High shipping costs and logistic hurdles help U.S. resin producers protect margins

U.S. resin producers will keep their margins relatively protected from most polymer import initiatives, said during an interview an expert in trends related to polyethylene and polypropylene.

Image courtesy of Alexander Kliem/Pixabay

The U.S. Gulf Coast has seen production capacity setbacks from Ida and Uri as producers try to build inventories to meet high demand. Any importer will face soaring costs and face logistic difficulties, said Jorge Bühler-Vidal, of Polyolefins Consulting.

“Up to a year or two ago shipping wasn’t particularly expensive. Then Covid comes and then things come to a halt initially and then keep going again,” he said.

“It’s not that there are less containers, it’s just that they are stuck outside ports because they cannot unload them quickly enough,” he said.

Any trader looking to bring material faces U.S. import logistics poorly suited to bringing in bagged pellets, he added.

Rising shipping costs

“Ship owners have to charge more because now, instead of having relatively quick transit say from Asia to North America, the trip itself is quick but loading and unloading may take much longer,” Bühler-Vidal said.

Land transportation, such as from warehouse to ports, is tighter.

“Eventually the containers go in railroads or trucks and the amount of containers that go on truck is not negligible. Now, the problem is there are less truck drivers, so that becomes the difficulty. So that’s why now shipping became more expensive” post-pandemic, he said.

“In principle it would be a good idea to sell” if a trader finds a possibility to profit by bringing in cheaper product from abroad. 

“If you don’t have an existing relationship it is difficult to just find buyers that would trust enough because import and export is very trust based,” he added.

Bagged pellets raise costs

If pellets come bagged into the U.S., as it would normally be expected for product from abroad, there would be additional costs.  Someone would have to turn the bagged pellets into bulk for railcars.

“In the U.S. polyethylene and polypropylene are sold in railcars and that’s true in Canada and Mexico, and generally that is not true anywhere else,” he said.

“If you are everywhere else, it goes from the polymerization plant into 50-pound bags and then you ship pallets with bags that then go into containers,” Bühler-Vidal said.

“So, if you have a low-cost producer in Saudi Arabia, their product is bagged. Now if you sell bags into the U.S. you have a problem. It is the wrong package. At some point someone will have to break open those bags and load them in bulk and that raises the cost,” he said.

U.S. resin exporters built up facilities during the past decade to bag resin pellets for export and accommodate to shipping abroad.

However, facilities to import bagged material, or otherwise accommodate imports of bags, weren’t envisioned nor necessary.

The U.S. had ample polyethylene production capacity with projects underway to continue to take advantage of lower costs.

The U.S.  Gulf Coast became one of the regions with the world’s lowest polymer production costs for those producers that crack ethane, which became plentiful as a result of development of shale gas fields.

In resin pricing the lowest cost producers maximize their earnings by closely following the prices set by the high cost producers, Bühler-Vidal said.

Gulf to Asia freight doubled

LyondellBasell’s CEO Bob Patel said on July 30, while discussing the company’s second quarter earnings, that U.S. Gulf Coast-Asia interoceanic freight rates for resin pellets had increased to perhaps close to $80 per tonne.

“Historically, even pre-pandemic, freight rates coming from Asia to the U.S. were always higher than freight rates going out of U.S. to Asia because of the backhaul sort of concept on product going out,” Patel said replying a question from an analyst.

“Typically, we would pay about $40 per ton, excluding packaging, just freight, to get polyethylene, for example, from the Gulf Coast to Asia, Today, that's probably double,” he said, according to a transcript of the call by Motley Fool.

Patel said high intercontinental shipping rates were not a concern because in 2021 the company did not have enough inventory to both satisfy American demand and actively pursue exports into Asia.

Limited shipping

“We are doing some exports that are more contract oriented down to Latin America. We have some contract commitments even in Asia that we continue to fulfill,” Patel said.

Despite any challenges, resin trading between the U.S. and other regions always goes on because of contracts or a converter need to meet specifications.

For example, such trading is common in the case of polypropylene and polyethylene, Bühler-Vidal said.

“There is always trading no matter what because no one produces every single grade of material,” he said.

Companies posting record earnings included Dow, which had its most profitable quarter ever during the April-June period. Supply chain delays and rising costs became more acute in the first half.

By Renzo Pipoli