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November 14, 2005 01:00 AM

Nova confirms PE production glitch in Ontario

Frank Esposito
Senior Staff Reporter
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    As if the U.S. Gulf Coast wasn't giving the polyethylene market enough sleepless nights, production in Canada is having problems of its own.

    On Nov. 7, PE maker Nova Chemicals Corp. of Pittsburgh declared force majeure on PE production at its Sarnia, Ontario, plants. Nova makes more than 1.2 billion pounds of PE at two plants in Sarnia, with most of that production in high density PE. The Nov. 7 announcement also covers ethylene and propylene feedstocks and other chemical products produced by Nova in Corunna, Ontario.

    The event marks the second time Nova has declared force majeure on those products in 2005. The firm originally declared force majeure at the site in April after a power outage in the area.

    The shutdown lasted less than 10 minutes, but ongoing production problems lowered Nova's second-quarter earnings by $20 million to $25 million. Production resumed in mid-May, but force majeure market conditions lasted several weeks after that.

    The newest declaration is the result of a prolonged maintenance turnaround. The work began in early September and was expected to end in late October. But Nova public affairs Vice President Greg Wilkinson said that a number of factors have extended the restart date to later in November.

    Weather-related problems involving heavy rain, minor equipment issues and skilled labor availability are the culprits, Wilkinson said.

    ``We need 2,000 contract workers for the turnaround, and there seems to be a lot of additional demand for skilled workers in the area and in the industry in general,'' he said.

    The turnaround was expected to hurt Nova's earning by $15 million to $25 million, but the extended period will lift that figure to $25 million to $40 million, officials said.

    Nova's PE customers are receiving material on allocated rates that vary by product, Wilkinson said. Demand for PE remains strong, he added.

    ``This is definitely a supply issue, because demand is there,'' he said. ``It's hard to see this [supply/demand] situation changing until well into next year.''

    In the first nine months of 2005, Nova's PE and olefins sales in dollars were up 16 percent, even as sales volume in pounds for those products was down 11 percent. Profit in that area was almost $200 million in the nine-month period, up 17 percent from the same period in 2004.

    Elsewhere in the PE world, Houston-based ExxonMobil Chemical Co. has resumed normal operations at its massive petrochemicals plant in Beaumont, Texas. ExxonMobil operates 1.8 billion pounds of PE capacity at the Beaumont site, which lost about 10 production days as a result of Hurricanes Katrina and Rita.

    Market tightness caused by the hurricanes - as well as Nova's production woes - combined with low first-half inventories and high natural gas prices have sent average PE prices soaring 32 cents per pound since Aug. 1, according to the Plastics News resin pricing chart.

    An increasing number of processors have looked to source their resin outside of North America to continue production runs and meet orders for their products. Other processors are considering using nonplastic materials such as paper, metal or concrete for some products until resin prices come down.

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