Commodity resin prices up in August, hurricane impact unclear for September

Updated — North American prices for most commodity resins rose in August, even before Hurricane Laura moved through the plastics-heavy U.S. Gulf Coast.

Sizable amounts of U.S. plastic resin and feedstocks production were taken down in advance of the storm, which made landfall near the Texas-Louisiana border on Aug. 26. Some of that capacity remains down, but most of it has begun to resume production.

Most resin plants near the Gulf Coast were left undamaged. But with most resin markets already tight, even short shutdowns could have an impact on availability and pricing of commodity resins throughout North America. Restoration of electricity and shipping challenges also could play a role in restoring production.

In a Sept. 4 email to Plastics News, a spokesperson for resin maker Dow Inc. in Midland, Mich., said that the firm has safely restarted Texas sites in Deer Park, La Porte, Bayport and Texas City and that those sites are back to pre-hurricane production rates.

The spokesperson added that Dow is to preparing its Sabine (Orange) and Beaumont sites in Texas to restart once power is restored at appropriate levels.

"We are very appreciative of the work the energy providers are doing to get power restored in the area as quickly as possible," the spokesperson said. "Dow is also providing support to more than 40 employees who have reported damage or losses due to the hurricane."

Even before the storm, tightening supplies and solid demand had sent North American prices for polyethylene, polypropylene, suspension PVC and solid polystyrene resins higher in August.

Regional prices for all grades of PE increased 5 cents per pound in August, with PVC up 3 cents and PS up 2 cents. For PE, it's the third consecutive month that prices have climbed, following a 4-cent hike in June and a 5-cent move in July. Some PE end markets have seen growth as a result of the COVID-19 pandemic.

"We have to determine the effect of [Hurricane Laura], but overall polyethylene demand is still strong," PE market analyst Mike Burns said. "Grocery stores are still full.

"Some processors are seeing record years," added Burns, who is with Resin Technology Inc. in Fort Worth, Texas. "Products for outdoor leisure activities are flying off the shelf."

The back-to-back-to-back summer price increases are rare for the PE market, based on previous price activity. A 5-cent increase is on the table for September. Burns added that 2021 could see "a major correction" in PE demand if COVID-related sales trends fade.

Market sources said that Westlake Chemical Corp., Chevron Phillips Chemical Co. and Sasol Ltd. have placed force majeure sales limits on PE resin. About 1.4 billion pounds of PE capacity operated by Westlake in Lake Charles, La., remains down, sources said, as does almost 2 billion pounds of PE operated there by Sasol Ltd. More than 900 million pounds of PE capacity operated by Chevron Phillips in Orange, Texas, also remains down, sources said.

PP prices increased by an average of 4 cents per pound in August. Prices had jumped 6 cents in July and 1 cent in June. Three consecutive summer price increases are rare for the PP market, based on previous pricing activity.

Some PP capacity on the U.S. Gulf Coast remains down after Hurricane Laura. "The market was tight to begin with," said Scott Newell, a market analyst with RTI. "Even if those Gulf Coast plants are only down for a few days, that could make the market even tighter.

"The market just feels super tight right now. Buyers are trying to find out where their rail cars are at," Newell said.

Market sources said that PP market leader LyondellBasell Industries had placed force majeure sales limits on PP, but a company spokesperson declined to confirm that move. The firm operates almost 3 billion pounds of PP capacity in Lake Charles. Sources said that capacity remained down as of Sept. 2.

A Sept. 2 letter from LyondellBasell to customers said that its Lake Charles operations "have sustained damages." Officials added in the letter that "basic transport in the area has been impacted," including rail and barge traffic.

An Aug. 28 statement from LyondellBasell said that most of its Houston-area facilities "had returned to pre-storm conditions" but gave no details for Lake Charles. Separate from the hurricane, Formosa Plastics Corp. USA in early August placed force majeure sales limits on PP made at its plant in Point Comfort, Texas.

Sources said that most of the August PP price hike was tied to higher prices for propylene-grade monomer feedstock, but some of it also went toward margin improvement. PP makers are seeking more margin improvement on top of any change in monomer pricing for September as well, they added.

Regional PP demand had been hurt by the COVID-19 pandemic but has been improving in recent months, RTI's Newell said.

North American PP supplies "remain extremely tight with very strong demand from consumers," officials with distributor/consultant Blue Clover Polymer Solutions in Princeton, N.J., said in a recent research note.

They added that producers with full production capacity — not counting LyondellBasell and Formosa — "describe an environment by which customers are maximizing contract volumes and asking for more on top. This is leaving very little product for the spot and export markets."

The 3-cent PVC hike for August followed increases of 3 cents in June and 2 cents in July. Demand for the material has increased as construction markets have begun to recover from COVID-19. Construction-related uses account for around 60 percent of PVC consumption in the U.S. and Canada.

Export sales of PVC from North America also are strong, and producer inventory levels remain around seven days, a relatively low level, according to a market source contacted by Plastics News.

"Inventory is the lowest it's been in a long time," the source said.

The source added that regional PVC supplies have been limited by force majeure sales limits put in place by Formosa Plastics Corp. USA because of pre-hurricane operating challenges at that firm's complex in Point Comfort, Texas. Post-hurricane, Westlake took that same step Aug. 31 for North American PVC.

Almost 2.1 billion pounds of annual capacity for PVC feedstock VCM operated by Westlake in Lake Charles remains down, sources said. Regional PVC makers now are seeking increases of 3 cents per pound for September.

The 2-cent jump in PS prices for August comes after prices moved up 3 cents in July and 2 cents in June. The August PS price hike followed an increase for benzene feedstock, which is used to make styrene monomer. Benzene prices moved up 15 cents to $1.53 per gallon during July, a jump of more than 10 percent.

PS markets could be affected by the shutdown of almost 600 million pounds of styrene capacity operated by Westlake in Lake Charles. Sources said that capacity remained down as of Sept. 2.

A Sept. 3 report from Houston-based data firm ICIS said that power company Entergy plans to restart the first of its transmission lines into Lake Charles in mid-September, but until that happens, power could remain out in Lake Charles.

The report added that all nine transmission lines that deliver power into the Lake Charles area are out of service, including seven owned by Entergy Corp. All seven of those lines have suffered "catastrophic damage," according to the report.

At the peak of the storm shutdown, ICIS estimated that 18 percent of U.S. PE capacity was offline, along with 26 percent of PP capacity. For plastics feedstocks, ICIS estimated that 29 percent of U.S. ethylene production was offline, as well as 14 percent of production of polymer-grade propylene.

Higher prices for commodity resins could place pressure on North American processors, according to Phil Karig, managing director with Mathelin Bay Associates in St. Louis.

"In the wake of COVID-19, it's difficult to lump all plastics processors into one bucket when it comes to being able to absorb recent resin price increases," he said. "Some processors are experiencing good and even outstanding demand, especially in markets serving consumers directly and producing disposables."

Karig added that products for new housing construction and home renovation "are also benefiting from the sudden shift to more working from home," but processors dependent on packaging for food distribution to schools and restaurants "are seeing less robust demand and are less able to absorb resin price hikes."

Market analyst Esteban Sagel said that he has been surprised by strong prices for North American commodity resins. He cited "the unprecedented and rapid escalation" of exports from North America to China as one reason for higher PE prices.

"The U.S. has clearly benefited from this trend, in spite of the commercial and trade war between the two countries," said Sagel, president of Chemical & Polymer Market Consultants in Houston. Domestic demand has been "somewhat strong," also lifting prices, he added.