Materials markets expect reduced supplies after Harvey

As the Houston area begins to recover from Hurricane Harvey, resin makers and processors are coping with expectations of reduced supplies.

The storm hit the region on Aug. 25, bringing heavy rains that flooded much of the area, which is home to many resin and feedstocks plants. Many of those plants remained down or were working to restart as of Sept. 1.

Many suppliers declared force majeure sales limits because of reduced production.

"Our remaining Texas and Louisiana manufacturing sites continue to be operational at this time," a Dow Chemical spokesman said. "However, due to the limitations of infrastructure and logistics in the region, some sites may have to adjust production rates."

"Formosa will provide further information on supply quantities," Formosa Plastics Corp. USA officials said in an Aug. 28 letter to customers. "However, it is anticipated that this information will not be available for several days as we continue to assess the full impact of the hurricane and our ability to supply products."

Short-term price increases are expected on some materials. For polyethylene, a 3 cent hike that had been unsuccessful in August now is in place. Some PE suppliers have announced an additional 4-cent increase effective Sept. 1. Some PVC makers have announced a 5-cent increase attempt effective Oct. 1.

Consulting firm Petrochem Wire estimated that, as of Aug. 31, just over 60 percent of U.S. ethylene capacity remained down. Ethylene is a key feedstock used in PE, PVC and related materials.

Market analyst Phil Karig said it will probably take a few weeks to fully assess the damage to resin and feedstock plants along the Gulf Coast. The most likely scenario at this point is that at least some plants will be down for an extended period of time, he said.

"As a result, resin price increases could be steeper and longer lasting than increases in the aftermath of past hurricanes, as resin producers grapple with balancing customer demand while their resin supply is pinched," said Karig, managing director of the Mathelin Bay Associates LLC in St. Louis.

He added that resin consumers "will scramble to navigate the force majeure announcements that are sure to follow" and that the widespread nature of the flooding "is also likely to constrain the labor supply available for repairing and restarting plants, as some workers deal with damages to their own homes or volunteer for general hurricane relief efforts."

Texas-based ethylene and/or PE units affected by the storm as of Sept. 1, according to the S&P Global Platts news service, include:

• ExxonMobil in Baytown and Beaumont.

• Dow Chemical in Freeport and Seadrift.

• BASF/Total in Port Arthur.

• Chevron Phillips Chemical in Port Arthur, Sweeny and Baytown.

• DuPont Co. in Orange.

• Flint Hills Resources in Port Arthur.

• Huntsman in Port Neches.

• LyondellBasell in Channelview, La Porte and Corpus Christi.

• Ineos in Alvin (Chocolate Bayou).

• Shell Chemicals in Deer Park.

• OxyChem/Mexichem in Ingleside.

• Formosa Plastics Corp. USA in Point Comfort.

Sizable amounts of propylene monomer feedstock used to make polypropylene resin also are offline, as is some capacity making a variety of feedstocks used in the production of polystyrene resin.

ExxonMobil remained partially operational in Baytown, according to S&P Global Platts. BASF/Total in Port Arthur and LyondellBasell in Channelview were operating at reduced rates, the service added.

Both Formosa and Enterprise Products LP began to restart operations on Aug. 29. "We are making progress with our facility assessment and limited in-plant utilities are in operation," said Formosa officials about its Point Comfort facility. "Regular employee work schedules will commence on Aug. 29 ... at reduced staffing levels due to the number of employees that have sheltered outside the immediate area."

Enterprise Products also began work to restart production on Aug. 29, and expected to be back on line by Sept. 3, according to PCW.

Fairlawn, Ohio-based A. Schulman Inc. announced Aug. 29 that its three Houston-area facilities are closed to "ensure the safety of our employees and to respect nightly curfews which would impact some of the scheduled shifts."

Although materials plants themselves may not have sustained much damage, market analyst Robert Bauman said that "the key problem will be the infrastructure — including roads, rail and power — which could delay products in and out of the plants."

The storm hit during a renaissance for the North American PE market, with many firms adding capacity to take advantage of low-priced natural gas feedstock. Dow, ExxonMobil and Chevron Phillips already had opened new units in Texas this year.

Bauman, owner of Polymer Consulting International in Spring, Texas, said suppliers may face delays at their construction sites.

Shipping firms also have been building new supply centers to export some of the new PE capacity. It remains to be seen how this wave of growth will be impacted by the storm and its recovery.

The National Weather Service reported that two weather stations in Texas recorded more than 50 inches of rain from Harvey, the highest recorded rainfall from a single weather system in the continental United States.

"This will be a devastating disaster, probably the worst disaster the state's seen," said William "Brock" Long, the new director of the Federal Emergency Management Agency.

Huntsman also closed its corporate offices in the Houston suburb of The Woodlands as well as its Advanced Technology Center in the same city. Huntsman's other locations on the Gulf Coast, in Geismar, La., and Pensacola, Fla., remained open.

Flint Hills Resources closed its corporate offices in The Woodlands, but its production facility in inland Longview was still operating.

On Aug. 30, the U.S. Coast Guard allowed partial reopening of several Texas ports, including Houston, Corpus Christi, Galveston and Freeport, according to PCW. The heavily used Houston Ship Channel had been closed to inbound traffic.

M&G Group is assessing the status of a massive PET resin and feedstocks unit that it's building in Corpus Christi. Indorama Ventures and Nan Ya Plastics each had closed plants making PET feedstock MEG, according to PCW. The Indorama MEG plant is in Clear Lake, while the Nan Ya MEG unit is in Point Comfort.

PCW also said that resin shipments could be affected by Union Pacific Railroad's announcement that it will be issuing embargoes, beginning with all traffic destined to Houston and surrounding areas. As of Sept. 1, UP already had completed some repair work between Houston and the nearby cities of Bryan and Angleton.

In an Aug. 25 email, Dave Witte, a senior vice president with IHS Markit in Houston, said Houston-area flooding also could result in power outages that could last a week.

"More importantly," he added, "the supply chain will be impacted, as logistics in and out of Houston by rail, truck and the Port of Houston will be affected as will the ability of the workforce to recover and run these facilities."

American Chemistry Council President Cal Dooley said that Hurricane Harvey "presented extreme and unique challenges for the city of Houston and the surrounding areas in Southeast Texas and Louisiana, warranting an unprecedented response effort, including that by local industry."