Texas deep freeze: lingering impacts on US petrochemical industry

Last month’s winter storm paralysed the US petrochemical industry. Operations at US Gulf Coast petrochemical facilities have yet to fully recover one month after freezing temperatures triggered wide-spread power outages and plant shutdowns.

Wood Mackenzie’s olefins, polyolefins, paraxylene and purified terephthalic acid (PTA) experts look at ongoing disruptions and what they mean for the country’s petrochemical operations and supply chains.

Olefins

More than 80% of US olefins capacity was immediately offline following the peak of extreme weather conditions in mid-February. During that time, Wood Mackenzie noted it could take weeks to recover given that disruptions across the value chain would lead to a staggered and complex restart, setting the stage for volatility in supply and prices amid stronger demand.

As of mid-March, the US olefins industry has yet to regain its footing with only 60% of capacity back in operation, according to data from Genscape, a Wood Mackenzie company. Several facilities in both the Houston and Corpus Christi metropolitan areas remain shut. Those further west appear to be experiencing longer outages, likely due to encountering relatively colder temperatures during the winter storm.

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

Ethylene prices have responded to this imbalance by reaching almost seven-year highs, according to Wood Mackenzie’s price history. Polymer grade propylene prices touched all-time highs immediately following the freeze but have since fallen and stabilised at near three-year highs. High olefin prices are expected to continue after the restart process is fully complete as the units work through a backlog of pent-up derivative demand.

Polyolefins

In line with US olefins capacity, over 80% of US polyolefins capacity was downed by the recent winter storm. There remains a considerable amount of capacity offline or in the early stages of restarting a full month later. This is partly due to the limited feedstock availability for olefins monomer, comonomer, and additives in the region.

Analysis shows that US polyethylene and polypropylene 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 polyethylene and polypropylene into a sharp decline.

In response to the market tightness, polyolefin prices surged in February. US domestic prices for polyethylene increased to almost seven-year highs while prices for polypropylene were the highest on record, according to Wood Mackenzie’s price history dating back to 2005. We anticipate that prices will continue to be elevated over much of the first half of 2021, supported by pent-up demand related to coronavirus recovery and weather-related shortages.

Paraxylene and PTA

Initially, as the winter storms hit the US Gulf Coast, Wood Mackenzie estimated that 45% of US paraxylene (PX) capacity had been affected. However, it has since come to light that 73% of US capacity was impacted by the severe weather, with INEOS Texas City declaring force majeure the week of the storms. All PX assets affected by the storms are either fully integrated into refining systems or embedded within refinery complexes, many of which were shut down or reduced due to weather impacts.

As of mid-March, all US refineries associated with PX production have started to ramp up operations across major processing units, according to Genscape. Despite this, reports circulate of paraxylene asset restarts running into delays even after other units within the refinery have moved towards normal output levels.

With major PX supply outages in the region, PX prices are expected to rise again in April. April’s forecast increase follows last month’s settlement, which was the largest increase for the US PX contract price in a single month since September 2018.

On the PTA front, the only producer that declared force majeure was INEOS Cooper River. 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. We continue to monitor the overall effect that the PX supply shortage in the Gulf Coast will have on PTA producers in other parts of the US and Mexico.

Supply Chain Disruptions

The US plant outages have had wide-ranging impacts beyond prices and trade for chemicals themselves. 

Manufacturing supply chains across several sectors are facing disruptions because of delays in obtaining raw materials, namely the polymers and other derivatives produced in the value chains described above.

Automobile producers, including Honda and Toyota, have announced North American production cuts at least partly related to the Gulf Coast storm. Similarly, house builders are seeing delays in the supply of construction materials, while packaging companies are struggling to locate affordable supplies. Continued tightness across the supply chain is expected to linger, resulting in higher prices for raw materials and end-use products alike until the backlog eases.