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PE, PP and PVC supply crunch exacerbated on US absence, traditional trade flows upended

by Başak Ceylan -
by Esra Ersöz -
  • 23/02/2021 (10:08)
The US polymer exports faced serious challenges in the last quarter of 2020, largely as a result of multiple shutdowns and force majeure declarations that followed the most active hurricane season since 2017. Reduced production and shipping difficulties have impacted the competitiveness of US exports in global markets.

This squeeze might stay longer as freezing storms, which knocked out power to multiple petrochemical hubs in Texas last week, prompted new shutdowns and force majeures across the state.

Further supply curtailments loom on horizon

Key markets in Europe, Southeast Asia, Africa and the Middle East have been grappling with a dearth of supplies since Q4. From late January to early February, a slight easing was seen in PVC markets in the Mediterranean and Asian regions. However, the easing was short-lived as expectations of further tightness in materials have once again started to push prices higher.

Severe winter storm paralyses US production

Starting on February 13, petrochemical industries along the US Gulf Coast were brought to a near halt as the storms brought heavy snow and bitterly cold temperature to the region. Millions of Texas residents were left without electricity and multiple petrochemicals hubs were forced to shut their operations.

Problems arising from the inclement weather knocked out more than 80% of total PP production in the US, with an estimated offline capacity of nearly 7 million tons/year. All three PDH units also remain offline in the US. Downstream PE production also took a significant hit after more than 75% of total ethylene production –including 10 producers and nearly 25 million tons of ethylene- were taken offline.

The widespread power outages have also taken significant portions of the PVC offline. As ChemOrbis Production News Pro suggests, Formosa, Shintech, Oxy, Olin and Westlake all reported outages while the latter three declared FM on PVC and upstream products.

Although weather conditions have started to turn back to normal this week, these plants will need time for safety checks, and restarts are not seen probable in an immediate future. Players do not expect exports to start smooth sailing for a couple of months, as was the case in Q4.

Canada and Mexico to bear the brunt of the recent spate of outages

In view of the recent export statistics, the two countries that are most likely to be affected by these outages are Canada and Mexico. Out of 2.5 million tons of PVC exports, Canada was the main destination for US PVC in 2020 with a 19% share, followed by Mexico with 10%.

Bearing in mind that US PE exports hit a record-high with more than 10 million tons last year, the main export destination was Mexico with a market share of 12%, while Canada was the third most active destination with 8%.

As for PP, Mexico and Canada were by far the two main largest export markets in 2020, with an approximately total share of 70%, out of more than 1 million tons.

China, SEA, Brazil, Europe and the Middle East will also suffer; trade routes shift

The prolonged absence of the US will add more to the crippled shortage of PE supplies across the globe as the US is a net PE exporter. China formed the 11% of the overall PE exports of last year while exports to Southeast Asia including Malaysia, Singapore and Vietnam had a 15% share. It is true that there has not been an influx of US cargoes to Asian markets since Q4; however, the recent outages suggest that they will not be around for a couple of months more.

Just like Asia, the absence of US PE will not bode well in Brazil and Europe, where buyers are scrambling to find material. Out of more than 10 million tons of PE exports, they each had 8% share in 2020.

In the case of PVC, exports to China and the Middle East including Egypt, Turkey and the UAE will continue to be hindered. As for PP, these destinations are not feeling the impact of the absence of US cargoes directly as the US largely feeds Mexico and Canada.

However, sellers’ urge to divert their cargoes to the markets with more auspicious netbacks has already shuffled the traditional trade flows in extremely short markets.

Supply-driven hikes fueled across the board

PP, PE and PVC prices in global markets have already been hovering around multi-year highs. These levels have further grinded higher amid the news from the US. The largest increases were recorded in the PP markets. This was especially evident in Turkey, where PP prices have rallied unprecedentedly during the past two weeks. The total amount of increases reached $742/ton (%49) for PP raffia and $635/ton (32%) for PPBC inj. when compared to early February.

In Southeast Asia, significant PP increases were seen this week following the Chinese New Year holidays. Among key price drivers was the threat of reduced supplies from the US amid the recent outages.

In PE markets, higher domestic prices in the US amid restricted output production and firm domestic demand seemed to have closed export PE sales. Players in the Middle East and Africa markets expect to see historical levels in US prices. Latin American markets were heard to be in a state of panic as the supply outlook turned even tighter. In Europe, PP and PE markets were last reported on the verge of new supply-driven increases moving into March, with many players expecting to see severely reduced imports from the US.

Expectations regarding potential US PVC pricing policies are similar in nature. Several Egyptian traders have recently reported that their suppliers withdrew their offers early this week, potentially gearing up for higher prices.
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