February’s winter weather event in U.S. Gulf Coast pushes prices higher, creates backlogs

Automobile producers have announced North American production cuts related to the Gulf Coast winter storm of mid-February in just one of multiple impacts across different markets mostly centered around higher prices, according to a report released by Wood Mackenzie on March 19.

Image courtesy Markéta Machová/Pixabay

A month after the weather storm, house builders were seeing construction materials supply delays, while packaging companies struggled to find affordable supplies, it added.

U.S. polyethylene (PE) prices surged in February to near seven-year highs while polypropylene (PP) prices were at their highest since at least 2005. Wood Mackenzie, a consultancy that among other assets tracks petrochemicals, anticipates prices may continue high over the first half of 2021.

PET, RPET demand remains high

One month after the freeze, PET (polyethylene terephthalate) markets in the Americas remain impacted, said Alexandra Tennant, Wood Mackenzie senior research analyst.

The freeze hit as “there were low inventory levels in the market as a result of both the impacts from hurricanes last fall and sustained strong consumer demand driven by the pandemic,” Tennant said, according to an email sent March 18 to Reuters Events after a request for comment.

“In Mexico, two PET producers remain under force majeure and overall PET production is impacted due to disruption in MEG (monoethylene glycol) supply from the U.S. This has sharply increased demand for RPET (recycledPET) in the market as an alternate material,” she said.

Monoethylene glycol is an intermediary chemical used to make polyester, besides other uses such as an antifreeze.

Paraxylene is a component for purified terephthalic acid (PTA), also needed as an intermediary for polyester, used in PET bottles as well as synthetic textiles.

As of mid-March only 60% of capacity back in operations

More than 80% of U.S. olefins capacity was immediately offline following the peak of extreme weather conditions in mid-February.

“As of mid-March, the U.S. olefins industry has yet to regain its footing with only 60% of capacity back in operation,” according to Genscape, a Wood Mackenzie company.

Several facilities in Houston and Corpus Christi remained shut nearly a month after the freeze ended, Wood Mackenzie’s report said.

“While the supply of these important chemical building blocks dropped during outages, demand for their end-use products has not,” it added.

Rising ethylene prices

Ethylene prices have reached almost seven-year highs, according to Wood Mackenzie’s price history.

Polymer-grade-propylene (PGP) prices hit record highs during the freeze but have since stabilized at near three-year highs, the report said. High olefin prices will continue after the restart process is complete “as the unit works through a backlog of pent-up derivative demand.”

In line with U.S. olefins capacity, over 80% of U.S. polyolefins capacity was “downed” by the recent winter storm, Wood Mackenzie said. Limited feedstock availability for olefins monomer, co-monomer, and additives in the region is the main reason why production has not recovered, it added.

“Analysis shows that U.S. polyethylene (PE) and polypropylene (PP) operating rates fell 33% and 36%, respectively, in February. These outages coincide with domestic consumption that has remained robust through Q1 2021, sending inventory levels of both PE and PP into a sharp decline,” Wood Mackenzie said.

Paraxylene and PTA

Wood Mackenzie estimated at the time the winter event hit the U.S. Gulf Coast that it affected 45% of the total U.S. paraxylene (PX) capacity but has since increased that to 73%, “with INEOS Texas City declaring force majeure the week of the storms.”

The other PX assets affected were those within integrated complexes, Wood Mackenzie said. Many shut down or its running rates were reduced due to the weather.

As of mid-March all U.S. refineries associated with PX production had started to increase operations, according to Genscape. However, reports indicate paraxylene asset restarts may be taking longer than those of other assets, it said.

As a result, Wood Mackenzie estimates that PX prices may rise again in April. April’s forecast increase follows last month’s settlement, the largest for the U.S. PX contract price in a single month since September 2018, it said.

The only producer that declared force majeure on PTA was INEOS Cooper River, South Carolina. However, this situation was not a direct consequence of the winter storms, but rather an indirect effect of being unable to source PX supply from their Texas City subsidiary,” Wood Mackenzie said.

Texas City feeds much of its PX to sister site Cooper River, where it is used to make PTA for the production of polyester, according to Ineos website. The company makes in Copper River polyesters used in fibres, textiles, film, and polyethylene terephthalate (PET) bottles.

By Renzo Pipoli