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 pounds 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.''