It was another extraordinary week for the petrochemical industry, as severe winter storms blanketed the petrochemical-laden Gulf Coast with snow, ice, and freezing temperatures, writes the PlasticsExchange in its Market Update. The storm forced at least 50 major outages and closures, including most Gulf refineries, petrochemical plants, and steam crackers; all three propane dehydrogenation (PDH) units; and resin reactors accounting for an estimated 80 to 85% of all US polyethylene (PE) and polypropylene (PP) production. Logistics were further disrupted by the complete shutdown of the Port of Houston, rail services, resin warehouses, and highways, restricting movement of goods. While there will be a race to restore petrochemical and plastics production, initial resources will sensibly be geared toward humanitarian efforts and the safety of the population. As one might imagine, writes the PlasticsExchange in its weekly update, given that resin supplies had already been incredibly short, spot prices absolutely exploded as processors rushed to secure material to remain operational.
Spot resin prices escalated rapidly. While buyers initially were sticker-shocked by the asking prices, demand far exceeded supply, so he who hesitated or dared to negotiate missed out on that procurement opportunity, according to the PlasticsExchange. Even as prices began another leg higher to this rally, suppliers were apprehensive to offer out much resin as the industry waited for initial infrastructure damage assessments and estimates for restarting production throughout the supply chain. Resin restocking prospects will be dim for a while. Even in the unlikely event that everything comes back with relative ease, there will still be at least one to two weeks of lost production. Realistically, it will probably take longer and certain outages will likely persist.
As the market awoke after the winter storms, PE prices quickly jumped about $0.08/lb. High-density PE resins, with production predominately located in the Gulf, rose the most, and by the end of the week, nary a pellet of blow-molding resin could be found. While low-density and linear-low-density PE prices also soared, they did lag a tad, perhaps in light of the meaningful portion of North American production that comes from Canada, where they are plenty used to Arctic-type temperatures. This weather event put an absolute lock on the February $0.07/lb PE price increase and gives strong credence to the viability of the next $0.07/lb increase nominated for March, according to the PlasticsExchange. Spot ethylene prices ran up about 25% to $0.45/lb this past week, while the reversal of the forward curve steepened. With resin prices sprinting well-ahead of monomer costs, these rising ethylene prices are noteworthy, but not the most influential factor supporting PE prices at the moment.
On the other hand, for the past several months, PP prices have been largely influenced by runaway monomer costs, and spot PGP prices hit an all-time high of $1.05/lb amid heavy turnover. Aside from unprecedented cost-push pressures, PP resin has been super scarce and new widespread production disruptions will only exacerbate the situation.
PP prices jumped $0.18/lb the week of Feb. 15, having risen $0.39/lb since the beginning of February and a total of $0.56/lb since 2021 began. As extreme as the rally has been, resin prices still appear to be heading much higher from here, as upstream PP supplies sink deeper into all-time lows. In addition to the imminent cost-push pass through, producers should receive their $0.06/lb margin-enhancing increase in February, as supported by this supply/demand imbalance. In an effort to close the supply gap, huge volumes of PP imports have been hitting US shores; in light of this new Gulf Coast production disruption, that will continue for at least a couple more months, notes the PlasticsExchange. Despite sky-high ocean freight and rising PP prices around the globe, additional shiploads of containers stuffed with PP have been placed on order destined for North America.
The PlasticsExchange reports that it has scoured the market to find a steady flow of PE and PP resins to help keep processors up and running. Spot prices are very fluid, however, and offerings do not last long. Available volumes at each price are limited, cautions the PlasticsExchange.
Read the full Market Update on the PlasticsExchange website.