Processors fear
hurricane-induced PE shortage
By Frank Esposito
AKRON, OHIO (Sept. 30, 10:15 a.m. EDT) -- An already-tight polyethylene
market is being constricted further by Hurricanes Katrina and Rita, leaving
some processors frantic about sourcing the material they need.
Supplies of the world’s largest commodity resin started the year
balanced, but lower-than-expected demand caused overproduction and price
drops. By midyear, the situation was balanced again and heading tighter, as
producers lowered their operating rates and processor inventories were
depleted.
As a result, storm-altered capacity means supply is not there when buyers
need it most.
At one point, 55 percent of North American high density PE capacity was
down or reduced, according to a report from Chemical Market Associates Inc.,
a consulting firm in Houston. As of Sept. 27, Chevron Phillips Chemical Co.
LP’s 2 billion-pound-capacity HDPE plant in Pasadena, Texas, was in the
process of restarting. Formosa Plastics Corp. USA’s 1.7 billion-pound plant
in Point Comfort, Texas, was operating at reduced rates, but production at
13 other sites — representing almost 9 billion pounds of capacity — was shut
down.
The situation is even more extreme in linear low density PE, with 67
percent of regional capacity affected, according to CMAI. In Pasadena,
Chevron Phillips was bringing 225 million pounds of capacity back into
service. Formosa in Point Comfort was running 330 million pounds at reduced
rates and Dow Chemical Co. was doing the same with 1.6 billion pounds in
Taft, La.
That left almost 9.1 billion pounds of capacity at 15 sites unavailable.
The largest LLDPE outage was ExxonMobil Chemical Co.’s 2 billion-pound site
in Mont Belvieu, Texas.
The picture was a little less severe in LDPE, where CMAI estimated 37
percent of regional capacity was affected by the storms. Of the 3.5 billion
bounds shut down at eight sites, the largest was Dow’s 660 million-pound
works in Freeport, Texas.
Processors were left without a lot of answers as to when they would
receive resin shipments, or how much of their orders would be filled.
Industry sources said many major PE makers have placed customers on
allocations of 50-75 percent of their normal order amounts.
“We’ve got about a month of [PE] supply right now, but that counts 10
days of material that’s in transport on the way here,” a Texas-based PE
buyer said. “There are things we can do operationally to cut the amount of
polyethylene in our products, but it’s still going to be tough.”
Importing resin from Asia isn’t an immediate option, sources said,
because of the six-week delivery time such deliveries would require — going
a month from Asia to California, then another two weeks for distribution.
A PE buyer in the Southeast was scouring spot markets and brokerages to
make sure his firm had enough material for its production runs.
“October is going to be a hell of a month,” he said. “We’re all living
off of our inventories. The big issue is how fast the [resin] plants come
back up and how fast they can fill the [distribution] grid. Even if they
start making resin today, it will take another two weeks to get that resin
across the country.”
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