Resin market recovery could linger through first half of 2021

Resin suppliers are facing some harsh realities in the wake of Winter Storm Uri, which hit Texas in mid-February.

The storm affected the production of almost every resin and feedstock made on the Texas Gulf Coast. Electricity and natural gas were knocked out at some sites for 48 hours or more. And even though many are up and running now, getting back to pre-storm production may take longer than expected, according to market sources interviewed by Plastics News.

These conditions are expected to make it difficult for resin buyers to source many resins, possibly through the first half of 2021. A resin distributor in the southern U.S. told PN that his firm was offered 10 truckloads of polypropylene resin last week, but before they could buy them, a compounding firm bought the material for a higher price.

"We're hearing you can only get spot material if you're willing to pay 50 percent more," he said. "This isn't going to get better overnight."

ExxonMobil Chemical has begun restarting activities in Beaumont, Texas, and is preparing to restart at Baytown, a company spokesman told PN. The firm "is working to reestablish normal operations and replenish fuel supplies as safely and quickly as possible following the extreme weather in Texas," he said.

ExxonMobil had closed those locations in advance of the cold weather. The firm makes polyethylene resin and ethylene feedstock at both sites, as well as PP resin in Baytown and propylene feedstock in Beaumont.

A spokesman for resin maker Dow Inc. of Midland, Mich., said in a March 4 email that although it's too early for Dow to estimate potential impact on its businesses, officials in the near-term "expect the product and supply chain impacts across the industry to create very tight supply balances across our key value chains."

"We are prioritizing startups for impacted operations based on raw material availability and utility balances," the spokesman added.

Chevalier Gray, media relations manager with LyondellBasell Industries in Houston, said in an email that power has been restored to the firm's U.S. Gulf Coast asset locations and personnel are performing storm-related repairs.

"When repairs are complete and raw materials and utilities become available, we will safely resume operations," she said.

On a Feb. 23 conference call with analysts, Albert Chao, president and CEO of Houston-based resin maker Westlake Chemical Corp., commented on post-ice challenges that his firm could be facing.

"With a hard crash hurricane, you know it's coming, you prepare and you shut [plants] down orderly," he said. "But with a freeze, sometimes you're caught off guard, your boilers get tripped and you're out of steam and the plants come crashing down."

Resin distribution veterans Bruce Flannery and Jeff Schultz of resin distributor Amco Polymers covered many areas of the resin shortage on a March 2 webinar hosted by the Manufacturers Association for Plastics Processors. Flannery is commodities product director and Schultz is engineering thermoplastics product director for Orlando, Fla.-based Amco.

Flannery and Schultz estimated that as of Feb. 28, North American PE and PP resin production was running at a combined operating rate of only 12 percent, compared with its normal 90 percent level. They also estimated that 80 percent of the region's resin makers had customers on some type of allocation.

On March 3, Indianapolis-based MAPP announced the launch of a new digital plastics materials exchange platform to its membership to locate and purchase raw material. Officials said the current raw materials crisis and force majeures in the plastics marketplace create an immediate opportunity to identify alternate materials.

"Historically, molders hold excess inventory created by canceled programs, projects with high-volume projections with disappointing results and custom resins that can't be used elsewhere," they said in a news release. "This creates a window of opportunity for MAPP members to bring these two worlds together."

Members can log in to the MAPP website and post excess or obsolete raw materials to sell or indicate what materials they need. During the webinar, MAPP Executive Director Troy Nix said that the organization has been posting two or three emergency alerts every day from members needing material.

Amco's Flannery explained on the webinar that current resin shortages are the result of a series of events that began last March, when uncertainty tied to the pandemic caused resin makers to destock. That then left supplies already tight when demand returned more quickly than expected, both in the U.S. and globally.

The situation was worsened by a turbulent hurricane season in August, Flannery said, which led to logistics being overwhelmed. But resin demand remained strong, he added, further tightening the market until the ice storm "decimated refinery and chemical operations."

"The state of the market is a dumpster fire," Flannery said. "I've never seen this in 40 years in the industry."

Cracked pipes, joints and valves at resin plants may be difficult to repair, with many firms looking for parts. Flannery said that some ethylene and propylene plants began to operate at reduced rates starting Feb. 28, but he added that "doesn't mean full production."

Schultz said that lead times for deliveries of many resins now are stretching beyond 20 weeks, with lead times for imported resins at 28-30 weeks.

"It's hard to estimate your needs for delivery in August or September," he added. "COVID disrupted historic forecast models. There isn't any unsold resin and domestic demand from many markets remains strong, including packaging, health care, automotive, and building and construction."

Schultz added that sales at major retailer Home Depot were up 25 percent in the fourth quarter and that U.S. vehicle production in the third and fourth quarters matched year-ago levels, even after seeing a huge pandemic drop in the second quarter of 2020.

Final vehicle build numbers for 2020 now are expected to reach 16 million — just slightly under 2019 — after dropping to a production rate equal to 13 million earlier in 2020. Flannery said that in some cases, production schedules at material plants have changed because of employees contracting COVID. He added that maintenance schedules also have been extended. Truck and shipping traffic also is backed up because of high numbers of orders.

The resin outage amounted to 1.9 billion pounds of lost PE/PP production in the 12-day period starting Feb. 14, according to Flannery. "That production is gone forever," he said. "It's not like you can work Saturday and Sunday and make up for it."

Although most resin plants should be up and running at some level by mid-March, it could be late in the second quarter before producers can fully meet allocations.

"With a hurricane, you can get a quick read within 24 or 48 hours and know what's affected," Flannery said. "This [ice storm] is like a hurricane hit all of Texas and sat for a week.

"The next two weeks will be critical to recovery," he added.

Potential shortages of PE and PP needed to make packaging and consumer goods, which account for more than half of demand for those resins, could lead to hyper demand, high prices and ongoing allocations.

"That's not good for our industry," Flannery said. "That's the last thing any of us want."

According to Schultz, supplies of many engineering resins — including polycarbonate, ABS, nylons 6 and 6/6, acetal and PBT — should remain tight through the first half of 2021. "We don't know what we'll get or when we'll get it, and prices are moving up," he said.

Flannery and Schultz recommended several action steps for resin buyers, including working with core suppliers and talking with them to ensure credit availability. Processors also should qualify alternate resins and require multiple resin approvals, they said. Providing suppliers with a two- to three-day delivery window also is a good idea.

"Be ready to give long-term commitments and make sure you're getting your allocated amounts," Schultz said. "We're all in this together, but processors need to start being proactive now."

Market analyst Robert Bauman, president of Polymer Consulting International in Ardsley, N.Y., compared the ice storm to Hurricane Harvey, which hit the Gulf Coast in August 2017 and disrupted resin market well into 2018.

"Most of the [resin] plants were operational after a few weeks following the hurricane, exclusive of infrastructure problems," he said in an email to PN. "I believe that most people along the supply chain may not realize the severity of a sudden, unexpected power failure."

Bauman added that, in addition to outages in utilities and olefin feedstocks, a sudden power failure could result in the contents of some polymer reactors solidifying.

"This would require a difficult, manual, labor-intensive process to remove the solidified contents of the reactor and repair or replace any instrumentation and controls affected by the freeze," he said.

An East Coast resin distributor told PN that the current market is "the worst I've seen in 25 years."

"I've never seen as few offers for polyethylene [resin] as we're seeing now," he said. "Some plants are coming back on, but things might not get back to normal until May."