Change and Innovation

Business Strategy for the Petrochemicals& Plastics Sector
October 8, 2015

Tomohisa Ohno
Rabigh Project, Petrochemicals & Plastics Sector,
Representative Director &Senior Managing Executive Officer

Contents

Change and Innovation

１．Overview of Our Petrochemicals & Plastics
Business
２．Petrochemicals & Plastics Business Climate
３．Business Strategy for Each Location（１）Domestic Operations（２）Singapore（３）Saudi Arabia
４．Technology Development Strategy
５．Final Words
Business Strategy for the Petrochemicals & Plastics Sector2

１．Overview of Our Petrochemicals&
目 次
Plastics BusinessBusiness Strategy for the Petrochemicals & Plastics Sector

3Consolidated Results
Change and Innovation（Billions of yen ）（Billions of yen ）1,000

Operating Income
Equity in earnings(losses) of affiliates
Net sales
Operating Income＋Equity in earnings(losses) of affiliates

900
800
700

672.4

649.9

600

35

792.0

806.2

25
20

21.2

17.4

16.6

13.5

15
10

11.1

300

30

693.9

500
400

40

37.8

8.6

5.9
6.3

6.2

200

0

-2.7

-0.3
100

5

4.9

0.5

-5

-3.2

0

-10
FY2010FY2011FY2012FY2013

FY2014After-tax Earnings of Major Group Companies(US$ MM)FY2010FY2011FY2012FY2013

FY2014

PCS

130

23

-60

62

121

TPC

70

49

-12

-13

40

PRC

56

18

130

96

182

Business Strategy for the Petrochemicals & Plastics Sector

4

FY2014 Results (consolidated basis)
Change and Innovation（Billions of yen）

FY2014（Old Sector）

FY2014（New Sector）

FY2015
Forecast（New Sector）

Net Sales

806.2

932.3

715.0

Operating
Income

21.2

20.8

17.0

Business Strategy for the Petrochemicals & Plastics Sector

5Change in Business Sector （Effective as of April 1, 2015）
Change and Innovation

The Basic Chemicals Sector was eliminated and businesses in this sector were split up and transferred to the
Petrochemicals & Plastics Sector and the Energy & Functional Materials Sector, which was established as a new
business sector. In addition, a part of businesses in the Petrochemicals & Plastics Sector was transferred to theEnergy & Functional Materials Sector. Inorganic chemicals, raw materials for synthetic fibers, organic chemicals,
and methyl methacrylate, which had been included in the Basic Chemicals Sector, were transferred to the
Petrochemicals & Plastics Sector. Synthetic rubber, which had been included in the Petrochemicals & Plastics
Sector, was transferred to the Energy & Functional Materials Sector.

Basic Chemicals
Industrial Chemicals Division
Methacrylates Division
Inorganic Materials Division
Aluminium Divison
Specialty Chemicals Division

Petrochemicals Division
Industrial Chemicals Division

Petrochemicals&
Plastics Sector

Polyolefins Division
Automotive Materials
Division
Methacrylates Division

Petrochemicals& Plastics
Petrochemicals Division
Polyolefins Division
Automotive Materials

Inorganic Materials Division

Energy & Functional

Aluminium Divison

Materials Sector

Specialty Chemicals Division

Division
Advanced Polymers Division
Business Strategy for the Petrochemicals & Plastics Sector

Advanced Polymers Division

6

Global Strategy for Petrochemicals BusinessChange and Innovation

Cumulative ethylene production volume by our petrochemical complexes(million tons)

50

1997
Started operation of second
phase petrochemical complex
in Singapore

45
40
35
30
25
20
15
10

1984
Started operation of
petrochemicalcomplex in Singapore

2009Started operation of
the Petro Rabighethylene plant

5
0

1958

1984

2008

Entry into petrochemicals

Expansion of business to

Expansion by locatingrefining areasin oil producing areas【Singapore】【Rabigh】

and plastics business【Ehime】

A cycle of about 25 years
Business Strategy for the Petrochemicals & Plastics Sector

