Skip to main content
Sister Publication Links
  • Sustainable Plastics
  • Rubber News
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Processor News
    • Suppliers
    • More News
    • Digital Edition
    • End Markets
    • Special Reports
    • Newsletters
    • Resin pricing news
    • Videos
    • Injection Molding
    • Blow Molding
    • Film & Sheet
    • Pipe/Profile/Tubing
    • Rotomolding
    • Thermoforming
    • Recycling
    • Machinery
    • Materials
    • Molds/Tooling
    • Product news
    • Design
    • K Show
    • Mergers & Acquisitions
    • Sustainability
    • Public Policy
    • Material Insights Videos
    • Numbers that Matter
    • Automotive
    • Packaging
    • Medical
    • Consumer Products
    • Construction
    • Processor of the Year
    • Best Places to Work
    • Women Breaking the Mold
    • Rising Stars
    • Diversity
    • Most Interesting Social Media Accounts in Plastics
  • Opinion
    • The Plastics Blog
    • Kickstart
    • One Good Resin
    • Pellets and Politics
    • All Things Data
    • Viewpoint
    • From Pillar to Post
    • Perspective
    • Mailbag
    • Fake Plastic Trees
  • Shop Floor
    • Blending
    • Compounding
    • Drying
    • Injection Molding
    • Purging
    • Robotics
    • Size Reduction
    • Structural Foam
    • Tooling
    • Training
  • Events
    • K Show Livestream
    • Plastics News Events
    • Industry Events
    • Injection Molding & Design Expo
    • Livestreams/Webinars
    • Editorial Livestreams
    • Ask the Expert
    • Plastics News Events Library
    • Processor of the Year submissions
    • Plastics News Executive Forum
    • Injection Molding & Design Expo
    • Plastics News Caps & Closures
    • Women Breaking the Mold Networking Forum
    • Plastics in Automotive
    • PN Live: Mergers and Acquisitions
    • Polymer Points Live
    • Numbers that Matter Live
    • Plastics in Politics Live
    • Sustainable Plastics Live
    • Plastics Caps & Closures Library
    • Plastics in Healthcare Library
    • Women Breaking the Mold Networking Forum Library
  • Rankings & Data
    • Injection Molders
    • Blow Molders
    • Film Sheet
    • Thermoformers
    • Pipe Profile Tubing
    • Rotomolders
    • Mold/Toolmakers
    • LSR Processors
    • Recyclers
    • Compounders - List
    • Association - List
    • Plastic Lumber - List
    • All
  • Directory
  • Resin Prices
    • Commodity TPs
    • High Temp TPs
    • ETPs
    • Thermosets
    • Recycled Plastics
    • Historic Commodity Thermoplastics
    • Historic High Temp Thermoplastics
    • Historic Engineering Thermoplastics
    • Historic Thermosets
    • Historic Recycled Plastics
  • Custom
    • Sponsored Content
    • LS Mtron Sponsored Content
    • Conair Sponsored Content
    • KraussMaffei Sponsored Content
    • ENGEL Sponsored Content
    • White Papers
    • Classifieds
    • Place an Ad
    • Sign up for Early Classified
MENU
Breadcrumb
  1. Home
  2. News
September 16, 2019 09:53 AM

Analysts speculate on impact of Saudi drone attacks on global resin market

Frank Esposito
Senior Staff Reporter
Plastics News Staff
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Saudi Aramco
    Saudi Armco's oil refinery plant at Khurais, one of two sites damaged by drone strikes.

    Updated Sept. 19

    Drone attacks on two of Saudi Aramco's facilities in eastern Saudi Arabia have resin sector analysts speculating on the impact on global resin prices, especially polyethylene and polypropylene.

    Over the weekend, a number of companies announced feedstock supply disruptions as a result of the Sept. 14 attacks, which forced Aramco to reduce crude supply by around 5.7 million barrels per day, or about 50 percent of its total production.

    Global oil consumption is about 100 million barrels a day.

    Just three days after the drone attack, the Saudi energy mininister said the country would restore its lost oil production by the end of September. But the incident caused uncertainty on markets from oil, petrochemicals and plastics.

    Key producers, including Saudi Basic Industries Corp.; Sahara International Petrochemical Co. (Sipchem); Advanced Petrochemical Co.; National Industrialisation Co. (Tasnee); Yanbu National Petrochemical Co. (Yansab); and Saudi Kayan Petrochemical Co., all announced "curtailment" of feedstock supply, ranging between 30 to 50 percent.

    The Saudi situation "will clearly help the U.S. polyolefins business by making exports even more competitive," according to Robert Bauman, president of at Polymer Consulting International in Ardsley, N.Y.

    "Volumes should increase, which is critical given the amount of new polyethylene capacity coming on stream in 2019," he added. "If Asian prices increase dramatically, the U.S. may even be able to export into China."

    Bauman also said that if exports volumes increase and PE and PP operating rates are high, he would expect domestic prices to also increase.

