CARE Conference - May 2015 Low Cost Oil – The Impact on Recycling & Carpet

Alasdair Carmichael – PCI Fibres 864 583 6868

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CARE Conference - May 2015 Low Cost Oil – The Impact on Recycling & Carpet • Oil Markets & Influences • Impact on Raw Materials • Challenge for Recycling • Carpet Fiber competitiveness

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Daily Oil Prices – WTI $/Barrel $107.17 - 6/23

110 100 90 80

OPEC Meeting

70 $42.53 - 3/18

60

Recovery??

50

Yemen action 3/25

40 Jan 2014

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May 8 2015

US Oil Production Annual Change (million barrels/day)

Oil production growth in 2014 in the US was the largest in over 100 years

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Did Anyone see the Fall in Oil Prices coming? Global oil fundamentals to 2020 shows rising supply and steady oil demand growth. Weak demand growth is a downside risk. Sept 2014 Total Global Growth: 2013-2020

Source: Wood Mackenzie

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US Oil Rigs – Declining but Production Increasing

Rig Count Mar 2014 = 1,750 Mar 2015 = 1,067

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West Texas (WTI) vs Brent Oil ($/barrel)

160 140 120 100 80 60 40 20 0

WTI

Brent

As WTI cannot be exported it is not so relevant to Polyester raw materials as Asia drives prices and Brent oil is a better indication of Asian oil prices.

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Naphtha Xylenes

Ethylene

Paraxylene Ethylene Glycol

PTA

MEG

Polyester Polymer

Polyester Fiber

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PCI Xylenes & Polyesters Ltd

PCI Fibres & PCI Nylon

PCI PET Packaging, Resin & Recycling Ltd

PCI Films Consulting Ltd

Naphtha is the starting point for many Petrochemicals

800

1200 1000

600 800 600

400

400 200 200 0 2013 Jan

0 Jul Delta RHS

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2014 Jan Oil - WTI

Jul

2015 Jan US Naphtha

Main Polyester Raw Material Route ($/ton)

1800 1500 1200 900 600 300 2013 Jan

Jul Oil - WTI

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2014 Jan Naphtha

Jul PX

2015 Jan PTA

Daily China Spot Prices for Polyester Raw Materials $/ton

1600 1400 1200 1000 800 600 400 200 Jan 6 2014

5-May Oil

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PX

PTA

MEG

USA Raw Material Price Change for Major Synthetic Fibers + Cotton Jan 14 – Mar 15 WTI Oil - 46% PTA/MEG - 29% Capro – 39% Propylene - 34% Cotton – 29%

$/ton

2600 2400 2200 2000 1800 1600 1400 1200 1000 800 Jan-14

Apr-14

PTA/MEG

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July-14 Capro

Oct-14 Propylene

Jan-15 Cotton

But, Things Start to Change in April March 2015 – April 2015 % Change (US prices) 20% 15%

Daily Asian Price April 1 - April 30 WTI Oil + 25% ($47.17 - $59.03) PTA/MEG + 23% ($833 - $1026)

10% 5% 0% PTA/MEG

Capro

Propylene

Oil

-5% -10% -15%

Price increases announced in Polyester fibers & resin/polymer

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Naphtha Benzene Cyclohexane

Butadiene

Propylene

Adiponitrile

Acrylonitrile

Adipic Acid Caprolactam

HMDA

N6 polymer

N66 polymer

Nylon

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PCI Xylenes & Polyesters Ltd

PCI Fibres & PCI Nylon

PCI PET Packaging, Resin & Recycling Ltd

PCI Films Consulting Ltd

Nylon – Current Issues

Nylon 66 impacted by Invista Force Majeure Early April 2015 Plant issue at Victoria TX resulting in Force Majeure early April. Key products impacted by FM are Adiponitrile (ADN), Hexamethylene Diamine (HMD) and Nylon 66 Polymer. Early May indications are that problem resolved and production should be back to normal in 2H of May.

ADN is particularly critical as there are only 4 major plants in the world that supply the world’s needs for Nylon 66: • Invista Victoria TX – 403,000 tons • Invista Orange TX – 360,000 tons • Ascend Decatur AL – 455,000 tons • Butachimie France – 520,000 tons (Rhodia/Invista J/V)

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Global PA Demand by End-Use: PA6 vs PA66 Global PA66 Consumption – by Application

Global PA6 Consumption – by Application ktes/yr

ktes/yr

5500

2600

5000

2400 2200

4500

2000

4000

1800

3500

1600

3000

1400

2500

1200

2000

1000 600

1000

400

500

200

0

0

Film

Fiber

800

1500

1990

Non Fiber

1995

2000

2005

Engineering Plastics

2010

2014

Staple Fibre

1990

Carpet Filament

1995

2000

2005

Industrial Filament

2010

2014

Textile Filament Source: PCI Nylon

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Total Fiber Demand (million tons)

70 Wool 60

Cotton Acrylic

50

Nylon

40

Polyester

30

Polyprop Cellulosics

20 10 0 1980

1990

2000

2010

2020

2030

Source: PCI Fibres GB14

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Nylon – Raw Materials 3000 2500 2000 1500

Key Nylon 66 Raw Materials Ascend use Propylene route & Invista use Butadiene for Nylon 66. Butadiene route currently advantaged by lower cost.

