Kirby Corporation · NYSE:KEX
Kirby — Investor Day (November 2006)
42 slides from Kirby's investor day presentation, Nov 8, 2006
Slide 1: Global Petrochemical Outlook
Global Petrochemical Outlook Is the U.S. Still a Part of the Puzzle? (if so, where does it fit?) Mark Mark AA Fisler Fisler Executive Executive Vice Vice President President November November 8,8, 2006 2006
Slide 2: Presentation prepared by CMAI for Kirby investor event
The following presentation was prepared by Chemical Market Associates, Inc. (CMAI) for the November 8, 2006 presentation by Kirby Corporation, CMAI and Purvin & Gertz, Inc. to investors and analysts held in Houston, Texas. The presentation is provided without any express or implied endorsement by Ki
Slide 3: How will the market pieces come together?
With so many factors at play and such a diversity of outcomes, it is worth examining… How will the market pieces come together? Economic and Energy Impression Demand Growth Transformation Capacity Addition Concentration Future Earnings Profile U.S. Volumes stable or increasing
Slide 4: How will the market pieces come together?
With so many factors at play and such a diversity of outcomes, it is worth examining… How will the market pieces come together? Economic and Energy Impression Demand Growth Transformation Capacity Addition Concentration Future Earnings Profile U.S. Volumes stable or increasing
Slide 5: Impression: Economic performance better than expected
Impression ~ Economic performance has been better than would be expected given the broad influence of geopolitical events. Risks mounting. Global Expansion Continues Rate of Growth slowing but still evident in all regions Developed Country consumption showing cost strain China and U.S. are growth en
Slide 6: Main forecast calls for sustained growth
Main forecast calls for sustained growth but powerful forces are just below the surface that could derail current economic performance. Probability Schematic Representation of Global GDP Growth 30% Asymmetrical Probabilities 25% Tipping Points and Cross-currents 20% 15% 10% 40% 60% Main Forecast 5%
Slide 7: Positive economic factors still outweigh risks
Positive economic factors still outweigh risks but the balance is in jeopardy of tipping back toward the negative side… Positive Economic Factors vs. Risks Monetary Policy High Energy Prices Fiscal Policies Uneven GDP Growth Corporate Profits 2006-2010 Government Deficits Oil $ Re-Investment Balance
Slide 8: Base case: GDP growth in 3%-4% boundary
Base Case Expectation ~ Economic growth rates will remain in a 3%-4% “prevailing boundary” until early in the next decade. Percent Change GDP Growth Rate Constant 2004 Dollars 8 U.S. 7 6 Global 5 4 3 2 1 0 -1 Sustaining Argument: All Regions Are Advancing -2 81 83 85 87 89 91 93 95 97 99 01 03 05 07
Slide 9: Demand surge reduced OPEC spare capacity
Demand surge in 2003/2004 reduced OPEC spare capacity to inadequate levels; market is highly sensitive to political “uncertainties” . . . Million Barrels per Day 50 Other OPEC Venezuela Iraq Saudi Arabia Capacity 40 Production OPEC Capacity 30 20 Demand For OPEC 10 Crude Oil Source: Purvin & Gertz 0
Slide 10: U.S. gas advantage becoming a distant memory
Large U.S. gas advantage (bubble) is becoming a distant memory. Large domestic production base will provide a slight buffer to world events. 110% Ratio of U.S. Natural Gas vs. Crude Oil Price 110% 100% 100% PetChem Parity 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% Source: Purvin & Gertz 40% 40% 86 88 9
Slide 11: How will the market pieces come together?