7

History of Our Petrochemical Business（New businesses and withdrawal from unprofitable businesses）
Started ethylene
production in Chiba(No. 1 plant)

Started ethylene
production in Ehime

1958

1967

Boosted ethylene
production
capacity in Chiba(No. 2 plant)

1970

Started operation of
petrochemical complex
in Singapore

1976

1983 1984＜Shutdown＞
Methanol plant,
ethylene plant in
Ehime＜Shutdown＞
Chiba ethylene No. 1
plant, NH3 plant, urea
plant

Keiyo Ethylene,a joint venturewith Maruzen
Petrochemical,
started operation

Established
PSPC in Houston,
started PP
production

1994

Started operation of
second phasepetrochemicalcomplex in Singapore

1997 1998 1999

＜Shutdown＞
PVC production
line＜Shutdown＞
PVC production line
electrolysis／VCM
plantsBusiness Strategy for the Petrochemicals & Plastics Sector

Rabigh Project
started operation

2002 2003＜Shutdown＞
Two PP
production
lines＜Shutdown＞
E-SBR plant

Change and Innovation2007 2008 2009

＜Shutdown＞
PP production
line＜Shutdown＞
PP production
line

PSPC
ceasedoperation＜Withdrawal＞
Exited PS
business

2012

2015

Shut down
ethylene No. 2
plant in Chiba,
procuring all
ethylene from
Keiyo Ethylene

8Petrochemical Products by Region
Change and Innovation

Ethylene production capacity by area
（Thousand tons）
2,000 Saudi Arabia

1,600

1,500

1,300

（Thousand tons）
2,000

RabighPhase II
Project*

Japan Restructure
domestic
operations

1,500

1,000

1,000

500

500

607

（Thousand tons）
2,000

0

* Planning the
production of higher
value-added
petrochemicals using
3 million tons of
naphtha and 400
thousand tons of
ethaneLocation

Singapore0

Location

Japan

Advantage“Mother plant/laboratory,” leading the effort
to develop high value-added newtechnologies, products and know-how

Priority

Restructure domestic operations (exitunderperforming businesses andrestructure production operations)

Over
400

1,500
1,090

1,090

1,000
500
0

Saudi Arabia

Advantage

Robust cost competitiveness, taking
advantage of low-cost feedstocks and fuels

Priority

Maximize Petro Rabigh’s profitability (achieve
more stable operations)

Business Strategy for the Petrochemicals & Plastics Sector

Location

Singapore

Advantage

A solid customer base and high-value
added products meeting the needs of key
customers in Asian markets

PriorityStrengthen competitiveness byenhancing higher value-added
petrochemicals business

9Global Petrochemical Operations
Change and Innovation

Business Strategy for the Petrochemicals & Plastics Sector

10Net Sales by Region （Old Sector）
Change and Innovation

Net
Sales
（billionsof yen）

Japan

China

Other
Asian
nations

EuropeOthers

FY2005

486.1

60%

20%

15%

1%

4%

FY2012

693.9

45%

25%

23%

3%

4%

FY2014

806.2

40%

25%

25%

5%

5%

※Figures in fiscal 2005 were results before the launch of the Rabigh Project.

A large portion of the sales is to Asia, including Japan and China, due to having a
Singapore base. Even so, there is no over-dependence on Japan and China, as
significant sales to Southeast Asia and other areas have been achieved.

Business Strategy for the Petrochemicals & Plastics Sector

11

目Business次
２．Petrochemicals & Plastics
ClimateBusiness Strategy for the Petrochemicals & Plastics Sector

12World Demand Forecast (Ethylene Derivatives)
Change and Innovation（Million tons）
100.0

