Texas petrochemical plants hit by last month’s Arctic blast have still not returned to full capacity, threatening months of disruptions to the global supply chain for chemical raw materials critical to everything from cars to medical equipment to nappies.
The outages, which have now stretched for four weeks, are disrupting manufacturing operations from the American south to the UK and raising prices for vital plastic inputs around the world, fuelling worries about inflation.
Last month’s winter storm in Texas knocked as much as 80 per cent of the state’s chemicals output offline, disrupting the vast majority of US production of the world’s three most widely used plastic polymers — polyethylene, polypropylene, and polyvinyl chloride (PVC).
Most plants expect to be back up and running by the end of this month. But as much as 15 per cent of that capacity remains downed a month after the storm and a return to full output could still be months away, a much slower post-storm recovery than other parts of Texas industry, analysts and industry sources said.
Many of the Gulf Coast’s chemicals producers were forced to shut down quickly when an Arctic blast brought Texas’s power grid to the brink of collapse in mid-February, forcing providers to divert supplies from industrial facilities to homes and hospitals.
“People lost power quickly and had what we call hard shutdowns,” said Joel Morales, an executive director at IHS Markit. “When you want to come back up, it takes a lot longer because you did not come down in a controlled manner.”
The US Gulf Coast has become a major hub for the global chemicals business over the past decade as companies ploughed tens of billions of dollars into new plants to convert cheap shale gas into the chemical inputs critical to every corner of the global economy.
The sustained outages came at a time when supplies of those chemicals were already tight because of strong demand during the pandemic for everything from medical personal protective equipment to single-serving food packaging.
“It’s a kind of a witches’ brew of market conditions that led to extreme tightness,” said Jeremy Pafford, head of North America at ICIS, a market information service. “This is going to take a long time to unwind.”
ICIS data show US PVC export prices have soared to an all-time high of $1,775 a tonne, more than double of a year ago.
The storm was “by far the single biggest event” in the propylene market, where prices are nearly three times higher than they were in May last year, said IHS Markit’s Morales.
Almost 70 force majeures have been issued by producers in the region such as Ineos and LyondellBasell which allow them to renege or delay orders, more than triple the number after Hurricane Harvey in 2017, according to Everstream Analytics, a supply chain data company.
Toyota said last week that production at some plants in North America had been hit by shortages of key chemical raw materials, compounding problems across its supply chains that also include a global shortage of semiconductors.
Jonathan Jaffe, the chief executive of Lennar, one of the US’s largest homebuilders, warned of shortages of resin and other petrochemical products needed for paint, engineered wood and insulation, echoing concerns from other construction companies about delays and rising costs.
Martin Payne, chief executive of Polypipe, a UK manufacturer of piping systems, said that despite recycling nearly half of its plastic from items such as milk cartons, it was experiencing shortfalls in virgin materials.
“We’re seeing mid to late single-digit type increases [in prices],” he said, adding that the surge in prices “has to feed through” to customers.
The jump in plastic prices has come at the same time steel, oil, lumber and other input prices have surged, fuelling economists’ expectations that inflation will rise in the coming months.
Workers at the affected plants in Texas are dealing with damaged equipment like sensors and boilers and being forced to painstakingly inspect miles of pipelines for potential leaks. “Nobody wants to rush the efforts or compromise the integrity” of the plants, said Shehrina Kamal, product director at Everstream Analytics.
“Unfortunately we, and likely the industry, are not able to meet the underlying demand today,” said Bhavesh Patel, LyondellBasell’s chief executive at an industry conference this month. “I think we’ll be well into the fourth quarter before we see conditions back to normal.”