With so many factors at play and such a diversity of outcomes, it is worth examining… How will the market pieces come together? Economic and Energy Impression Demand Growth Transformation Capacity Addition Concentration Future Earnings Profile U.S. Volumes stable or increasing
Slide 12: Retail sales indicate demand transformation
Retail Sales of Select Economies indicate the demand transformation that is occurring. Product mix must change in concert. Index (2002 = 100) 180 Forecast China Petchem Market Factoid: 170 About 66-75% of Russia 160 Production Ends Up In 150 Non-Durable Goods India 140 U.S. 130 Canada 120 Brazil 110
Slide 13: Global chemicals and plastics demand growth resilient
Global Basic Chemicals and Plastics demand growth remains resilient despite high energy values due to widespread usage gains. Two-Year Rolling Average Demand Growth Two-Year Million Million Metric Metric Tons Tons 30 30 25 20 15 10 5 0 Two-Years Ending in… 87 88 89 90 91 92 93 94 95 96 97 98 99 00 0
Slide 14: High energy prices stopped growth in mature markets
Recession at the start of this decade and high energy prices have effectively stopped growth in mature markets… Million Metric Tons 175 Basic Chemicals and Plastics 150 North America Demand 125 100 75 50 25 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 CMAI Presenta
Slide 15: Global Assembly Lines
“Global Assembly Lines” have developed that convert advantaged hydrocarbons into consumer goods for all markets… Growth in Chemicals Demand Will Continue to Hydrocarbon Outpace That of The World Economies Value Extremely Efficient Supply Chains Have Been Developed – Global Labor Cost Companies and T
Slide 16: Regional Assembly Lines
“Regional Assembly Lines” are also developing, converting advantaged hydrocarbons into consumer goods for all markets… Growth in Chemicals Demand Will Continue to Outpace That of The Regional Economies Consumer Demand Efficient Supply Chains Have Been Developed – Global Companies and Hydrocarbon Lab
Slide 17: Production shifted to cost competitive regions
This slow pace of growth, coupled with a still robust consumer products demand, has shifted production to “cost competitive” regions… Percent of World Basic Chemicals & Plastics Demand 90 70% North America & West Europe Share 80 Share in 70 1985 60 40% Share in 50 2010 40 30 20 85 86 87 88 89 90 91
Slide 18: Emerging economies are the growth engine
Emerging Economies have become this sector’s growth engine with no signs of a global slowdown in sight… Million Metric Tons 700 Basic Chemicals and Plastics Global Demand 600 600 500 400 300 200 100 0 85 85 86 86 87 87 88 88 89 89 90 90 91 91 92 92 93 93 94 94 95 95 96 96 97 97 98 98 99 99 00 00 01
Slide 19: How will the market pieces come together?
With so many factors at play and such a diversity of outcomes, it is worth examining… How will the market pieces come together? Economic and Energy Impression Demand Growth Transformation Capacity Addition Concentration Future Earnings Profile U.S. Volumes stable or increasing
Slide 20: Shift in new capacity emphasis to New Gulf and China
A unique shift in new capacity emphasis has altered the typical pattern; global markets are totally focused on feedstock and labor cost. Global Basic Chemicals and Plastics Percent Percent of World Total by Middle East & China 80% 78% in 2010 ““New New Gulf” Gulf” & China Capacity Represent Vast Maj
Slide 21: Global capacity vs. demand growth
While regionally concentrated, upcoming additions to capacity will begin to overwhelm global markets again late this decade. Basic Chemicals and Plastics Global Capacity vs. Demand Growth Percent Percent of of Demand Demand Base Case 5 Moderate to Excess Capacity Additions Severe 4 Overbuilding 3 2
Slide 22: Project execution delays in challenging environments
Concentration of capacity in the most challenging project execution environments will continue to foster “market benefiting” delays. Global Capacity vs. Demand Growth Iran Start -ups Delayed Two Years More – 40% Case Start-ups Percent of Demand 5 Excess Capacity Additions Slightly 4 Long to 3 Reason
Slide 23: How will the market pieces come together?
With so many factors at play and such a diversity of outcomes, it is worth examining… How will the market pieces come together? Economic and Energy Impression Demand Growth Transformation Capacity Addition Concentration Future Earnings Profile U.S. Volumes stable or increasing
Slide 24: Earnings remain strong despite record energy prices
Earnings remain strong despite record energy prices. More very-low-cost production supports higher earnings in the future. Global Basic Chemicals and Plastics Segment Contribution to Weighted Average EBIT $200 $200 Current Current Dollars Dollars per per Metric Metric Ton Ton $175 $175 Hyper Energy
Slide 25: Earnings performance becoming chain specific
Earnings performance is becoming very chain specific as low cost new capacity remains focused on certain products and markets. ($ per Tonne) Global Integrated Chain EBIT 350 Chain Thin Lines Performance 300 Will Be Represent Different 250 Reinvestment 200 Level Earnings 150 100 50 0 -50 -100 Olefins
Slide 26: U.S. earnings follow the global pattern
Earnings performance in the U.S. will follow the global pattern although absolute earnings will differ depending on market exposure. ($ per Tonne) U.S. Integrated Chain EBIT 350 Chain Performance 300 Will Be Different Here 250 Too 200 150 100 50 0 -50 -100 Olefins & Polyolefins Benzene & Styrenics C
Slide 27: Iranian delays improve earnings potential through 2008
Delays in completion and commissioning of new Iranian facilities provides this chain with better earnings potential through 2008. (Million Metric Tons) Olefins and Polyolefins Chain (Percent Surplus) 60 24% 55 Global Market Balance 22% 50 Percent Surplus Cumulative Capacity Surplus 20% 45 18% 40 16%
Slide 28: Ethylene Market?
Ethylene Market? Vision: A couple of more very good years before oversupply conditions… Global Economic recovery has been very supportive of ethylene demand: Growth in 2004 was 5.7% (best since 1999) While 2005 was lower (+1.0%), 2006 will be higher (6.1%) Prices (and costs) returning to (ne
Slide 29: How will the market pieces come together?