200.0

180.0

90.0

Operating Rate （right axis）
83.6

81.6

160.0

82.8

82.3

79.8

82.1

112.7
100.0

121.0

123.7

123.7

129.6

134.1

83.1

81.9

140.0

120.0

（%）

139.3

143.9

80.6

81.3

149.6

154.5

83.6
80.0
158.9
70.0

60.0

Production capacity
by region

OthersAmericas
EuropeDemand （left axis）

50.0

Other Asian nations

80.0

40.0

China

60.0

30.0

Middle East

40.0

20.0

20.0

10.0

Japan

（Source：METI）
0.0

0.0
’09

’10

’11

’12

’13

’14

’15

’16

’17

’18

’19

Overall global demand growth for petrochemicals and plastics is not going to stop
any time soon. Growth trends are especially strong in newly emerging economies.
Business Strategy for the Petrochemicals & Plastics Sector

13Asian Polyolefin Market Trend and Estimated Cash Margin from Naphtha
Change and Innovation(Market Prices：$/MT)

LD Cash Margin

2,000

PP Cash Margin

LD

PP

Naphtha(Margin：$/MT)

500

1,800

400

1,600

300

1,400

200

1,200

100

1,000
800

0

600

-100

400

-200

200
0

Jan-2008

Jan-2009

Jan-2010

Jan-2011

Jan-2012

Jan-2013

2005

2006

2007

2008

2009

2010

Business Strategy for the Petrochemicals & Plastics Sector

-300
2011

2012

2013

2014

2015
14

Currently the market is facing a number of uncertainties.
Change and Innovation

A number of uncertainty factors can be seen currently.
１．Drop in crude oil prices
２．Slowing of growth in China
１．Drop in crude oil prices
The drop in crude oil prices is eroding the cost advantages of shale gas and CTO/MTO
projects.
Also, the growth in demand for petrochemical products is likely to exceed the growth in
the production volume of those manufactured from shale gas. Even if these make it into
Asian markets, their impact on the supply-and-demand balance and on market conditions
will be limited.

２．Slowing of growth in China
By promoting a further move to higher added value, our Group will shift to fields notreadily impacted by such a slowdown. We will also seek to avoid over-dependence on the
China market through wider development of Asian markets.

Business Strategy for the Petrochemicals & Plastics Sector

15

目 次
３．Business Strategy for Each
Location

Business Strategy for the Petrochemicals & Plastics Sector

16Restructuring of Chiba Works:
Shut down ethylene plant and procure ethylene from Keiyo Ethylene

Change and Innovation

Reduce our ethylene production capacity in Japan (May 2015)
Our ethylene production capacity in Japan(Thousand tons per year)

Keiyo Ethylene

700
600
500
400
300
200
100
0

Sumitomo Chemical* Reduce production
capacity to two-thirds

415
192

Over
400

Present

After restructuringStart ofoperations

Annual production
capacity

Keiyo
Ethylene

1994

768,000 tons*

Sumitomo
Chemical1970

415,000 tons

* Includes 192,000 tons of allotment to Sumitomo Chemical

Keiyo Ethylene’s plant is the newest and largest
ethylene production facility in Japan.



Sumitomo Chemical’s ethylene plant came on
stream more than 40 years ago.

Keiyo Ethylene: Allocation and Equity Share Holding
Allocation

Shareholdings

Allocation

Shareholdings

Maruzen Petrochemical

50.0%

55.0%

40.6%

55.0%

Sumitomo Chemical

25.0%

22.5%

59.4%

45.0%

Business Strategy for the Petrochemicals & Plastics Sector

17Restructuring of Chiba Works: Downsize/exit underperforming businesses
Change and Innovation

Export sales have significantly fluctuated, generating lower-than-expected profits>>> Decided to exit businesses with a high export ratio

Sales volume of major products: domestic vs. export sales (FY 2012)(Thousand tons)

Domestic sales

Export sales

500
400
300
200
100
0
Export Styrene monomer (SM)40%
ratio:

Propylene oxide (PO)40%

Polyethylene (PE)Polypropylene (PP)
10%

20%

Products and Production Capacity

Exit businesses with a high export ratio
April 2012
May 2015

Dissolved joint venture Chiba
Styrene Monomer
Stopped SM and PO production at
Nihon Oxirane**Acquired entire stake in Nihon Oxirane in December 2013

