INSIGHT: Hurricane Ida to squeeze chems already in short supply

HOUSTON (ICIS)–Hurricane Ida is expected to follow Louisiana’s chemical corridor as it moves inland, threatening plants that make chemicals that are already in short supply.

If these plants suffer damage, then companies could scramble to find replacement parts. Plant repairs from Winter Storm Uri could have depleted stocks of plant parts. Others are specialised pieces of equipment, and they may need to be fabricated. Even if the parts are available, logistical bottlenecks could delay shipments.

If companies cannot wait, they can have the parts delivered by air. If the parts are too big, then they will have to be delivered by land or sea. The longer their plants are offline, the tighter supplies will become.

PRE-EMPTIVE SHUTDOWNS
Many chemical companies have already idled their plants in advance of Ida. This allows companies to safely wind down operations and protect their plants from any damage caused by hurricanes.

BASF shut down units in Geismar that make methylene diphenyl diisocycanate (MDI). This chemical is used to make polyurethane foams that are found in everything from mattresses and car-seat cushions to rigid insulation in homes and appliances.

The ICIS US assessment for polymeric MDI is at a record high, reflecting the tightness in the market.

Huntsman also makes MDI in Geismar. As of Friday, it had no plans to reduce operating rates.

Other plants that shut down make propylene, an important intermediate that is used to make polypropylene (PP) and other chemicals.

ICIS recently assessed US contract prices for propylene at a double-digit increase.

Some polyethylene (PE) plants have also shut down. PE is used to make rigid plastic and films used in packaging.

Butanediol (BDO) is another chemical whose production was interrupted by Ida. BASF had shut down its BDO plant in Geismar. By far, it is by far the largest BDO plant in the US.

BDO is a solvent, and it is also used to make polyurethanes and elastic fibre such as Spandex.

ICIS has assessed North American BDO contracts at a record high before the hurricane.

The region hit by Ida is home to 20% of the US capacity for butadiene (BD), a feedstock used to make styrene butadiene rubber (SBR), an elastomer used to make tyres.

Shell makes BD at its Norco site, which it started to shut down on Friday in preparation for the hurricane.

Meanwhile, Cornerstone is shutting down its acrylonitrile (ACN) and melamine plants in Louisiana.

It is the sole melamine plant in the US. The material is used to make laminates such as Formica.

Like the others, ICIS has assessed US melamine contract prices at a record high.

The eastern part of Louisiana hit by Ida has a heavy concentration of plants that make polyvinyl chloride (PVC), a plastic used to make pipes as well as siding and profiles used in house construction.

US contract prices for PVC had already hit records before Hurricane Ida, up by more than 40% from their previous high set in mid-2010.

PVC is made with chlorine, and eastern Louisiana has several plants that make the chemical, along with caustic soda, a co-product of chlorine production.

The region is home to 5.7% of global chlorine production.

PVC was among the materials that were ranked especially tight by Chemical Data (CDI), part of ICIS. Others include acrylonitrile butadiene styrene (ABS), BD and nylon 6,6. The tightest products were propylene and polyethylene terephthalate (PET), a plastic used to make beverage bottles and polyester fibre.

Eastern Louisiana also has several refineries. In addition to gasoline and diesel, refineries make propylene, benzene, toluene, mixed xylenes and base oils.

Base oils are used to make engine oil and other lubricants.

Before Ida, US base oils prices had started to stabilise. However, shortages had not fully resolved, and demand was unusually strong during the summer.

In preparation for Ida, ExxonMobil is adjusting rates at its chemical complex and refinery in Baton Rouge, which makes base oils among many other products.

Chevron’s refinery in Pascagoula, Mississippi also makes base oils. It is further east of Ida’s path, and the company has yet to make any announcements about its operations.

Excel Paralubes base oils unit is west of Ida in Lake Charles, Louisiana.

US STORMS DISRUPT GLOBAL MARKETS
Chemical markets are especially vulnerable to disruptions because they have sustained more than a year’s worth of interruptions from the coronavirus to the hurricanes of 2020 and Winter Storm Uri.

Some companies had just lifted their force-majeure declarations when Ida began threatening the Gulf Coast.

These disruptions will not be restricted to the US. Over the years, the world has become more reliant on US shipments of plastics and chemicals due to the shale-driven expansion of the nation’s petrochemical industry.

US demand was not large enough to absorb all of the material produced from these new plants, so companies always intended to export a significant amount of their output. As a result, the world has become more vulnerable to local disruptions to US production.

Any material that is available for export will have a harder time getting to its destination because of logistical constraints, caused by the displacement of containers and ships as well as Covid-related port restrictions.

Additional reporting by Bill Bowen, Tracy Dang, John Donnelly, Lucas Hall, Amanda Hay and Antoinette Smith

By Al Greenwood