U.S. polar storm triggers surge in global chemical prices

According to Trade Arabia news on February 21: Industry experts said that the polar storm in the United States has caused the closure of 90% of the US polypropylene production capacity and 67% of the ethylene production capacity, and destroyed other important products, triggering a surge in global chemical market prices.

Will Beacham of ICIS Chemical Company added that more chemical plants and refineries along the Gulf Coast have been hit by long-term power and raw material outages caused by freezing and icy weather, leading to the disruption of logistics networks.

More severe weather is expected later this week to prolong the traffic disruption.

So far, ICIS has reported more than 60 factory shutdowns caused by storms. Data analysis using ICIS's supply and demand database shows that most areas of the Gulf petrochemical industry have been severely affected.

In terms of output, ethylene is the most affected, with an offline capacity of 26 million tons, accounting for 67% of the total in the United States. Approximately 11 million tons (50%) of propylene production capacity is also in a state of suspension, and the output of many refineries in the region is also decreasing. More than 2 million barrels/day of U.S. refining capacity was shut down.

In terms of percentages, the main commodities most affected are epichlorohydrin (100% off-line production capacity in the United States), propylene oxide (100%), toluene diisocyanate (100%), ethylene glycol (90%), poly Propylene (90%), propylene glycol (88%), acrylonitrile (73%) and styrene butadiene rubber (71%).

The power outage is tightening the global market, which is already suffering from shortages and rising prices. Global container transportation system problems, factory shutdowns and healthy downstream demand have led to tight supply, especially the propylene and polyethylene chains.

Propylene and polypropylene may be one of the products most affected by the storm because the market is already in turmoil. The coronavirus pandemic has reduced the demand for transportation fuel and has caused refineries to close or reduce production, especially in Europe and the United States.

The closure of these factories had a knock-on effect on the supply of propylene and polypropylene, causing prices to soar. As the U.S. polypropylene production capacity is highly concentrated on the Gulf Coast, even temporarily restricted production capacity will have a huge impact on the already tight market.

U.S. propylene prices are at a 10-year high, and inventories are about half of what they were a year ago. Due to the decrease in propylene production last year, consumption exceeded production.

At the end of 2020, U.S. polypropylene inventories hit a seven-year low, partly due to demand rebound and monomer supply constraints. There were also production problems before this weather event.

The polyethylene market is not that serious. Restrictions on packaging supply and demand have supported the global market through a pandemic, and logistics challenges and outages have led to shortages and soaring prices in 2021.

With nearly two-thirds of the ethylene capacity in the United States going offline, the global polyethylene market may tighten further.

Due to the storm, Lucite demolished its factory in Beaumont, Texas, and it is expected that the supply of methyl methacrylate (MMA) in the United States will be further restricted. Strict restrictions on the raw material acetone continue to limit production. Due to the high cost, it is said that manufacturers will impose a temporary acetone surcharge on orders starting this month.

With the end of the Spring Festival holiday on February 17, demand in the world's largest chemical market began to pick up.

In Africa, sellers of polyethylene and polypropylene from various sources have withdrawn their prices. It is expected that US exports will be interrupted and the market will rebound strongly after the holiday.

Asian monoethylene glycol (MEG) prices soared by 11% on Thursday, the largest one-day increase on record, supported by tighter global supplies.

There are concerns that key commodities such as ethylene exported by the United States to Asia may be interrupted by supply disruptions related to the storm.

European prices were also boosted by the storm. Upstream price increases and bullish sentiment have pushed up benzene prices, and styrene prices are currently at their highest level since April 2018.