With so many factors at play and such a diversity of outcomes, it is worth examining… How will the market pieces come together? Economic and Energy Impression Demand Growth Transformation Capacity Addition Concentration Future Earnings Profile U.S. Volumes stable or increasing
Slide 30: World Ethylene Demand Forecast
World Ethylene Demand Forecast Total Demand Growth = 4.2% AAGR 2006-11 Million Metric Tons 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 01 02 03 04 05 06 07 08 09 10 11 PE Ethylene Oxide EDC EBZ Others Capacity CMAI Presentation – November 2006
Slide 31: Ethylene Margin Outlook Very Positive
Ethylene Margin Outlook Very Positive Dollars Per Ton 800 Global Ethylene Cash 700 Margins 600 500 400 300 200 100 0 01 02 03 04 05 06 07 08 09 10 11 U.S. Ethane U.S. Int. Lt. Naphtha WEP Naphtha SEA Naphtha CMAI Presentation – November 2006
Slide 32: U.S. Ethylene Production by Feedstock
U.S. Ethylene Production by Feedstock Million Metric Tons - Ethylene 30 25 20 15 10 5 0 01 02 03 04 05 06 07 08 09 10 11 Ethane/Propane Naphtha Butane Gas Oil Others CMAI Presentation – November 2006
Slide 33: U.S. Ethylene Feedstock Requirements
U.S. Ethylene Feedstock Requirements (heavier feedslate will require increased liquid movements) Million Tons 70 60 50 40 Avg 700 thousand tons/yr more than 30 2005 baseline 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Naphtha Gas Oil Butane Ethane/Propane (pipeline) Co-Product Yie
Slide 34: U.S. Propylene & Butadiene Domestic Demand Forecast
U.S. Propylene & Butadiene Domestic Demand Forecast Million Tons 20 18 16 14 12 10 Avg 1.0 million 8 tons/yr more than 6 2005 baseline 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Propylene Butadiene CMAI Presentation – November 2006
Slide 35: U.S. Benzene & Derivative Domestic Demand Forecast
U.S. Benzene & Derivative Domestic Demand Forecast Million Tons 25 20 15 Avg 400 thousand 10 tons/yr more than 2005 baseline 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Benzene Styrene Cumene Phenol Cyclohexane CMAI Presentation – November 2006
Slide 36: U.S. Xylene & Toluene Domestic Demand Forecast
U.S. Xylene & Toluene Domestic Demand Forecast Million Tons 18 16 14 12 10 8 Avg 1.0 million tons/yr more than 6 2005 baseline 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mixed Xylene Paraxylene Toluene CMAI Presentation – November 2006
Slide 37: MSAT 2 – New Regulation Creates Barging Opportunity
MSAT 2 – New Regulation Creates Barging Opportunity (Benzene Content Legislature for US) z NPRM “Control of Hazardous Air Pollutants from Mobile Sources,” signed by EPA Administrator on February 28, 2006 z Goal – Lower emissions of benzene and the other air toxics z Strategies: z Limit benzene conte
Slide 38: Current U.S. Mogas Benzene Levels
Current U.S. Mogas Benzene Levels (2003, excluding California) 4.0 Conventional Reformulated 3.5 Benzene Content (vol%) 3.0 2.5 2.0 ~120 refineries total 1.5 1.0 0.5 0.0 0 10 20 30 40 50 60 70 80 90 Cumulative Gasoline Produced (Billions of Gallons) CMAI Presentation – November 2006
Slide 39: Proposed Gasoline Benzene Standard
Proposed Gasoline Benzene Standard z Annual refinery average benzene standard: 0.62 vol%, effective January 1, 2011 under averaging, banking and trading (ABT) program z Gasoline sold in California not covered z CA has already implemented more stringent standards similar to those EPA is proposing z W
Slide 40: Estimated Program Impacts
Estimated Program Impacts z Program met mostly with benzene precursor control with/without isom, extraction used on Gulf and East Coast, some benzene saturation z Cost for 0.62 vol% Bz std with ABT is 0.13 c/gal over all gasoline z Estimated capital cost is $500 million (excluding capital for H2 and
Slide 41: Forecast Sensitivity Factors
Forecast Sensitivity Factors The things that can make one look a little silly z The energy scenario z Political agendas z Demand price elasticity z Downstream rationalization z Plant closures z Climate CMAI Presentation – November 2006
Slide 42: In Summary: core questions on the chemical market
In Summary, we are often asked to answer these core questions in the framework of our global chemical market analysis … Where Are We In This Cycle - Boom Or Bust? -Certainly Past The Peak Can Product Segments or Regions Differentiate? -Segments Can ~ Regions Cannot (Not For Long) Which Value Chains