    "It's a sad commentary when disasters are needed to improve polyolefins performance," Bauman said. "In 2017 and 2018, it was Hurricane Harvey. In 2019 and 2020 it's the Saudi attack."

    A key to the impact on the North American market will be how much crude oil prices rise, even though most commodity resins in the region are made from natural gas, not oil.

    North American resin producers already have a feedstock cost advantage. The Aramco disruption could make that even more pronounced.

    "This is a significant reduction in crude oil production that could have a shocking impact to all products if not resolved quickly," James Ray, senior consultant with ICIS in Houston, said.

    "How high this will drive oil prices yet to be seen. Higher oil prices increase the U.S. shale oil and associated gas advantage globally, but passing on price increases is always a challenge and can temporarily reduce seller margins, while higher prices can dampen consumer demand."

    Ray added that the further down the value chain a product is, the less impact crude oil prices have. In the case of U.S. PE resin, Ray said, crude oil has a very low correlation to the U.S. market price, because a large share of that price is margin.

    That margin, in turn, is driven by billions of dollars of investments made to utilize low-cost ethane feedstock, along with supply and demand.

    In general, Ray added, on commodity polymers, a $10 change in crude oil might drive an estimated 2-4 cents per pound change in market price, depending on the type of resin.

    Joel Morales, who follows polyolefins at IHS Markit, addressed the pricing impact in remarks Sept. 17 at the SPE Annual Blow Molding Conference in Atlanta.

    "For every $10 move in oil prices, that tells the naptha polyethylene guy he's got to raise his price 8 cents a pound just to keep his margin," Morales said. "So as a response we've already seen spot offers in Asia jump. They've come down a bit. We've seen one producer in North American already announce 8 cents a pound price increase for October, in additional to a 3 cent per pound increase."

    Morales said some of the Saudi Armaco oil production was taken offline as a safety measure. "But we estimate that there's 3 million barrels a day that's down for a period of time, and the million-dollar question is, what's that period of time?" he said at the blow molders conference.

    Polyethylene is an important resin for the blow molding industry, both for packaging and durable goods.

    Phil Karig, managing director of Mathelin Bay Associates LLC in St. Louis, added that since the price of crude oil-based feedstocks often determines the break-even point for many high-cost global resin producers, feedstock-advantaged U.S. polyethylene producers should benefit from "a bump in exports."

    "While the oil market can certainly recover from a short-term dislocation ... geopolitical risks are very likely to add a price premium to oil prices for some time to come," Karig said.

    Karig added that U.S. PE makers should benefit from the opportunity to selectively increase prices if domestic resin capacity utilization gets tighter.

    As the largest market for Saudi exports, Asia will feel the most pain.

    "The immediate impact from [resin] suppliers to the Asia markets has been to withdraw offers that were in place before the loss of Saudi production," Nick Vafiadis, plastics vice president at IHS Markit in Houston, said. "However, most have refrained from offering new prices due to uncertainties around the magnitude and duration of the outages."

    He added that IHS Markit is also still assessing the extent of the damage. Vafiadis said that it is important to note that Saudi Arabia represents about 9 percent of global PE resin capacity and about 6 percent of global PP capacity.

    As a result, he added, any prolonged disruption — or any prolonged spike in crude oil prices — is likely to support higher resin prices.

    At the blow molding conference, Morales said the drone strike marks the largest event ever, in oil production volume, in the past 50 years."Expect some volatility. We've lost a big chunk of the world's safety stock, he said.

     

    Companies impacted

    In a statement, Sipchem said feedstock supply to its operations had been cut by around 40 percent and that it was working on evaluating the final effects of the cut in financial terms.

    Saudi Aramco
    Saudi Aramco's oil refinery at Abqaiq, one of two sites damaged by drone attacks.

    In a similarly worded statement, Tasnee also announced that it was calculating the impact of a 41 percent cut in its feedstock supplies to its petrochemical affiliates in Jubail, eastern Saudi Arabia.

    Advanced Petrochemical Co., with the capacity to produce 630 kilotonnes per year of propylene and 500 kilotonnes per year of PP, also announced 40 percent cuts in feedstock supplies on Sept. 14.

    According to a Sept. 15 report by chemical news website ChemWeek, Saudi Arabia's leading petrochemicals firm Sabic also cut the supply of feedstock to some of its largest production subsidiaries.

    Sabic company Yansab has had its feedstock supply cut by approximately 30 percent, according to the report. The company produces 400 kilotonnes annually of propylene and 900 kilotonnes of PE.

    Another key Sabic affiliate, Saudi Kayan has also had its feedstock supplies reduced by approximately 50 percent. Kayan, according to ChemWeek, operates low and high density PE units at Jubail with capacity for 300 kilotonnes each, as well as a 350 kilotonne PP plant.

    London consulting firm Wood Mackenzie warned of the "dent in petrochemical margins" as crude oil prices spike.

