Harvey's Aftermath: Upwards Movement for All Commodity Resins Prices

Hurricane Harvey’s impact continues though some impressive production and supply recovery is underway.

Although the full impact on availability of key feedstocks and some resins is to some extent unclear as is the factor of transportation logistics in the aftermath of Hurricane Harvey, there is some impressive recovery taking place on nearly all fronts. Still, there had been several force majeure actions announced and resultant material allocations.

Our industry friends at Houston-based PetroChemWire (PCW) have done an exemplary job with their daily coverage on plant shutdowns and startups, so please follow the link for a play-by-play.

Regular updates have also been offered by our friends at Houston-based IHS Markit. In addition, we’ve had updates and projections from our key resin pricing sources at Fort Worth-based Resin Technology, Inc. (RTi) and CEO Michael Greenberg of Chicago-based Plastics Exchange, The.

Overall, significant recovery was taking place in terms of restarting resin plants, with feedstocks lagging behind. One thing was clear, the pricing trajectory for pretty much all commodity thermoplastics is upwards, though how much and for how long is likely to vary by the resin.

Latest production update summaries from PCW and IHS Markit:

PCW on Olefins: Restarted olefins units and ramping up efforts at olefins units represent slightly more than 80 million lb/day of ethylene capacity. The storm had shut an estimated 100-105 million lb/day of ethylene production. More than 20 million lb/day of Texas ethylene capacity ran through the storm. No significant effect of the ethylene supply disruption has been seen so far, as comparable demand was also lost, on on-site downstream units appear to be restarting ahead of or in tandem with olefins production as it returns.

IHS Markit on Ethylene: The percentage of total U.S. ethylene production offline currently sits at about 10% and total U.S. ethylene consumption capacity is in a similar range, with three to four crackers still idled and at different stages of the startup process. The new ethylene units slated to come online within next six months are now expected to be delayed by a minimum of 30 days.

IHS  Markit on Propylene:  The amount of confirmed propylene monomer production assets offline sharply dropped to 13%. However, nearly 60% of assets is either in the process of restarting activities or is running at reduced rates. Consumers of propylene derivatives have observed a stronger rate of recovery and now seem to be limited by propylene supply…the price pressure will be sharply upward from pre-storm levels based on stronger derivative capability against limited supply, as well as higher propane costs.

IHS Markit on PE: It estimates that approximately 24% of U.S. PE production capacity remains offline as of today (9/13) while another 30% of U.S. capacity is operating at reduced rates. Alpha olefin supply constraints are also believed to be constraining operating rates as the site associated with about half of the U.S. linear alpha olefin production capacity was significantly impaired by the Hurricane and could be offline for several weeks.

IHS Markit on PP: They estimate that 98% of North American nameplate capacity is now online. Rail is shipping out of the gulf coast but there continues to be supply issues in specific cases where applications require specific grades. The market is heavily focused on supply over price this month with a wider range of price premiums for September product.

TPE’s Greenberg reported that while much of the shut petrochemical and plastics supply had begun to return back online, the lost production will never be recovered. He characterized the PE spot market overall as quite tight as processors “rushed” to the spot market to fill in supply gaps. Most of the volume transacted by TPE was spread among HDPE blow molding, LDPE for film and foam, and LLDPE film grades. All injection resins including HDPE, LDPE and LLDPE were characterized as exceedingly scarce. Spot prices ranged from a total of 8.5-14 ¢/lb higher within the last two weeks.

Similarly, Greenberg described the spot PP market as very active with prices jumping up by 11-13¢/lb. “The market was already in short supply ahead of the storm, and the lost production has highlighted the gap…these higher prices, however, have revealed some additional supply that was apparently held back as some suppliers have seemingly found this new level compelling.”

Weighing in on the trajectory of resin contract prices for commodity thermoplastics, including PE, PP, PS, PVC, PET, ABS, PC, Nylons 6 and 66, are RTi experts, along with PCW and Greenberg.

PE: Polyethylene prices moved up 3¢/lb in September, with a 4¢/lb increase proposed for mid-September or October, depending on the supplier, gaining momentum. “Expect firm to higher prices for the remainder of year, with delivery delays and resin allocations…all depending on the speed of recovery,” noted Mike Burns, RTi’s v.p. of client services for PE. His view was shared by the other industry pros.

