As Hurricane Harvey began to form and threaten the heart of the Houston area’s petrochemical industry last week, what started out as a slow spell in the spot resin markets became a small flurry of activity, reports the PlasticsExchange (Chicago). Fearing disruption, buyers sought to secure additional material as an inventory buffer. All commodity grades of polyethylene (PE) and polypropylene (PP) rose $0.005/lb; as the week drew to a close, resin suppliers were pulling offers off the table pending the storm situation.
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Ahead of Harvey’s landfall, petrochemical complexes began to shut down numerous facilities, including crackers, refineries and resin reactors as well as logistics-related shipping channels, ports, warehouses, railways and roads. The cumulative effect will absolutely affect resin supply, but the full magnitude cannot be determined as the storm system remains active, writes the PlasticsExchange in its Market Update.
Harvey hit the Houston area Friday night as a huge Category 4 hurricane. The impact has been devastating to the population as well as the petrochemical industry, and a series of force majeure notices have since been issued by resin producers, citing plant shutdowns and logistics constraints.
According to PetroChemWire, more than 50% of all Texas ethylene capacity has been taken offline, with at least 130 million pounds of production already lost and an ongoing pace of 70 million pounds lost per day. At least eight major plastics resin production facilities have also been shut, representing about 900 million pounds of monthly capacity—30 million pounds of lost resin production per day! PetroChemWire’s full and ongoing coverage can be found here: http://www.petrochemwire.com/Frames/Events/Storm/HarveyUpdate.html.
The major energy markets all moved lower and the PlasticsExchange expects heightened volatility as the hurricane-related market unfolds.
Supply and demand fundamentals in the PE market had been heavy and did not support the $0.03/lb price increase that was nominated for August. While producers invoiced sales including the increase, a caveat allows for a rollback of pricing if the increase fails to implement. A major consultancy suggested that contracts should roll flat, an assessment with which the folks at the PlasticsExchange agreed. Then Hurricane Harvey blew into town, changing everything.
Given the massive petrochemical production shutdown and resin supply disruption, the PlasticsExchange now sees the $0.03/lb PE increase sticking. Only two PE producers nominated an additional $0.04/lb increase for September contracts. The potential for sustained production disruption could justify additional upside, according to the PlasticsExchange. Other producers could quickly nominate their own September increases, though there could be some issue with fair notice. In the meantime, force majeure notifications have been sent, and the full extent of the hurricane’s damage is not yet known.
The PP market also will see a supply disruption, but to a lesser extent than the PE supply chain. Still, since PP supplies have been very tight, especially co-polymers, the PlasticsExchange says that it expects PP prices to move higher in the aftermath of the storm. PP producers have been seeking at least a $0.03/lb increase above and beyond the change in August PGP costs. The cost-push increase was only a half-cent this month and the additional margin gains were not necessarily secured before the hurricane hit, though this could vary among market participants.
The PlasticsExchange has been bullish on PP prices in recent weeks. Since monomer costs have continued to rise to a level that would justify a September increase, coupled with the added weather dynamic, PP will likely move higher and also bring the elusive margin gain within reach, according to the resin clearinghouse.
PlasticsToday joins the PlasticsExchange in extending our best wishes that Gulf residents and the petrochemical industry affected by Hurricane Harvey are safe and secure and that they quickly recover from the catastrophic storm.
Read the full Market Update on the PlasticsExchange website.