1000 500 0 2011

2012

2013 Benzene

2014 Caprolactam

2015

4500 4000 3500 3000

Key Nylon 6 Raw Materials Benzene feeds directly into Caprolactam which feeds directly to Nylon6 Polymer. Large new investments in China.

2500 2000 1500 1000 500 0 2011

2012

2013 Propylene

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2014 Butadiene

2015

U.S. Fiber Polymer Cost Nylon v Polyester ($/lb)

2.00 1.75 1.50 Nylon 66 1.25

Nylon 6 Polyester

1.00 0.75 0.50 2011

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2012

2013

2014

2015

Total Nylon Fiber Production (000 tons)

5000 4000 3000 Nylon 66 2000

Nylon 6

1000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

-

2015 Polyester Production = 48.7 m tons; Nylon = 4.2 m tons

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Nylon Carpet Filament Production by Region (000 tons)

100

1200

80

1000

JKT China

800

India South Asia

600

Tur/Afr/ME 400

Europe L America

200

N America 1990

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1995

2000

2005

2010

2015

2020

60 40 20 0 2000 2005 2010 2015 2012 N6

N66

Share by Polymer Type

Integrated carpet companies lead shift to N6

US Housing – New Home Starts (000 units)

2,500 2,000

49 Yr Avge = 1.55m starts

1,500 56 Yr Avge = 1.45m starts

1,000

7 Yr Avge = 0.77m starts

500

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2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

1983

1980

1977

1974

1971

1968

1965

1962

1959

0

US Carpet & Rug Face Fiber Consumption (000 tons) PET/PTT Use in Carpet fiber: 2014 = 410k tons

1800 1600 1400 PP St

1200

PP BCF

1000

PET St

800

PET/PTT BCF

600

Nylon St

400

Nylon BCF

200 0 2000

2004

2008

2012

2016

Carpet Face Fiber Demand Profile Matches Housing Starts

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US Carpet & Rug Face Fiber Consumption (000 tons)

100% 90% 80% 70%

PP St

60%

PP BCF

50%

PET St

40%

PET/PTT BCF

30%

Nylon St

20%

Nylon BCF

10% 0% 2000

2004

2008

2012

2016

Staple Fiber Loses Out, Filament Dominates (Nylon 46%; PET 36%)

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North American Total Auto Build (millions) Total Auto production: 2009 = 8.67m 2014 = 16.97m

20 18

Truck

16

Car

14 12 10 8 6 4 2 0 1951

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1961

1971

1981

1991

2001

2011

Auto & Housing Recovery from Recession (million units)

20 18 16

Total N.A. Auto Build

14 12 10 8 6

Total US Housing Starts & Sales

4 2 0 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014

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Oil - Raw Materials – Impact on Recycling •

The lower the price of petrochemical raw materials the less room it leaves for recycled products to be viable.

•

Q1 2015 has seen raw materials at lowest level in 6 years, but prices recovering.

•

Nylon polymer typically almost 60% more expensive than Polyester polymer, so Nylon recycling has more “headroom” for costs of collection, processing etc.

•

Polyester virgin polymer in the 60c/lb range in Q1 2015, difficult for RPET from bottles to compete, very difficult for carpet RPET to compete, but virgin prices picking up, some relief, but still very competitive market.

•

Polyester/PTT BCF has larger share of residential carpet than Nylon. Nylon dominates in commercial & transportation.

•

Polyester carpet has a good start of life eco story – RPET, Solution dye, but has a problematic end of life eco story.

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Polyester Recycling – Competition from Bottles (Global)

2015 Global Est. 10.5 million tons (23 billion lbs) 2014 N. Am Est. 2.9 billion lbs

Source: PCI PET Packaging & Recycling

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Polyester Recycling – N. America RPET Balance 2014 Est

Net Trade -0.34 Million Metric Tons Flake Available

Collection

(plus US Other Material)

1.33 Million Metric Tons

Fibre 28.0%

Other 22.1%

Strapping 6.8%

1.02 Million Metric Tons

Process Loss 0.3 Million Metric Tons

PET Sheet 18.8% Blowmoulding 24.3%

Source: PCI PET Packaging & Recycling

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Polyester Recycling – RPET Global Applications 35

% Penetration

30 25 20 15 10 5 0 Staple fibre

Sheet 2012

Blow-moulding - Food Blow-moulding - Non contact food contact

2013

2014

Source: PCI PET Packaging & Recycling

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Polyester Recycling – RPET Price Sensitivity Many RPET applications are driven by price advantage over virgin • • •

Fiber applications into Fiberfill and some non critical Nonwovens. Sheet & Blow molded applications into thermoforms, agricultural, non food contact containers. Strapping. But other RPET applications are either branded or marketed

• • •

Drink bottle producers marketing a percent of content from Recycled. Outdoor Furniture advertising “Made from RPET”. Apparel & Footwear advertising RPET content.

• • • •

How much rPET into Fiber is supported by Branding?? Mohawk – “Continuum” branded carpet (BCF with high rPET content) Shaw - ClearTouch PET – minimum of 25% rPET; ClearTouch Platinum PET – minimum of 50% rPET (BCF) Unifi – “Repreve” branded DTY from PC & PI rPET content for apparel, upholstery, home textiles etc. NonWovens into automotive gain some market share benefit by being rPET. Estimate 150,000 tons in USA

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CARE Conference - May 2015 Low Cost Oil – The Impact on Recycling & Carpet

THANKS & Questions??

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