PCW reported that not much, if any, incremental resin was expected in the spot market before November, but December could show a dramatically different supply balance, according to PCW. More than 7.7 billion lb/yr of new Gulf Coast PE capacity is slated to come online by end of year. Early indications are that those startups will only be delayed by a few weeks.

PP:  Polypropylene prices in August moved up by another .005¢/lb in step with the August propylene contract, but processors were looking at higher prices in September as suppliers aimed to push through a 3¢/lb profit margin expansion, above what the September monomer contract might settle at, according to Scott Newell, RTi’s v.p. of PP markets. He ventured at least a 5¢/lb increase to be implemented. Greenberg ventured a combined August/September increase of 10¢/lb or more.

PS:  Polystyrene prices remained flat in August as benzene contracts settled flat, but the scenario changed going into September. Suppliers issued and implemented a 3¢/lb increase in September, according to PCW and Mark Kallman, RTi’s v.p. of client services for engineering resins, PS, and PVC. Although PS production was not affected, raw materials were on their way up right after the storm.

September benzene contracts settled up an average of $2.66/gal—an 18¢/gal increase. This increase amount typically posts at a 2¢/lb cost pressure on PS, noted Kallman. He ventured that PS prices would move up by at least the September 3¢/lb. “We’ll see significant ongoing cost pressure from raw materials and transportation disruptions. What happens to spot benzene prices is key. Ditto for ethylene availability and pricing.”

PVC: Prices were flat in August and had the potential to remain flat in September, according to RTi’s Kallman. Two suppliers had issued a 5¢/lb increase, effective October 1, and others were likely to take similar action. How much prices move up is subject to pressure from ethylene, chlorine and PVC resin outages, said Kallman. He expected at least the 5¢/lb going through with more to follow.

PCW on Sept. 11, said that some VCM production in Texas was still shut down, and that PVC plants were running at reduced rates; albeit no apparent major PVC/VCM plant damages reported.

PET:  Domestic bottle-grade prime PET prices in August averaged 56.2ȼ/lb, up 1ȼ/lb from July, based on PCW’s Daily PET Report. That price represents PET business on a railcar delivered Chicago basis. Truckload business is typically 2-5¢/lb higher. The price on Sept. 5, was 60¢/lb, driven by higher feedstock costs and delivery snarls out of Houston tied to the hurricane. At least one PET supplier had proposed a 7¢/lb increase, effective Sept. 1, due to disruptions of feedstock deliveries, including MEG. Others were expected to take similar action.

ABS: Prices remained flat through July and August, after decreasing 5¢/lb in May—changing the trajectory that took place through April when prices increased 15-20ȼ/lb right through April—owing to significant price reductions in key feedstocks, according to RTi’s Kallman. A reverse trajectory was well underway in September. Although ABS resin production was not impacted by the hurricane, this was not the case with benzene, styrene, ethylene, butadiene and acrylonitrile.

Moreover, ABS prices in the Asian region were higher, and ABS imports are a big part of the domestic market, according to Kallman. He ventured an increase of 5¢ in ABS prices as likely in the near term.

PC: Polycarbonate prices were flat through July/August, having moved up between February/May by a wide range of 10-20¢/lb, owing primarily to a tightly balanced market and strong demand and despite the then fast-falling feedstock costs.

But that scenario was already changing in early August, prior to Harvey’s impact, due to a month-long shutdown at SABIC’s Berkfield, Ala. plant, which had further tightened the market, according to RTi’s Kallman. Enter the impact on benzene, propylene and phenol outages, and there was potential for upwards pricing.

NYLON 6 & 66 PRICES UP

Nylon 6 prices held firm in the July/August time frame following increases in the 2-7¢/lb range in June, which was driven by shortages in caprolactum, according to Kallman. He expected upward pricing for nylon 6, driven primarily by benzene prices and continued strong demand from the automotive sector.

Nylon 66 prices were largely flat between May and August, having moved up 15-20¢/lb within the March/April time frame, according to Kallman. While it appeared that nylon 66 production was not directly affected, key feedstocks and intermediaries including benzene, propylene, butadiene and acrylonitrile all were. He ventured that pricing for nylon 66 would be similar to PC, as producers of both these resins did not pass through some significant decreases in feedstock costs through third quarter. So, if there are further feedstock price increases, a fourth quarter increase would likely emerge for nylon 66, for which demand has been good and which is still relatively tight.