New Horizons for China Petrochemical Industry

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CONTENTS 1

2

3

B : C : C : A B FA C: B :

4

FF : / B

: : : :

:

B E :

&

E :

E G E

&

: C & &&

Bohai Gulf

Yangtze River Delta

Pearl River Delta

Announced Integrated Projects 2019-2025

2025C2 13.5/24%PX 13.3/30%

2025C2 15.3/27%PX 20.2/45%

2025C2 6.4/11%PX 2.0/4.5%

4%

11%14%

22%

0

50

100

150

200

250

2000 2005 2010 2015 2018 2020F 2025F

MTA Others US Middle East China

Capacity of ethylene and PX of China has reached 25MTA and 13.8MTA in 2018, which is expected to reach 53MTA and 40MTA by 2025, both ranking the 1st in the world.

+10%

AAGR: 14%

+8%

World Ethylene Capacity and Regional Share

6%20%

24%

47%

0102030405060708090

2000 2005 2010 2015 2018 2020F 2025F

MTA

AAGR: 19%

+14%

+9%

World PX Capacity and Regional Share

5

China alone contributes 50-70% of the new capacity during another two round of expansion in 2019 and 2023.

Average Annual New Capacity of Basic Petrochemicals

1996-2000 2007-2009 2012-2013 2018-2019 2021-2025Note: Basic chemicals including ethylene, propylene, butadiene, benzene, toluene, PX and methanol

MTA14

3021

1525

MTA

MTA

MTAMTA

11%

45%69%

55%

44%

China Middle East US Others

7

China still holds the largest share of world petrochemicals demand, which is expected to maintain a high growth after the recent booming period. Demand of synthetic resin, fiber and rubber is expected reach 135MTA, 60MTA and 3.2MTA respectively by 2025.

16%

30%

38%

40%

0

50

100

150

200

250

300

350

2000 2010 2019F 2025F

MTA

Others Middle East US China

AAGR 11%

7%

6%

Share and Growth of Synthetic Resin Demand

30%

63%

71%

74%

0

10

20

30

40

50

60

70

80

90

2000 2010 2019F 2025F

MTA

Others Middle East US China

Share and Growth of Synthetic Fiber Demand

14%

6.5%

5.5%

10%22%

25%

27%

0

2

4

6

8

10

12

2000 2010 2019F 2025F

MTA

Others Middle East US China

9.7%

4.5%

3.8%

Share and Growth of Synthetic Rubber Demand

8

World petrochemicals demand are recovering from years before, growth of which outruns the world GDP. China, as a key driver, is expects to hold 1% higher than the world average demand growth by 2025.

AAGR of World Synthetic Resin, Fiber and Rubber Demand

3.9%2011-2014 2015-2016

4.0%2017-2019 2020-2025

5.1% 4.2%2.6%2007-2010

5.1%4.8%5.2%

6.0%

8.0%China

World Avg.

China per capita consumption of petrochemicals is catching up with Japan and Europe in the coming years. But 43kg(in equivalent ethylene) still has a long way to go compared with South Korea(89-90kg) and U.S.(70-80kg).

9Consumption per capita of Equivalent Ethylene vs GDP per capita from 1990-2025

0

10

20

30

40

50

60

70

80

90

100

0 10000 20000 30000 40000 50000 60000 70000 80000

Kg per person

GDP per capita, $

China

South Korea

US

Japan

Europe2018

Aging Population VS Massive Urbanization

10

Massive urbanization is the best answer to the aging problem. Besides the second baby boom, we will see 170 million new citizens moving to cities by 2030, which means at least 250 billion $ new consumption and 2750 billion $ new investment.

250+ Billion $ New Consumption

2750+ Billion $ New Investment

2018 2030170 Million New Citizens

110 Million New Elders(aged over 60)

3-4 Million Second babies*estimated

Explosive Growth of E-commerce Boosting the Polymers Demand

11

Billions of online orders and catering services are creating a whole new area for polymers consumption,which is growing by 20-30% each year and increasing the demand of polyolefins by 1-2%.

