Sentiment clouded on impact of low Rhine levels

As July’s heatwave continues to sweep over Europe, concerns from some players in the petrochemicals industry have started to mount over water levels on the river Rhine.

The waterway acts as a key artery for transporting chemicals and feedstocks via barge, and as levels have declined over the past month.

This could interrupt the flow of materials, as vessels will be stopped if the water is too shallow, or be forced to carry less freight, which could result in higher transport costs.

"Rhine levels [are] dropping, freights will rise," a gasoil seller based in Germany stated earlier in the week, while an ethanol player said it was "looking with a half eye towards rhine water levels" for what impact this could have on prices.

The Kaub measuring point has dropped dramatically, as it was measured at 130cm today, down from 284cm on 26 June.

Concerns from earlier in the year were allayed by the snowmelt from the Alps supporting river levels from falling further.

Although at first glance it may seem as though the extreme weather has caused the drought, the lack of rain in recent weeks could be the reason why the water levels have been decreasing.

"There is no rain… [I] heard that the Kaub area is going to struggle – it needs to rain directly into the river and for some time," said a plasticizers buyer.

"It is not the heat wave itself but the lack of rain which impacts the Rhine water levels," added Florian Krekel of the Rhine Shipping Authority.

"The effect of snow melt in the Alps is decreasing and is not able to compensate for the drought.

"Comparing the current water levels with those of 2018 it can be stated that they are still some decimeter higher than last year (e. g. at Kaub about 30 cm). Naturally they are decreasing and this tendency will keep on until significant and widespread rainfalls occur," he said.

Last year the drop in water levels meant that several plants stationed along the river had to declare force majeures in some cases as they could not access raw materials to continue production.

BASF CEO Martin Brudermuller advised this week that the German chemicals major, whose Ludwigshafen headquarters is on the banks of the river, is working with external parties to predict how the river will act, to allow more time to bring in raw materials.

Although there has been some concern, this has not been universal from those involved in the chemicals sector for immediate logistics issues.

“[The level of] worry is too much. We're watching it [and] don't want to panic too early," a producer said, adding that it is in a strong position provided the effect isn't as severe as 2018.

"If we would see the Rhine going lower, we'd take appropriate measures," it added.

Another said: “Rhine water levels are not an issue at the moment… nothing in comparison to last year. If you look at historic water levels in July, it's not an unusual low.

"Since last year everyone is very alert looking at water levels…Normally July and August [aren’t] terrible issues for water levels. It is usually October, November [that levels reach their lowest point,” it added.

Later into the third quarter could be the pinch point for the industry if water levels continue on their downwards trajectory, while other factors could exacerbate logistical concerns.

“[There is] not much impact felt yet, but there has been mention of a couple of weeks of vessels waiting to discharge volumes due to lack of terminal space and good supply levels," a propylene buyer said

“Rhine water level is really lowering quickly… thunderstorms [are] forecast at the weekend to refill Rhine at the weekend," it added.

A producer added: “The Rhine is having problems again. With the new cracker maintenance season coming up there could be some problems by September.”

Although the hot weather is not the sole issues impacting the Rhine, but one seller speculated “all the rivers might have issue with the temperature if it continues.”

Rain is predicted in Europe at the weekend could serve to increase water in the Rhine in the near-term, allowing those in the chemical market more time to prepare for declining levels later in the year.