Nick Vafiadis, Vice President, Plastics, IHS Markit, provided an update on the polyolefin market at the recent FPA Fall Conference.
Before Hurricane Harvey made landfall in Corpus Christi, Texas, the August price increase proposal was unlikely to succeed. The September four cent price increase proposal appeared unfounded and unlikely. PE producers were negotiating 2018 supply contracts with diminished leverage. International markets were anticipating an arrival of large volumes of resin associated with new U.S. capacity. PE processors were lowering inventory levels in expectation of near term price reductions. Resin delivery options were numerous and reliable.
Once Hurricane Harvey made landfall, everything changed. There were over three weeks of U.S. business interruptions that impacted over 50% of U.S. ethylene production. There was limited infrastructure damage from wind, but there was severe high water, flooding, and power issues. There are new project startup delays, as derivatives start before ethylene. There is upward price pressure on ethylene and derivatives globally. The North American ethylene inventory could be at minimum levels by November 2017.
In regards to polyethylene, approximately 60% of U.S. PE capacity was impacted immediately after Hurricane Harvey. Logistics were disrupted, including ocean freight, rail, and trucks. Resin shortages will push PE prices higher in August and through the end of the year. New production capacity was delayed an average of 30 days, facing potential ethylene constraints. The delayed start of new capacity and reduced ramp up pace supports higher PE prices in international markets.
For polypropylene, 60% of North American PP capacity was affected by Hurricane Harvey. There was an expectation of approximately 300 million pounds of lost production in September. By mid-September, all but one plant was back up and running. The wide spec market peaked up 15 to 20 cents per pound. Imports are expected to increase in the fourth quarter of 2017. By October, there is a 3 cent margin enhancement likely. Propylene volatility is expected to hurt demand during post hurricane recovery.
The full IHS Markit Bi-Annual Polyolefin Report is available to FPA members in the “Members Only” section of the FPA website, www.flexpack.org.
For More Information
FPA members can view Nick’s presentation at www.flexpack.org by clicking on “Download Presentations from the FPA 2017 Fall Executive Conference” in the Spotlight section on the homepage.