For drought-stricken area, rain in Mexico’s Altamiras could help end petchem crisis – analyst

SAO PAULO (ICIS)–Rains this week in the area where the Altamira petrochemicals hub is located, in Mexico’s state of Tamaulipas, could start fixing the weeks-long drought which has hit companies in the area hard, according to an analyst at supply chain consultancy Everstream.

Jena Santoro added that, while force majeures by industrial players across the board remain in place, companies are privately saying this week’s rain could be the beginning of the end in the drought crisis which has forced many of them to reduce or shut operations.

The analyst added, however, that extremely dry land after months of practically no rain could cause other problems: if rainfall is heavy, the water may not perforate the land, causing landslides or floods which could add up logistical problems.

In mid-May, the government in Tamaulipas halved water supplies to industrial players on the back of the drought. Soon after, petrochemicals companies operating in Altamira started declaring force majeures for several products.

Last week, sources said to ICIS that supply was not yet affected by the operational hurdles related to the drought, although adding that industrial players were fearful that a prolonged drought could have a meaningful impact on both US and Mexico’s petrochemicals.

On Tuesday, a spokesperson for Mexico’s petrochemicals major Orbia said to ICIS the company’s polyvinyl chloride (PVC) production out of Altamira remains affected, where the company has the capacity to produce 690,000 tonnes/year, according to the ICIS Supply & Demand Database (ISDD).

RAINY SEASON
Many parts in the Gulf of Mexico are expected to receive considerable rainfall from Wednesday (19 June) onwards, including Mexico’s state of Tamaulipas, one of the most affected in a nation-wide crisis which has jeopardized water supply to households and companies in several regions.

“We have a tropical system that just happens to be moving this week toward Tamaulipas state. So, I think in the next 24 to 48 hours, the situation will look very different than what we’re seeing. That heavily impacted area is also one of the areas expected to receive heavy rainfall,” said Santoro.

“The state of Tamaulipas and the Altamira area in particular are supposed to receive a lot of rain between June and July, according to our meteorological department: this week’s storm system is the beginning of that.”

Companies have been, on average, around four weeks out of operations or with reduced rates. That period should be manageable as companies can work through stocks or bring in product from other facilities.

However, longer shutdowns could really start affecting supply and, ultimately, cause a hit to companies’ financials.

“Nobody has come out publicly saying any specific timeline or duration [for the current disruption to end] but, at least from what our sources are saying and what we are seeing by monitoring this closely hour by hour, this could be the beginning of the end of the crisis,” said Santoro.

“Obviously, in private companies are already saying this rain is very welcome,” the analyst went on to say.

FLOODS, LANDSLIDES
However, the situation will not be fully normalized until the rainy season in June-July concludes, pretty much because companies will need to be alert for potential flooding caused by the heavy rains coming up in the traditionally storm, hurricane-prone season in the Gulf of Mexico.

After months of little or non-existent rainfall, the ground is extremely dry and, when it rains, the water can run off and cause flash flooding. Dry land is usually hard-packed, dense, and the pores in the surface can be too small to absorb water quickly.

“Indeed, we may go from one extreme to the next: with a lot of rain, there is potential for flooding in the Altamira area and in Tamaulipas. On one hand, rains could refill water reservoirs and ease the drought but in the same very week they could end up having different logistical and production challenges if there is flooding,” said Santoro.

“With flooding, there is potential for things like landslides and run-offs, which can block roads and highways, So, companies are hoping that it will be some kind of happy middle ground, where the rain is not too extreme as to present added challenges and issues.”

Front page picture: The Port of Altamira, Mexico’s state of Tamaulipas
Source: Altamira Municipality

Interview article by Jonathan Lopez