expansions
• Demand will grow by one
million metric tons
• Incremental demand must be
met by imports
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Top European PVC Producers –
More Consolidation Likely and Beneficial
Annual Nameplate Capacity, Million Metric Tons
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2008 2012
Picture Source: INEOS
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Mercury Still Presents Europe with a
Challenge
Percentage
100%
Total Capacity, Million Metric Tons
13.0
80%
60%
40%
20%
12.5
12.0
11.5
0%
2012 2013 2014 2015 2016 2017
Diaphragm Membrane Mercury Other Total Capacity
11.0
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West Europe: Gradual Improvement Ahead
Demand/Capacity, Million Metric Tons
8
7
6
5
4
3
2
1
Op. Rate, Percent
100
95
90
85
80
75
70
65
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Domestic Demand -6.9/ 2.9* Production -4.1/ 1.8*
Capacity -1.3/ 0.2*
Net Exports
Operating Rate
60
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West Europe:
Margins Have Been Upstream
Margins, Euros per Metric Ton
350
300
250
200
150
100
50
0
-50
10 Q2 Q3 Q4 11 Q2 Q3 Q4 12 Q2 Q3 Q4 13 Q2 Q3 Q4 14 Q2 Q3 Q4
PVC Cash Margin ECU Margin Ethylene Cash Margin
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Russia: Slow Off the Starting Block
• 50% capacity increase to
982 KT by 2015!
• It’s all RusVinyl
• No other major projects in
sight
• Russia entered WTO in
2012
• Imports of both PVC and
converted goods remain
high
Picture Source: Sibur
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PVC Remains the Price Winner!
Euros per Metric Ton
1,800
1,600
1,400
1,200
1,000
800
Average difference = €281
per MT
600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
HDPE (Inj. Molding) PP (Homo, General) PET PVC PS
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Conclusions – PVC Won’t Give Up
1) Right places are the major
growth markets U.S. & BRIC
2) The U.S. dominates exports,
but there is room for others
3) Energy cost advantage is
THE factor in generating
higher margins
4) Those who survive will
benefit from better market
conditions
5) Stay on your toes, as change
is inevitable
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.