All eyes were on Hurricane Laura last week, as the industry braced for its impact. Fortunately, the storm spared most of the energy-related infrastructure, although it did affect Lake Charles, LA, and a number of other regional petrochemical complexes. The added production disruption will further tighten already scarce polyethylene (PE) and polypropylene (PP) supplies, and several producers declared force majeure, which will apply continued upward pricing pressure on these already rising markets, reports the PlasticsExchange in its Market Update. Its trading desk returned the third straight week of record results, placing August 2020 among the resin clearinghouse’s highest-volume months ever, equaling the extreme Hurricane Harvey market back in September 2017.
Buyers scrambled to secure additional material last week. As offers cleared, sellers raised prices on the light supplies they then made available; consequently, spot prices jumped $0.02/lb across the full slate of prime commodity grade PE and PP resins. Rising prices should stifle incremental export opportunities, though a very solid monthly base should continue to provide good underlying support to the market, writes the PlasticsExchange. Price increases for both PE and PP were implemented in August and there is increasing likelihood that additional hikes will be secured for September contracts.
Dozens of plants shut down
As a precautionary measure ahead of the storm, refineries, oil and gas platforms, ports, rail systems, warehouses, and dozens of petrochemical plants and resin reactors in Texas and Louisiana were shut down. Estimates provided by the PlasticsExchange included 16 NGL crackers with a daily capacity of 95 million pounds, 14 PE reactors with daily capacity of 30 million pounds, and five PP reactors with daily capacity of 20 million pounds. Indeed, Hurricane Laura slammed into Louisiana last Wednesday as a very strong Category 4. The sustained 150-mph winds made it the largest storm to hit the United States in a decade and tied the strongest in terms of wind speed ever recorded in Louisiana, matching a storm back in 1856. Thankfully, the death toll was limited. However, there was extensive wind and flood damage to homes and personal property, and for those directly affected, the recovery will be long.
While the storm veered away from Texas and spared most of the energy-related infrastructure, it did impact Lake Charles, LA, and some petrochemical facilities. At first assessment, there appears to be no disastrous or long-lasting damage to facilities, but with power still down and flood waters still sitting, deeper assessments will be needed to better evaluate the situation. In the meantime, some facilities in Texas, spared by the storm, have already begun to restart; pending damages, others will begin to restart in the next days or weeks. Not to minimize the challenges to those that have been affected, it seems that much of the preparation paid off and the largest damage to the petrochemical industry could be somewhat limited to lost production and associated costs throughout the supply chain. Storm-related rail closures and soaring trucking rates will affect near-term logistics and pricing.
The PE market saw strong demand despite a pause, while the industry took a step back to see how Hurricane Laura would affect short- and mid-term resin supply and pricing. At first blush, it seemed that damages were limited, according to the PlasticsExchange, but the days and, indeed, weeks of lost prime production from a number of plants will exacerbate short supplies. Several producers declared force majeure, which helped send PE prices another $0.02/lb higher. Buyers were aggressive with orders: Some sought urgent shipments before Houston warehouses closed, while others secured additional material to provide a buffer against potential supply disruptions and rising prices. With the August nickel increase intact, PE producers have secured three straight increases totaling $0.14/lb and have their eyes set on another $0.05/lb for September. Very little fresh material was offered this past week, and sparse availability is expected this week, which should further support pricing and the increase initiative. While exports have remained relatively strong, especially by historical standards, rapidly rising prices should further crimp incremental sales, which will help provide more material to the domestic market.
Spot PP trading was very active, demand was strong, and many buyers chased limited resin availability as Hurricane Laura shut down some production in the Gulf, squeezing already sparse supplies and generating some force majeure declarations. Buyers grabbed all seemingly well-priced PP, whether it was prime or off grade, driving up prices another $0.02/lb. The heavy trading volumes were not just a quick hurricane-related flash; rather, this heightened activity has been sustained each week for the past two months, reports the PlasticsExchange. Processors that have been unable to procure the material they need from their typical channels, have found good success augmenting their supply through the PlasticsExchange’s liquid spot market. This could continue as upstream resin inventories continue to dwindle and will no doubt slide further into new historically low levels. This should help producers finally implement their well-needed $0.03/lb increase to help restore margins. Some producers should have seen some margin gain in August, while others will realize it in September. These increases are in addition to the $0.10/lb cost-post price increases achieved since June, including $0.035/lb in August.
Read the full Market Update on the PlasticsExchange website.