A series of outages at key petrochemical facilities along the Texas and Louisiana Gulf Coast rocked the plastics resin world last week. The disruptions could be particularly impactful to the polypropylene (PP) supply chain, and prices for both polymer-grade polymer (PGP) and PP resins reacted quickly to the upside, reports the PlasticsExchange in its Market Update. The potential for shortages and higher prices sent some plastics buyers to the market, while some suppliers pulled offers off the table as the situation unfolded.
Prices for both polyethylene (PE) and PP resins posted meaningful gains, as much as $0.03/lb depending on grade. Resin prices had already been in the early stages of an upswing after bottoming out in July, supported by tighter supplies on the back of record exports and shifting sentiment, now considered bullish.
Shutdowns, fires challenge supply
On Sept. 5, news emerged that Dow Chemical's propane dehydrogenation (PDH) unit in Freeport, TX, had come down over the weekend. Initial expectations were that it would be offline for a period ranging from two weeks to as much as two months. In addition, the Enterprise PDH #1 unit in Chambers County, TX, had also been taken offline with no re-start date provided. As the industry saw during Q1 2023, it can be a challenge to restart PDH units and bring them back to consistent operation.
A fire also broke out at the BASF TotalEnergies petrochemical site at Port Arthur, TX, which caused a tower to collapse. The complex is home to one of North America's largest heavy feedstock steam crackers. The incident is under investigation, reports the PlasticsExchange. Meanwhile, the entire complex has been shut down indefinitely.
These three fresh incidents add another layer of complexity to the overall petrochemical supply chain, which is already reeling from a fire at Marathon Petroleum's Garyville, LA, facility, which shut down the nation's third-largest refinery during the last week of August, writes the PlasticsExchange. All of this transpired even as major hurricanes have stayed away from the petrochemical producing part of the Gulf. The storm threat is not over, however, as the hurricane season can last into November, and the peak period is now at hand.
PE trading was busy from the get-go last week, as participants returned from the long Labor Day weekend to news that a major producer's much anticipated export availability was immediately sold out on the first day of offering. Disappointed traders, already frustrated by months of limited offerings during a period of record exports, shifted their demand inquiries to other North American producers and other regions, too, searching for alternative supply.
With Crude Oil prices continuing to rise, cost-advantaged North American producers have had little issue finding their own incremental offshore demand, which has also served to soak up surplus prime and off-grade supplies, which in turn has tightened up the US PE market and prices. Although there is plenty of excess production capacity, after a difficult year of margin compression, producers have managed to strategically tip pricing power back into their hands. The PlasticsExchange said it continued to see traditional bottom-fishing buyers seeking resin at last month’s prices to no avail. Some have begrudgingly come back to pay prevailing prices. The off-grade market has rallied the most, recouping much of the huge discount that it had held to Prime.
The PE price is right?
In somewhat of a surprise move, a major pricing index has assessed its August PE prices up $0.03/lb. This is contrary to a different major index that initially estimated the market to be flat. The PlasticsExchange agrees that real transactional prices were up in August, with its Prime prices rising an average of $0.02/lb. The resin clearinghouse disagrees, however, with the notion that prices were up $0.03/lb from the level that either of those indices had been pricing.
“If they both finalize up $0.03/lb, it would put their PE prices up $0.06/lb since the beginning of 2023, while [our] benchmark prices are down an average of $0.025/lb during the same period in 2023,” writes the PlasticsExchange in its weekly Market Update. “Only our high-density (HD) PE Film grade, which has faced a series of production issues, is up for the year — $0.03/lb at that — while all of our other polyethylene grades are down, with low-density (LD) PE Film grade down the most at $0.06/lb. Please do not misunderstand — we welcome the increase as we have accumulated heavy market-making inventories during the past couple of months and have been very vocal about it,” continued the PlasticsExchange. “We would be happy to sell our material at levels that were up $0.06/lb for the year, but, alas, the spot market price is not really there. If you are a contract buyer, are you paying up $0.06/lb for the year? We welcome your feedback.”
PP trading activity was elevated, but did not carry through to completed volumes, which were actually relatively light considering the developing market dynamics, said the PlasticsExchange.
The sudden jump in PGP monomer prices last week pushed some market participants to the sidelines, and much of the activity at the PlasticsExchange trading desk came from players trying to gather information regarding the two PDH outages and two recent refinery fires, which threaten propylene monomer supply. If problems persist, it could also affect PP production, according to the PlasticsExchange.
PP prices rise
PP prices escalated through Sept. 7, adding a total of $0.03/lb before easing back a half-cent before the weekend. Some spot availability quickly evaporated, as traders grabbed lingering offers and suppliers pulled back other offers awaiting clarification regarding the upstream outages.
Buyers from Mexico were turned off by the higher prices, and planned to revisit the market the following week. If a significant supply/demand balance were to develop, producers would be ready for margin expansion, as there is an average $0.03/lb price increase on the table. It's not necessarily market wide, adds the PlasticsExchange, which maintains its bullish position on the market from a sentiment, supply, and cost-push perspective. It also recognizes unenthusiastic demand from the buyers’ side as prices advance higher.
Read the full Market Update, including news about PGP pricing and energy futures, on the PlasticsExchange website.