Products

Production
capacity

Chiba Styrene Monomer

SM

108,000 tons*

Nihon OxiraneSM425,000 tons

PO

181,000 tons

PO

200,000 tons**

Sumitomo Chemical*Allotment to Sumitomo Chemical **Continued production after restructuring

Business Strategy for the Petrochemicals & Plastics Sector

18Petrochemicals & Plastics Business after Reorganization
Change and Innovation

The core businesses ofPE (Polyethylene)
PP (Polypropylene)
PO (Propylene Oxide) will remain in JapanTo facilitate continued overseas expansion, retain the mother factory role
Promote faster development of next-generation processes and advancedfunction catalysts(PE) Accelerate the shift to high-profit fields like extruded laminates andprotection films(PP) Specialize in fields where we have strength that have strong growthprospects (automotive industry, films)(PO) Build a stable profit structure not subject to the vagaries of the SM
market situation; make this the pillar of license revenue
Business Strategy for the Petrochemicals & Plastics Sector

19Petrochemical Business in Japan after Restructuring
Change and Innovation

Sales of major products: domestic vs. export sales
Exportsales

Exportsales
Monomer

Lower export
sales ratio

Resin

MonomerResin

Sales volume
Resin

Sales volume

1.7

1.1

million tons
Monomermillion tons

Resin

Shift toward higher
value-added products

Monomer

Domestic
sales

Domestic
sales

Before restructuring

After restructuring

Revitalize and maintain petrochemical business in Japanby optimizing production operations
Business Strategy for the Petrochemicals & Plastics Sector

20

Restructure Businesses in Japan
Change and Innovation

MMA Business

Caprolactam BusinessCurrent state

Current state

Increase in demand in China and other Asian
countries
Sharp decline in the demand for use in lightguide plates, the major application of PMMA

Change in the supply-demand structure due tolarge increases in supply in China

Restructuring measures under consideration

Restructuring measures under consideration• Shift production, sales and research bases• Measures to improve competitiveness- Drastically reduce raw material costs- Build business alliance with upstream anddown-stream players

to Singapore- Stopped PMMA production in Ehime in
December 2013 (capacity 45,000 tons)• Develop new applications (Optimize
product portfolio)• Optimize production operations （Closed down
liquid-phase process plant with a production
capacity of 95,000 tons in September 2015）

Radically improve competitiveness and profitability
Business Strategy for the Petrochemicals & Plastics Sector

21

Present System of the Petrochemical Complex in Singapore
Change and Innovation

Figures are production capacity（KT/year）
TPC / Low-density polyethylene250
CPSC/High-density polyethylene390

Ethylene

EGS / EO, EG

167

EMPL /Ethoxylate

18

PCS1:475
PCS2:605

CSPL / VAM

Propylene

Shell, SRC
LPG

Ethylene
plant

170

SCSL / SM, PO, PG

PCS1:273
TPC /Polypropylene

600

SAA / Acrylic acid118

PCS2:547

Oil Refinery

NaphthaGas Oil

Acetylene
C4

DSPL / Acetylene black 14
TCS / MTBE 55

Butadiene
MTBE

RHCS / MBS 31

Butene--1
SMM / MMA 223
Cracked gasoline
Benzene
MELS /Functional plastics
TolueneXyleneBusiness Strategy for the Petrochemicals & Plastics Sector

22

Operations in Singapore: Outline of the Four Major Companies
Change and Innovation

PCS

TPC

- Shareholders:- Nihon Singapore Polyolefin Co. 70%, QSPS 30%

Japan Singapore Petrochemicals Co. 50%, QSPS 50%- Ethylene center- Production and sale of polyethylene and polypropylene
Production capacity LDPE 235,000 tons

Production capacity First phase 465,000 tons
Second phase 635,000tons- Supply of ethylene, propylene, and utility supply
inside the complex- Started operation in 1984. Started operation of
second phase petrochemical complex in 1997

PP 650,000 tons
- Started operation in 1984

SCS

SCA

- Sumitomo Chemical 100%

- Sumitomo Chemical 100%

- Production and sale of MMA monomer and polymer
Production capacity Monomer 223,000 tons
Polymer 150,000 tons
- Started operation in 1999