50Billion

Packages

250-300KTPE/PP

50-60KTPE/PP

20% 20-30%8 BillionOrders

New Demand from Environmental Protection Business

12

Recycling rate of China has been much higher than the average of the world, which makes it harder to getsignificantly improved in years, together with waste plastics import ban, increased the virgin PE demand by0.7-1.0 million ton. While air-pollution control regulation has driven the natural gas pipeline demand by 10%.

-

0

3000

6000

9000

2015 2016 2017 2018 2019

KT

New Polymers Replacement Waste Ethyl Polymers ImportWaste Ethyl Polymers Production

AAGR: -12%

0

100

200

300

400

500

2017 2018 2019

KT

New Consumption from Fuel Changing PolicyPE Consumption for Pipeline

- - - -

AAGR: 10.3%

- -

EU30%

China25%

World18%

U.S.9%

Sources: Roland Geyer, Jenna R. Jambeck, Kara Lavender Law

2015 2020 2025 2030

65

99

145

12%

10%

8.9%Billion $

A Prosperous Outlook for High Performance MaterialsConsumption upgrading promotes the high performance materials demand. A more than 10% growth will be expected in the coming years, and the revenue of this area will reach 145 billion $ by 2030, accounting for 40-50% of the world.

40

BatteryMaterials

ConstructionChemicals

EngineeringPlastics

MedicalPlastics

PackageMaterials

ElectronicMaterials

EVA &alpha-olefins

Liquid CrystalMaterials

High PerformancePlastics

Revenue of China High Performance Materials Industry

C1/C2: Large Import Still ThereMethanol effective supply cannot fully meet the fast growing MTO and fuel demand, net export approaching 10 MT.Self-sufficiency of ethylene is rocketing, while more than 10MT of equivalent ethylene still has to be imported.

Note�Self-Sufficiency Rate=Production/Demand

0

20

40

60

80

100

120

2018 2019 2020 2025

MT

MTO Fuel Others Capcacity

88%

89%

88%

86%

Self-Sufficiency

0

10

20

30

40

50

60

70

2018 2019 2020 2025

MT

PE EG SM EO PVC Others Capcacity

Note�Ethylene Demand including derivatives demand(in ethylene)

51% 51%

58%

83%

Self-Sufficiency

C3/C4: Balance is on the Horizon

0

10

20

30

40

50

60

70

80

2018 2019 2020 2025

MT

PP AN PO Phenol/Aceton Butanol/2-ethylhexanol Acrylic Others Capcacity

77%82% 83%

93%

Self-Sufficiency

Expanding propylene capacity and demand are getting near the balance point, while PP still needs import;Not only the large integrated projects but also the BDH has changed the whole landscape for butadiene.

0

1

2

3

4

5

6

7

8

2018 2019 2020 2025

MT

BR SBR SBCs NBR ABS Others Capcacity

73% 75%

107%

97%

Self-Sufficiency

Note�BD Demand including derivatives demand(in BD)Note�Propylene Demand including derivatives demand(in Propylene)

Aromatics: Nearing the OvercapacityExtensive investment on PX has dramatically change the outlook for it, balanced or even overcapacity is expected by 2025. For benzene, import won’t be absent, but potential increase of the capacity utilization clouded the market.

40%

55%62%

103%

0%

20%

40%

60%

80%

100%

120%

0

10

20

30

40

50

60

2018 2019 2020 2025

MT

Capcacity Demand Self-Sufficiency(RHS)

0

5

10

15

20

25

30

35

2018 2019 2020 2025

MT

SM Nitrobenzene CPL Phenol Others Capcacity

82%

85%

90%

88%

Self-Sufficiency

Balance across the SpectrumPolymers supply still cannot meet the demand by 2025, while some, especially the aromatics, will be facing the overcapacity pressure.

