Texas ice, cold shut down resin operations

Already tight resin markets will be further tightened by freezing temperatures that have knocked out power across Texas.

It may take several days to determine just how much the storms and power outages have hit resin companies in the region. More than 200,000 homes and businesses were without power late Feb. 18 in Texas, according to a USA Today report.

That number had been as high as 4 million on Feb. 16, when temperatures dipped into the single digits overnight. Frigid temperatures have resulted in almost 60 deaths in Texas and other states.

Much of east Texas — including the Gulf Coast, where much resin production is located — was hit by snow and ice earlier in the week. Bitter cold across the state led to some power companies being unable to produce electricity from coal, natural gas and wind due to freezing temperatures.

Houston-area temperatures were expected to drop to just below freezing again to close out the week, according to the National Weather Service, but improve to lows in the 40s from Feb. 20-22.

"It's probably going to be Monday [Feb. 22] until we really know where we stand," one resin company executive told Plastics News.

Most production of resin and related materials was down early Feb. 19, with several producers declaring force majeure or otherwise limiting sales through allocations. On Feb. 18, research firm ICIS of Houston estimated that almost 90 percent of U.S. polypropylene resin production was offline. The firm also placed outages for linear low density polyethylene at 54 percent, LDPE at 51 percent, high density PE at 42 percent and PVC at 16 percent.

In feedstocks, ICIS estimated 65 percent of U.S. ethylene production was down, as well as almost 50 percent of propylene and 23 percent of vinyl chloride monomer. "At present, authorities have not been able to give a timeline for full power to be restored to the state power system," ICIS said in a Feb. 18 report.

"Several facilities have co-generation on-site but there are the larger macro issues," said Chip Swearngan, director of corporate communications and government relations for Houston-based Westlake Chemical Corp., in a phone interview. "Gas pipelines and the feedstocks have been impacted. There are limits on the supply of ethane and other feedstocks coming into the facilities."

Westlake has about 500 employees in the Houston area and another 1,000 staffing a handful of facilities across the state border in Lake Charles, La.

"The uncertain timeline for power to be restored to the state and the time necessary to bring production units back online and ramp up output means that supplies could be constrained in the country for weeks," the ICIS report added.

The regional PP market is facing unprecedented shortages. Supplies already were tight before the Texas ice storm because of limited supplies of propylene. Price hikes of 20-30 cents per pound or more were possible for February for both PP resin and propylene even before the storm.

"We're hearing that some of these [PP] plants could be up and running by the end of next week, but some of these shortages could last another two months," said Marc Fern, executive vice president with resin distributor M. Holland Co. in Northbrook, Ill.

Fern added that the lack of available PP resin could lead some processors to close plants or production lines temporarily if they can't get enough material. "Without propylene, [resin makers] can't make resin, and converters can't make their products," he said.

PE supplies also are expected to tighten. On a Plastics News webinar Feb. 16, market analyst Mike Burns of Resin Technology Inc. said that "there are a lot of gray areas, but it's not looking positive right now." He added that the Texas weather impact has solidified a 7-cent increase that PE makers were seeking for February. Another 7-cent PE hike is on the table for March.

PP makers that have declared force majeure include LyondellBasell Industries, Ineos Olefins & Polymers and Flint Hills Resources, according to letters obtained by PN. Celanese Corp. also has declared force majeure on acetal resins.

ExxonMobil Chemical has closed its Beaumont and Baytown plants in Texas because of freezing weather conditions, coupled with the curtailment of natural gas supplies throughout Texas, a company spokesman said in an email to PN.

ExxonMobil makes polyethylene resin and ethylene feedstock at both locations. It also makes polypropylene resin in Baytown and propylene feedstock in Beaumont.

"Our primary focus continues to be the safety of employees, contractors and the communities in the region," the spokesman said.

Dow Inc. of Midland, Mich., also has closed some Gulf Coast units, but officials declined to provide details. "At this time, due to extremely low temperatures and unprecedented natural gas, nitrogen and electric power curtailments, we have safely brought offline certain units within Dow sites along the U.S. Gulf Coast," a spokeswoman said in an email to PN.

Dow makes PE, ethylene and related products at several Texas Gulf Coast sites, including Freeport, Orange, Seadrift and Victoria.

"It is too early to estimate any potential impact on our businesses," the spokeswoman added. "We expect impacted operations to begin restarting and ramping production rates as warmer weather allows."

Officials with resin makers LyondellBasell Industries, Braskem Americas, Covestro, Formosa Plastics Corp. USA and Westlake Chemical Corp. also confirmed to PN that their Texas facilities were impacted by the cold weather.

LyondellBasell had to flare material at some sites because of the shutdowns, according to spokesperson Chevalier Gray. A Formosa spokesman said that most of the firm's massive complex in Point Comfort is down, including units that make PE, PP, ethylene and propylene.

Adding the deep freeze to recent production outages, higher energy costs and strong demand in a number of markets has unfortunately created "a perfect storm" for resin prices in the near term, according to Phil Karig, managing director of the Mathelin Bay Associates consulting firm in St. Louis.

"When Texas is having problems providing gas and electricity to residential customers, it's unreasonable to expect that large consumers such as refineries and resin plants will be unscathed," he said in an email.

"Resin production will recover and resin prices will ease again …[but] one thing that may be dented a bit in the long term is the reputation of Texas as one of the best places for plastics producers and processors to move or expand operations," Karig added.

Texas "has always been a favorable state" for availability and price of electricity and natural gas for industrial consumers, according to Karig, but the power outages "are going to weigh more heavily when it comes to deciding where to locate a plastics plant — it will take a long while for what just happened in Texas to fade from memory."

In a Feb. 19 report, Wood Mackenzie principal analyst Patrick Kirby said that the Texas region "is familiar with hurricane activity causing disruption to activities …[but] the nature and operational impact of the unseasonably cold temperatures has been a surprise to many market participants."

He added that upstream and downstream disruptions "will likely result in a staggered and complex capacity restart once immediate weather and power disruption issues pass. … This could potentially extend the emergency from days to weeks before market continuity and stability returns."

One factor that is "increasingly clear" heading into early 2021, according to Kirby, is "the increasing fragility of global supply chains and the disruption that can arise from structural interconnectivity."

Esteban Sagel, principal with Chemical and Polymer Market Consultants in Houston, estimated that the U.S. may have lost one week of production, equaling about 230 million pounds of PE and about 180 million pounds of PP. "It doesn't sound like much," he said in an email. "But combined with feedstock tightness and rising costs, it will likely provide enough support to solidify the price increases producers were seeking."

North American PP prices already had surged of 13 cents per pound in January, after jumping 14 cents in December. That two-month total of 27 cents in increases had led some processors to issue price surcharges on PP-finished products. Regional PP prices now are up 46.5 cents per pound since May.

The PP market is struggling with a chaotic combination of strong demand, high prices for propylene monomer feedstock and unplanned outages at some PP production sites. With gasoline consumption down because of the pandemic, oil refineries are running at lower rates, meaning they're making less propylene monomer as a byproduct.

Regional PE prices moved up 5 cents per pound in January after also moving up by 5 in December. The surprising hikes were caused by strong demand — especially in products sold to grocery stores — and unplanned outages at some production sites. North American PE prices are up a net of 25 cents since January 2020.

Plastics News reporter Catherine Kavanaugh contributed to this report.