Business Strategy for the Petrochemicals & Plastics Sector- Sale of Petro Rabigh’s products and production and saleof S-SBR- Products
PE, PP, MEG, PO,
caprolactam, resorcinol,
S-SBR- Started operation in 2006

23

Singapore Business Strengths
Change and Innovation

On-going availability ofoutstanding and highly
loyal local employees
Product quality andstable supply
Customer service

A history of more than 30
years as ASEAN’s first
petrochemical complex

Existence of excellent
Asian customers thathave grown alongsideusHigh brand value in Asianmarkets is the source ofcompetitive advantage

Volume growth andquality improvement
One of the world’s mostcost-competitive
suppliers using
naphtha as feedstock

Also a foothold for expanding to
Saudi Arabia
Business Strategy for the Petrochemicals & Plastics Sector

24

TPC Shift to High Value-added Products
Change and Innovation

Proportion of high value-added products（％）

High value-added products Sales (ton)600,000

80%

70%
500,000
60%
400,000
50%

Capacitor
Ter
RCP

40%

300,000

HV LDPE
HEVA

30%

EVA
HP

200,000
20%
100,000
10%

0%

0
2003

2004

2005

2006

2007

Shifted production at GLS plant from PE to PP in2006
Launched and expanded sales of a new grade of
RCP and terpolymer
Business Strategy for the Petrochemicals & Plastics Sector

2008

2009

2010

2011

2012

Launched HEVA for solar cells in 2007

2013

2014

Launched a new grade of capacitor in2009
Remodeled SPP production line forcapacitor

25

Petro Rabigh’s Performance

Change and Innovation

Start of

(MMUSD)300

HOFCC stopped

Oil refinery

petrochemicalplant transfer

plant operation

Power outage

200
100
0
-100

RegularPower outage

maintenance-200

ECR repair-300

Power outage

-400
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

After-tax
profit/loss

-8

-39

-118

-335

-382

56

18

130

96

182

Cumulative
losses

-8

-47

-165

-500

-882

-840

-821

-707

*42

193

*In 2013, legal reserves (in the amount of $663 million) were tapped to cover cumulative losses.

Business Strategy for the Petrochemicals & Plastics Sector

26

Measures to Improve Petro Rabigh’s Performance
Change and Innovation

Issue

Measures

Shortage of personnel• Review hiring policy and system• Make use of recruitment agencies and strengthen
overseas hiring activities

Raising skill levels of
existing humanresources• Thoroughly implement basic education ⇒Document basic knowledge and rules necessary for
operators• Redo assessment by parent companies to cover theentire organization• Assign outstanding experienced persons and aim
for human resource development through OJT☆In addition, boost the program of dispatching experts from both parent
companies.

Business Strategy for the Petrochemicals & Plastics Sector27

Accomplishments to Date
Change and Innovation

Accomplishments have emerged as a result of parent company
support for Petro Rabigh and the presention of various solution
measures.
Improve
operatingrate

Improved operation of ECR cracking furnace(longer furnace life)
Improved plant control (longer catalyst life achieved by
improvement to operating conditions)
More stable refinery operation

Improveyield

Improvement in proportion of on-spec polymer products☆ These measures have improved financial performanceby more than $20 million.

Business Strategy for the Petrochemicals & Plastics Sector

28Petro Rabigh: Rabigh Phase II Project

Change and Innovation

1 Construction schedule Production facilities will start operations one after another as planned,
from the first half of 2016.