Balance of China Major Petrochemicals in 2025

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

-100000

-75000

-50000

-25000

0

25000

50000

75000

100000

Met

hano

l

Ethy

lene

LDPE

HDPE

LLD

PE EG

Prop

ylen

e

PP AN PO

Acet

one

n-bu

tano

l

2-et

hylh

exan

ol

Buta

dien

e

BR SBR PX PTA

PET

Benz

ene

SM

Phen

ol

CPL

C1 C2 C3 C4 Aromatics

,000 ton Production Demand Balance(RHS)

China18: 23MTA25: 28MTA

India18: 3.0MTA25: 7.7MTA

In 2018, China polymers gap reach up to 23 MTA, which will be increased by at least 5 MT by 2025. Far more incremental imports will be expected than other areas.

18

Polymers Balance Change of Major Import Areas from 2018-2025

Africa18: 5.7MTA25: 7.8MTA

South America18: 4.4MTA25: 6.5MTA

South Asia18: 2.4MTA25: 3.8MTA

2018 2025

Note: Polymers including synthetic resins, fibers and rubbers

A Further Opening-up Market

20

A series of measures are implemented to reduce the market access barrier, which has attracted not only the domestic private investors but also the foreign investors, like Saudi Aramco, SABIC to join the game.

9%

11%

Private Investors

25%

Foreign Investors

13%

Ethylene Capacity Share 2018(inner circle) and 2025

Ethylene

26%

7%

Private Investors

50%

Foreign Investors

7%

PX Capacity Share 2018(inner circle) and 2025

PX

Remove restrictions on wholly foreign funded petrochemical companies

Remove restrictions on crude oil import of private companies

Introduce mixed ownership to SOEs

Implement negative list for market access

Cut items requiring government review by 30%

Cut taxes and administrative fees Lower the VAT from 17% to 13%

A More Diversified Market

21

In 2019, Zhejiang and Hengli PC will bring the aromatics version of OTC on board, and ExxonMobil will bring the olefins version to Huizhou, China years later. Meanwhile the first ethane VLEC will arrive in China and the first ACO unit gets into production.

China Ethylene Capacity Share by Process 2025 China Propylene Capacity Share by Process 2025

Ethylene-Based26%

Coal-based74%

Ethylene Glycol

China Ethylene Glycol Capacity Share by Process 2025

Naphtha Cracking

69%

ACO1%

DCC1%

MTO5%

CTO14%

Ethane Cracking

5%

LPG Cracking3%

OTC2%

Ethylene

FCC22%

Naphtha Cracking

37%

CTP3%

MTP1%

MTO5%

CTO15%

PDH17%

Propylene

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-200

-150

-100

-50

0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020 2025 2030

Margin Index Self-sufficiency Index

Profitability Facing Temporary Downward Pressure

22

Overcapacity of some products will bring downward pressure to the overall profitability. As the rebalance

goes on, the self-sufficiency will decline again and the profitability will get rebound sometime after 2025.

Margin Index and Self-sufficiency Index of China Petrochemical Market

2026-2027

2027-2028

2017-2018

Rebalance PeriodGolden Age Another Cycle�

Consolidation on the Way

23

Stricter environment regulations and fierce competition are forcing the disadvantages out of the games.Rapid decreasing small companies/units and climbing concentration ratio indicate the on-going consolidation.

concentration

ratio+27%

-18%

201525200

201624500

201723300 2018

21300

Numbers of enterprises above designated size

Takeaways

24

• As the largest producer and consumer, China petrochemical market to maintain a steady annualdemand growth of 6-7% and a capacity growth of 9-10% before 2025.

• Opportunities are emerging from massive urbanization, consumption upgrading, infrastructureconstruction, e-commerce, environmental protection business and further opening up.

• China will take more imports from the Middle East and U.S., as the polymers gap of China will bewidening up by 5 million tons by 2025.

• Steady economy and huge demand will help the market to get rebalanced quickly. And a rebound isexpected sometime after 2025.

Q&A