    Saudi Arabia, according to S&P Global Platts, has a combined capacity to produce 17.5 million metric tons per year of ethylene, or around 9 percent of total global capacity. The kingdom also has a combined PE production capacity of around 9 million tonnes per year, or around 8 percent of global capacity.

     

     

    Shahrzad Pourriahi of Plastics News Europe and Bill Bregar of Plastics News contributed to this report.

    RECOMMENDED FOR YOU
    TI Fluid Systems building Michigan innovation center for e-mobility
    Letter
    to the
    Editor

    Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Plastics News would love to hear from you. Email your letter to Editor at [email protected]

    Most Popular
    1
    Redline buys Georgia-based Quality Holdings
    2
    Mattress maker Purple continues fight against takeover
    3
    Ineos workers in Ohio on strike
    4
    Redline's ‘outrageous cultural behaviors' retain top employees
    5
    Material Insights: Polypropylene production — both virgin and recycled — in the spotlight
    SIGN UP FOR OUR FREE NEWSLETTERS
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    Get our newsletters

    Staying current is easy with Plastics News delivered straight to your inbox, free of charge.

    Subscribe today

    Subscribe to Plastics News

    Subscribe now
    Connect with Us
    • LinkedIn
    • Facebook
    • Twitter
    • Instagram

    Plastics News covers the business of the global plastics industry. We report news, gather data and deliver timely information that provides our readers with a competitive advantage.

    Contact Us

    1155 Gratiot Avenue
    Detroit MI 48207-2997

    Customer Service:
    877-320-1723

    Resources
    • About
    • Staff
    • Editorial Calendar
    • Media Kit
    • Data Store
    • Digital Edition
    • Custom Content
    • People
    • Contact
    • Careers
    • Sitemap
    Related Crain Publications
    • Sustainable Plastics
    • Rubber News
    • Tire Business
    • Urethanes Technology
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Processor News
        • Injection Molding
        • Blow Molding
        • Film & Sheet
        • Pipe/Profile/Tubing
        • Rotomolding
        • Thermoforming
        • Recycling
      • Suppliers
        • Machinery
        • Materials
        • Molds/Tooling
        • Product news
        • Design
      • More News
        • K Show
        • Mergers & Acquisitions
        • Sustainability
        • Public Policy
        • Material Insights Videos
        • Numbers that Matter
      • Digital Edition
      • End Markets
        • Automotive
        • Packaging
        • Medical
        • Consumer Products
        • Construction
      • Special Reports
        • Processor of the Year
        • Best Places to Work
        • Women Breaking the Mold
        • Rising Stars
        • Diversity
        • Most Interesting Social Media Accounts in Plastics
      • Newsletters
      • Resin pricing news
      • Videos
    • Opinion
      • The Plastics Blog
      • Kickstart
      • One Good Resin
      • Pellets and Politics
      • All Things Data
      • Viewpoint
      • From Pillar to Post
      • Perspective
      • Mailbag
      • Fake Plastic Trees
    • Shop Floor
      • Blending
      • Compounding
      • Drying
      • Injection Molding
      • Purging
      • Robotics
      • Size Reduction
      • Structural Foam
      • Tooling
      • Training
    • Events
      • K Show Livestream
      • Plastics News Events
        • Plastics News Executive Forum
        • Injection Molding & Design Expo
        • Plastics News Caps & Closures
        • Women Breaking the Mold Networking Forum
        • Plastics in Automotive
      • Industry Events
      • Injection Molding & Design Expo
      • Livestreams/Webinars
        • PN Live: Mergers and Acquisitions
      • Editorial Livestreams
        • Polymer Points Live
        • Numbers that Matter Live
        • Plastics in Politics Live
        • Sustainable Plastics Live
      • Ask the Expert
      • Plastics News Events Library
        • Plastics Caps & Closures Library
        • Plastics in Healthcare Library
        • Women Breaking the Mold Networking Forum Library
      • Processor of the Year submissions
    • Rankings & Data
      • Injection Molders
      • Blow Molders
      • Film Sheet
      • Thermoformers
      • Pipe Profile Tubing
      • Rotomolders
      • Mold/Toolmakers
      • LSR Processors
      • Recyclers
      • Compounders - List
      • Association - List
      • Plastic Lumber - List
      • All
    • Directory
    • Resin Prices
      • Commodity TPs
        • Historic Commodity Thermoplastics
      • High Temp TPs
        • Historic High Temp Thermoplastics
      • ETPs
        • Historic Engineering Thermoplastics
      • Thermosets
        • Historic Thermosets
      • Recycled Plastics
        • Historic Recycled Plastics
    • Custom
      • Sponsored Content
      • LS Mtron Sponsored Content
      • Conair Sponsored Content
      • KraussMaffei Sponsored Content
      • ENGEL Sponsored Content
      • White Papers
      • Classifieds
        • Place an Ad
        • Sign up for Early Classified