At press time in mid-October, the impact of Hurricane Ike on Gulf Coast refineries and resin plants was still being assessed. Just a few suppliers had declared force majeure, although some, such as ExxonMobil, were placing customers on allocation and others were assessing the potential for such a move. Even though it could be weeks before the Gulf Coast chemical industry gets back to normal, observers last month doubted supply disruptions would be as great as in 2005 after Hurricanes Katrina and Rita.
Just before Ike struck, commodity resin prices seemed headed for a nosedive. Crude oil prices were slumping, as were those of petrochemical feedstocks. Domestic demand remained weak, but suddenly exports had dried up as well, removing the one prop that had held up domestic resin production. Resin suppliers’ inventories started swelling, and better price deals were in the air. It seemed clear that, barring a devastating event, polyolefin prices, particularly PE, were embarked on a downward path.
Polyethylene prices dropped in early September, wiping out the 7¢/lb increases that had arrived in July and August. While the price declines were not universal, they were expected to broaden by the month’s end. Another indicator, the London Metal Exchange (LME) North American short-term futures contract for blown film LLDPE, was 71¢/lb for October, down from September’s 75¢/lb.
Contributing factors: There was an uptick in PE resin buying in late July and August, ahead of the 8¢/lb price hike announced in August. Last month, that hike looked dead on arrival, according to Mike Burns, global business director for PE at resin purchasing consultant Resin Technology, Inc. (RTI) in Fort Worth, Texas. “There is no justification for higher resin prices,” he said. “Processors are only buying as needed. The export market is gone, and monomer prices are dropping.” Burns did not expect to see any significant PE price increases for at least six months.
Ethylene monomer contract prices settled at 74.5¢/lb in July, but there were strong indications that August-September contracts would be at least 10¢ lower. Ethylene precursor ethane dropped from $1.50/lb to 88¢/lb, back to where it was a year ago.
Polypropylene prices dropped an average of 2¢/lb in August, and there appeared to be no chance the 6¢ increase due Aug. 1 would survive. More and possibly larger decreases in PP prices appeared likely before the storm arrived last month. What’s more, the LME North American short-term futures contract for October in g-p injection-grade homopolymer sold for 68¢/lb, down sharply from September’s 77¢.
Contributing factors: August contract prices for propylene monomer settled at 85¢/lb, but at press time, September contract nominations signaled an impending drop of as much as 20¢/lb. Spot propylene monomer was selling in the 50-53¢/lb range in late August and early September.
Said Scott Newell, director of client services for PP at RTI, “Expect a big correction in PP prices in September and October. Prices for PP could come down 20¢/lb by the end of September and another 5¢ in October.” He said PP suppliers’ inventories grew by 200 million lb due to lack of domestic demand and a big drop in exports—except to Latin America. However, he noted that unlike PE, the profit margins were so poor for PP, that PP resin prices could bounce back to some degree.
Addressing the uncertain impact of Hurricane Ike, one leading PP supplier says, “All bets are off” until things are assessed. “We have indication that propylene monomer will be very tight, and we went into the Hurricane event with only two- to three-day monomer inventories.” This source insists that no matter how much monomer prices drop, don’t expect PP resin prices to drop the same amount. RTI’s Newell says that prior to Ike, monomer inventories at most propylene suppliers had been growing consistently for over eight weeks. “We might see a tightening of propylene supply, but it will be short-term, as we were in good shape in terms of inventory build-up going into it.”
PET prices dropped 5¢/lb in August and September. Further declines are likely.
Contributing factors: PET tabs continue to track prices of feedstocks—paraxylene and ethylene glycol—which dropped 5.5¢/lb. Said Michael Dewsbury, PET global business director for RTI, if oil prices continue to drop, these feedstocks will drop further and PET resin prices will track them nearly penny for penny.
While PET suppliers implemented increases of 15¢ to 17¢/lb through July, margins were basically nil, as the increases exactly mirrored the price hikes of PET feedstocks. Dewsbury ventures that PET resin tabs could drop another 5¢/lb, if not more.
In mid-September, PVC producers were still assessing the disruption from Hurricanes Gustav and Ike earlier in the month, which caused extensive power outages, flooding, and disruption of transportation from the Gulf Coast to the Great Lakes. PVC producers lost one to two weeks of production to the storms.
Georgia Gulf put out a letter moving its 4¢ increase from Aug. 1 to Sept. 1, but it was not supported by other suppliers. Shin-Tech and OxyVinyls declared force majeure. Shin-Tech’s Freeport and Plaquemine plants restarted right away and are expected to be back in full production soon, but the Addis, La., plant is making repairs and is not expected to be working before the end of September. Formosa in Point Comfort has no major damage and is resuming full production, pending availability of feedstock. OxyChem is on sales control.
Contributing factors: With feedstock prices falling and demand very weak, processors had expected PVC prices to drop a penny in September, but hurricanes delayed that. The problem is getting people back to work, power back up and feedstock pipelines full again. Flooding has extensively disrupted rail shipping, both for incoming feedstock and delivery of product, much of which is moving in bulk trucks instead.
Ineos and America’s Styrenics both delayed hikes of 4¢ for crystal and 5¢ for HIPS from Sept. 1 to Oct. 1, a move not supported by Total in mid-September. America’s Styrenics was on allocation.
Contributing factors: Demand was very weak, processors say. The storm made feedstock supply the big issue, expected to keep prices level through September, despite falling prices for oil (under $100/bbl in mid-September) and natural gas. HIPS is a concern because two suppliers of butadiene declared force majeure.
KEY: Colored areas indicate pricing activity. An arrow () indicates direction of price change. aTruckload, unless otherwise specified. bUnfilled, natural color, unless otherwise specified. cBased on typical or average density. dNot applicable. eNovolac and anhydride grades for coils, bushings, transformers. fNovolac and anhydride grades for resisitors, capacitors, diodes. gIn quantities of 20,000 lb. h19,800-lb load. jLME 30-day futures contract for lots of 54,564 lb..