U.S. specialty chemicals contract in April, rail sees biggest drop in 30 years, Pembina tries to protect capital

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Image shows a fractionator owned by Calgary-based Pembina. Photo courtesy of Pembina.

U.S. specialty chemicals business contracts 11% in April

U.S. specialty chemicals traded volumes fell over 11% in April, faster than a 4% decline in March and a 0.5% drop in February, the American Chemistry Council (ACC) reported on May 20, 2020.

Of “28 specialty chemicals segments ACC monitors, none expanded in April. The sharp decline in market volumes in April reflects the effects of the COVID-19 pandemic,” the ACC said.

During April, overall specialty chemicals volumes fell nearly 15% on year. Volumes stood at about 96% of their average 2012 levels in April, about 2.95 million tonnes, the ACC said.

Individual market sectors that rely on specialty chemicals include automobile, aerospace, agriculture, cosmetics and food.

Specialty chemicals differ from commodity chemicals in that they may only have one or two uses, whereas commodities have multiple applications.

Commodity chemicals comprise most of the petrochemical production with pricing linked to crude oil. Specialty chemicals have higher value and pricing depends on demand for their end-products.

U.S. weekly rail sees biggest on-week drop in three decades

During the week ending May 16 were there were 184,415 carloads moved, down about 30% on-year and the worst weekly decline on record, the Association of American Railroads (AAR) reported on May 20.

“The 30.2% decline in total U.S. carloads last week was the biggest year-over-year weekly decline for total carloads since 1988, when our data begin,” said John Gray, the AAR senior vice president.

U.S. rail traffic for the week ending May 16, 2020 was 416,115 carloads and intermodal units, down 22% from the same week last year.

U.S. weekly intermodal volume was 231,700 containers and trailers, down 14% compared to 2019.

None of ten carload commodity groups posted an increase compared with the same week in 2019.

Commodity groups that posted decreases compared with the same week in 2019 included coal, which was down 35,879 carloads to 45,756.

Motor vehicles and parts were down 14,242 carloads to just 2,865. Metallic ores and metals were down 9,245 carloads, to 14,101.

For many other key rail commodities, including chemicals, petroleum products, and crushed stone and sand, carloads that week were roughly the same as in the previous few weeks.

Intermodal originations last week saw their highest level in eight weeks. Intermodal rail traffic is closely related to international trade.

Pembina seeks to protect capital on deferred PP project

Canadian Pembina Pipeline and its Kuwaiti partner Petrochemical Industries Co. (PIC) are working to protect their capital invested so far in the deferred polypropylene project in Edmonton, Alberta.

Both Pembina and PIC are taking actions so that “hundred of millions” of dollars spent can retain value, said Michael Dilger, Pembina’s CEO, during an earnings conference call on May 7.

“We have hundreds of millions of dollars invested in those projects that we want to safeguard,” Dilger said, according to a copy of the call transcript by Motley Fool.

Pembina has the intention of eventually retaking the project and wants to prevent any
“destruction of capital,” he added.

“And we have a meeting of the minds with our Kuwaiti partners on, directionally, on how to do that. All of our teams are working to safeguard that value,” Dilger said.

Scott Burrows, CFO at Pembina, said resumption of the PP complex would come “when global energy prices and the broader economic environment are supportive.”

Pembina and PIC interrupted the projected polypropylene plans in March to cut exposure amid uncertainty related to the Covid-19 pandemic.

The projected complex includes a propane dehydrogenator (PDH) and a polypropylene (PP) plant. The complex has projected capacity for 550,000 tonnes annually of polypropylene by 2023.

The Canadian and Kuwaiti companies formed their partnership in 2017. The final decision to build the complex near Edmonton, with a C$4.5 billion (C$1=US$0.72) investment, came in 2019.

The venture worked late last year and early in 2020 to sign EPC contracts. The partnership also secured US$1.7 billion financing in February.

On March 18 Pembina announced the indefinite deferral of C$2.7 billion of its portion of the investment. Pembina also deferred all other expansion projects that were in early stages.

The move coincided with similar decisions across the industry as companies sought to reduce exposure.

On Feb. 27 the partners closed a syndicated US$1.7 billion loan and a US$150 million revolving credit for the PP complex. Of that, US$26 million were drawn on March 31.

Pembina’s decision to defer investments resulted in “a C$900 million to C$1.1 billion reduction to the company's 2020 capital investment plans,” Burrows said.

Mexico’s Orbia Q1 revenue hit by weak construction, automotive

Orbia Advance Corp. reported an 8% drop in first quarter 2020 revenue, or down $140 million to $1.6 billion, due to slowdown of irrigation projects construction and automotive sales affecting demand for pipes and refrigerant.

The reduction was mainly driven by lower sales in the Netafim (irrigation systems), Wavin Latin America (plastic pipes) and Koura (refrigerant gases for air conditioning, automotive), it said.

“We’ve started to see some negative impacts in March, particularly in our building and infrastructure business, due to temporary closures of non-essential sites and plants as well as a drop in demand in several of our markets,” said Daniel Martinez-Valle, CEO of Orbia, in a late April release.

Orbia, previously known as Mexichem, is based in Mexico and has production assets worldwide.

By Petrochemical Update