 Utility plants, an ethane cracker, and derivative plants will come on
stream in stages.
２ Marketing Marketing by Sumitomo Chemical Asia mainly in China and other Asian
countries, as well as in the Middle East and Europe
３ Value of Rabigh Phase II Project Effective use of newly allocated cost-competitive ethane Production of high value-added petrochemical products from naphtha
Business Strategy for the Petrochemicals & Plastics Sector

29

目 次Strategy
４．Technology Development

Business Strategy for the Petrochemicals & Plastics Sector30

Maintain Stable Operations (Facilities Management)
Change and Innovation

For stable operations of aging chemical plants in Japan, early discovery andprevention of corrosion and other problems are vital.
 Focus on inspections of aging plants and common pipes
 Consider and adopt new inspection methods
 Take corrosion prevention measures
Through these efforts,
 Improve inspection efficiency
 Increase accuracy of inspection
 Prevent problems
 Extend the life of plants
 Continue safe and stable operations
Safe and stable operations of plants are the largest source of long-termcompetitiveness. Only the companies that continuously improve operations
and maintenance survive.
Business Strategy for the Petrochemicals & Plastics Sector

31

R&D Strategy
Change and Innovation

R&D strategy supporting business strategy“Pursue customer value and cost advantage based on our products andtechnologies accumulated over the years”
Pursue customer value
Development of differentiated products
Polyolefin
Development of
Elastomer

Foundation
for the future

new technology

Development of new manufacturing
and products
technology
Catalyst, process

Marketpenetration

Consider both technology
and marketing(Restructured researchorganization and established
Resin-related Business
Development Dept.)

MarketR&D in response todevelopment globalization of business

Early development oftechnologies to maintain and ExistingNew
expand business
MarketHigh quality, stable supply, rationalization
Business Strategy for the Petrochemicals & Plastics Sector

Create and pursue
theme for the future(technological refinements)
Provide materials with functions thatmatch local customers' needs
Technological development supporting
licensing business (catalysts, processes,
products)
32

５．Final Words: Framework of Our Next Corporate Business Plan
Change and Innovation

Increase profits by taking advantage of the strengths of manufacturing bases inJapan, Singapore and Saudi Arabia Domestic operations
The role of the Japanese base as the mother factory and mother laboratory is becomingstronger in developing new technologies for safe and stable operations as well as high valueadded products. The Japanese base also focuses on the efficient management, differentiation,and licensing activity for existing businesses including PO and polyolefin.

 Singapore
Remain a front runner in the Asian market by reinforcing current strengths in personnel,
customer assets and costs, while strengthening a structure less affected by market conditions,as a steady source of profit and added value to customers.

 Saudi Arabia
Establish solid profitability effects of scale and low costs, by maintaining stable operation of
Rabigh Phase I Project facilities and smoothly launching Rabigh Phase II Project facilities.

Business Strategy for the Petrochemicals & Plastics Sector33

（Reference）
Change and Innovation

Company name and business

Ownership
ratio

PCS

Petrochemical Corporation of Singapore (Pte.) Ltd.
Ethylene center in petrochemical complex in Singapore

39.3%

TPC

The Polyolefin Company (Singapore) Pte. Ltd.
Manufacturing and sales of polyethylene and polypropylene

67.0%

SCA

Sumitomo Chemical Asia Pte Ltd.
Manufacturing and sales of petrochemical products

100.0%SCS

Sumitomo Chemical Singapore Pte. Ltd.
Control over manufacturing and sales of MMA monomer andpolymer
Sales of chemical products

100.0%

PRC

Rabigh Refining and Petrochemical Company
Manufacturing and sales of refined petroleum products andpetrochemicals

37.5%

Business Strategy for the Petrochemicals & Plastics Sector

34

Change and Innovation

Creative Hybrid ChemistryBusiness Strategy for the Petrochemicals & Plastics Sector

35

Cautionary Statement
Statements made in this document with respect to Sumitomo Chemical’s current plans,estimates, strategies and beliefs that are not historical facts are forward-looking
statements about the future performance of Sumitomo Chemical. These statements are
based on management’s assumptions and beliefs in light of the information currently
available to it, and involve risks and uncertainties.
The important factors that could cause actual results to differ materially from those
discussed in the forward-looking statements include, but are not limited to, general
economic conditions in Sumitomo Chemical’s markets; demand for, and competitive
pricing pressure on, Sumitomo Chemical’s products in the marketplace; Sumitomo
Chemical’s ability to continue to win acceptance for its products in these highly
competitive markets; and movements of currency exchange rates.