CORRECTING and REPLACING Loss of Half of U.S. Production of Key Chemical Copolymers from Hurricane Harvey Impacts Plastics Production Worldwide, IHS Markit Says

Linear alpha olefins essential to PE production; loss impacts other
major plastics producers

HOUSTON–(BUSINESS WIRE)–Please replace the release with the following corrected version due to
multiple revisions.

The corrected release reads:

LOSS OF HALF OF U.S. PRODUCTION OF KEY CHEMICAL COPOLYMERS FROM
HURRICANE HARVEY IMPACTS PLASTICS PRODUCTION WORLDWIDE, IHS MARKIT SAYS

Linear alpha olefins essential to PE production; loss impacts other
major plastics producers

In late August, Hurricane Harvey’s flooding rains shut down more than 50
percent of the U.S. production and nearly one quarter of global
production of linear alpha olefins (LAOs), a group of chemicals
essential to the production of most polyethylene (PE), according to
analysis from IHS
Markit (Nasdaq: INFO), a world leader in critical information.

Polyethylene is the world’s most-used plastic. PE is essential for the
production of numerous materials ranging from film for packaging and
grocery bags, to detergent bottles and pipe for construction. As a
result, numerous major chemical producers that rely on the Houston-area
LAO co-monomer (butene, hexene and octene) production are scrambling to
secure supply, and impacts will be felt down the supply chain, IHS
Markit said.

“During the recent hurricane that hit Texas, one of the world’s largest
facilities for LAO production was flooded and its production of linear
alpha olefins was shut down completely,” said Mark Wegenka, director of
chemical consulting for IHS Markit. “As a result, half of U.S. LAO
co-monomer production and a sixth of total global LAO production is
offline and will be for weeks to come, which is creating a serious
supply chain challenge for numerous other major chemical producers that
are dependent upon this source for LAOs. Current U.S. LAO production
exceeds 90 percent capacity and capacity utilization outside the U.S. is
much the same, which means there is very little spare capacity in the
market, so the impacts are going to be significant.”

Rather than playing a lead role on the chemical stage, linear alpha
olefins have long been accustomed to serving as best supporting actor,
Wegenka said, but now these critical components to the polyethylene
production process are getting much more attention. “For many PE
producers, this issue is now taking center stage in terms of priority.
Securing adequate supply to meet rapidly expanding polyethylene
production was already an issue for chemical producers, and now the
situation is even more challenging,” Wegenka said. “LAO production was
already lagging in some segments.”

To address this specialized chemical market, Wegenka, as well as Mark
Morgan, Ph.D., and Andrea Borruso, both directors of chemical consulting
at IHS Markit, wrote the IHS Markit Light Linear Alpha Olefins Market
Study. The report provides supply/demand balances for the LAO
products and applications for the 2015 through 2025 period, with a
geographic breakdown by region.

According to the report, the global market for linear alpha olefins
exceeded 5 million metric tons (MMT) at the end of 2016. The lower-range
products (C4-C6-C8—carbon bonds) that form the basis for this project,
account for around 70 percent of the total LAO demand today, IHS Markit
said.

“Growth in the linear alpha olefins market overall suggests the
potential for three to four large-scale, full-range LAO investments
during the medium term, not including the current INEOS and Shell
projects in North America,” Borruso said. “Margins and pricing supports
reinvestment, and demand growth overall is ahead of average GDP.
However, on-purpose LAO technology will be vital in meeting the
polyethylene co-monomer supply gap that will continue to grow, given the
divergence in growth rate between polyethylene co-monomers, poly alpha
olefins, and more specialty polymer applications.”

Further on-purpose technology may decouple the supply of lower alpha
olefins from the higher C10+ supply, reducing the traditional volatility
and swings of the market due to the start of broad-range units, Borruso
said. “However, the short-term impact of the hurricane, together with
the delay in the startup of some broad-range units in the U.S., has and
will create a ripple effect on the C8, as well as C6 supply of linear
alpha olefins,” Borruso said. “Given the inertia of response within the
global supply system, this may create a short-term economic effect on
allocation and prices relative to C4 cuts.”

As 2017 comes to a close, current global demand for PE is just under 95
million metric tons (MMT), but according to the IHS Markit report
entitled IHS Chemical: 2018 Polyethylene World Analysis, PE
demand growth will increase 22 MMT by 2022, to 118 MMT. That translates
to an average annual growth rate of 4.3 percent or 1.4 times GDP during
2017 to 2022, according to IHS Markit.

“The global polyethylene market is experiencing very strong growth and
that’s for good reason, since, in terms of global plastic demand, there
is nothing bigger than PE when it comes to packaging materials,” said
Joel Morales, senior director, polyolefins Americas at IHS Markit, and
one of the authors of the PE report. “PE is a very versatile, durable
material—it is the workhorse of the plastics industry, and the world’s
largest-volume plastic.”

PE is the material of choice, Morales said, for both food and consumer
packaging around the world, and as more and more people see incomes
rising globally, they become consumers of more goods that are made of
plastic or wrapped in plastic film. Film and sheet applications, which
is key to the packaging sector, is the most important plastics use
segment globally, according to the IHS Markit report, representing more
than 60 percent of plastics demand.

“A shortage in LAOs to produce PE is likely to lead to price increases
for the short-term, which will impact not only the PE producers, but
also others down the supply chain, including manufacturers of the
plastics packaging, films and bottles, for example,” Morales said.
“These plastics enable foods, detergents, and other goods to be
delivered safely and conveniently to consumers. Ultimately, the consumer
may see a slight increase in prices for some goods, due to this LAO
shortage, but often, it is the PE manufacturers that are going to absorb
much of this increased cost.”

Other market impacts are likely to be felt in the construction,
automotive and electronics industries, in particular, IHS Markit said,
since they depend heavily upon PE for plastics components for their
products.

The North America ethylene-cost advantage will remain a key driver in
interregional LAO price differentials, with prices linked to ethylene,
IHS Markit said. Inter-regional trade flows are likely to remain a key
factor in determining inter-regional pricing and arbitrage
opportunities, and as a result, North America and the Middle East will
remain major exporters of lower-range LAOs.

“Iran and China remain two of the potential game changers in the LAO
chemical sector,” Borruso said. “The slow reemergence of Iran as a
contributor to the global chemical market implies that the nation could
revisit its original LAO and downstream projects as part of
reinvigorating the masterplan for its petrochemicals industry. The
rising demand for LAOs across many carbon numbers, including the
mid-range, could, in time, lead to local Iranian investment.”

A full-range LAO project possibly could be built in the Asia-Pacific
region, provided a competitive source of ethylene can be secured as well
as a commercially reliable technology identified, IHS Markit said.

The challenges of LAO supply for PE production, as well as the overall
plastics market, will be key points of discussion at the Global Plastics
Summit, October 11-13, 2017, in Chicago. The agenda and more information
about the event, which is presented by IHS Markit and the Plastics
Industry Trade Association (PLASTICS), is available at https://globalplasticssummit.com/.

To speak with Mark Wegenka, Andrea Borruso or Joel Morales, please
contact Melissa Manning at melissa.manning@ihsmarkit.com.
For more information on the IHS Markit Light Linear Alpha Olefins
Market Study, or the IHS Markit report entitled IHS Chemical:
2018 Polyethylene World Analysis, please contact stacy-ann.wilson@ihsmarkit.com.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information,
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