Plastics Shortages Amid Slow Restart of Petrochemical Plants

Plastics Shortages Amid Slow Restart of Petrochemical Plants

Executive Summary

  • Extremely low temperatures in the southern U.S. and northern Mexico in mid-February caused widespread power outages and equipment failures that disrupted operations across a variety of industries ranging from semiconductors to automotive and petrochemicals. 
  • The impact of the cold weather is likely to persist the longest across the petrochemical sector, as up to 85 percent of U.S. production capacity of three of the most widely used plastic polymers in the world  has temporarily been disrupted. 
  • Supplies of these three building blocks were tight even before the storm hit, which has since exacerbated a supply shortage and resulted in record-high spot prices for certain plastics. 
  • So far, close to 70 force majeure declarations have been issued by petrochemical companies in the U.S. and Mexico; in contrast, only 23 force majeures were declared in the aftermath of Hurricane Harvey.
  • While plant restarts have been increasing over the past week, only a little more than one-fourth (28 percent)  of all plants that are under a force majeure notice have confirmed gradual resumption of parts of their operations, with repercussions of the storm expected to last well into the second quarter of 2021.

Extremely low temperatures in the southern United States and northern Mexico in mid-February caused widespread power outages, natural gas shortages, and equipment failures that subsequently disrupted operations across a variety of industries ranging from semiconductors to automotive and petrochemicals. 

Figure 01: Number of force majeure declarations in the aftermath of natural disasters. Source: Everstream Analytics

In the immediate aftermath of the Winter Storm Uri, power utilities in Austin ordered Samsung Semiconductor and NXP Semiconductor to suspend productions, disrupting supplies to U.S. customers such as Intel and further exacerbating a global chip shortage that has rippled through a multitude of industrial supply chains. In other parts of the U.S., car makers from General Motors to Ford Motor Co. also halted operations at multiple plants due to the winter storm, which is expected to cost between USD 10-20 billion (EUR 8.44-16.88 billion) in total, according to early insurance industry models. The extent of the insured losses would be similar to those incurred by Hurricane Harvey in Texas in 2017.

However, the impact of the cold weather is likely to persist the longest across the petrochemical sector, in particular at plants in Texas, Louisiana, and parts of Mexico. During the winter storm, about 80-85 percent of U.S. production of polyethylene and polypropylene, the two most widely produced plastic polymers in the world, was temporarily offline. The arctic cold also caused the shutdown of about 57 percent of U.S. production capacity of polyvinyl chloride, the third most widely produced synthetic plastic polymer, with applications in the medical device, electronics, and automotive industries. 

Figure 2: Timeline of force majeure declarations following Winter Storm Uri. Source: Everstream Analytics

Compared to Hurricane Harvey — previously the most devastating natural disaster recorded in Texas — Winter Storm Uri knocked a similar number of petrochemical production offline across facilities along the Gulf Coast. However, as feedstock supplies were already experiencing a series of other disruptions in the previous months and since tropical storms like Hurricane Harvey typically have a more limited geographical impact, the winter storm’s repercussions is likely to ripple through downstream supply chains for longer. So far, Everstream Analytics has recorded close to 70 force majeure declarations issued by petrochemical companies in the U.S. and Mexico. In contrast, only 23 force majeures had been declared in the aftermath of Hurricane Harvey, after it made landfall south of Houston. A force majeure essentially means that a supplier is unable to perform contractual obligations due to circumstances beyond its control. 

Although some production facilities have begun to restart operations, at least 2 billion pounds of petrochemical production will reportedly be lost due to the storm, likely translating into supply shortages and higher prices for certain feedstocks.  

This report explores in detail which petrochemical building blocks face the highest risk of potential shortages, how this could affect downstream manufacturing industries, and when supplies can be  anticipated to normalize.  

Figure 3: Ongoing near real-time force majeure events along the U.S. Gulf Coast, caused by Winter Storm Uri. Source: Everstream Analytics 

Widely Used Chemical Feedstocks Affected by Plant Outages

As the arctic cold made its way across southern U.S. states, equipment failures, natural gas shortages, and power outages forced petrochemical companies in the region to enact shutdowns of plant units, and in many cases, to declare force majeure on specific supplies or issue sales allocations to customers.

Figure 3: Force majeure declarations in the aftermath of Winter Storm Uri, per feedstock (only those with 3 or more listed). Source: Everstream Analytics

In some cases, units were shut down on short notice, increasing the risk of further equipment damages. While the production of a wide range of plastics was affected, units manufacturing three of the most widely used building blocks, i.e. polyethylene, polypropylene, and polyvinyl chloride, were particularly hard hit, causing ripple effects through multiple industrial supply chains. 

As a result, a number of major petrochemical producers in North America have had to declare force majeure on their supply: polypropylene (6 producers), polyethylene (5 producers), and polyvinyl chloride (4 producers). 

PolyethylenePolypropylenePolyvinyl chloride
LyondellBasellLyondellBasellVestolit
INEOSINEOSFormosa Plastics
Formosa PlasticsFormosa PlasticsUS Occidental Chemical
CP ChemicalFlint Hill ResourcesWestlake Chemical
ExxonMobil ChemicalTotal SE 
 Braskem 
Figure 4: Petrochemical companies declaring force majeure, per feedstock. Source: Everstream Analytics

Supplies of all three building blocks were tight even before the storm hit, and has since exacerbated a supply shortage amid uncertainty of how long production capacity would be offline. According to financial information provider SP Global, spot prices for ethylene have reached their highest level since 2014 in recent weeks. Besides the winter storm, a fire at the Mexican state oil company Pemex in Cangrejera in February 2021, another major polyethylene production facility, added to the supply shortage and price surge. Polypropylene has also reached record levels due to very low inventory levels prior to the impact of the winter storm and price-insensitive demand for the building block, which is used in face masks, syringes, and other medical equipment needed to combat the ongoing COVID-19 pandemic. The third most widely produced plastic polymer polyvinyl chloride has faced strong demand from the construction industry in the past months, partially causing the all-time high spot prices that are likely to remain elevated following the shutdown of nearly all production facilities in Texas and Louisiana during the winter storm. 

Building blockIndustry applications
PolyethylenePackaging, medical equipment, construction, consumer goods, electronics
PolypropyleneAutomotive, consumer goods, furniture, medical equipment
Polyvinyl chlorideConstruction, medical equipment, telecommunications, automotive
Figure 05: Industrial applications of the affected chemical building blocks. Source: Omnexus Database

As a result of the propylene shortage, propylene oxide has also been in short supply. The compound is critical for the production of polyurethane plastics which are used in end applications requiring high-resilience foam, such as automotive seats and insulation panels. While no production halts have yet to be reported in the car industry across North America, several large auto makers have started monitoring the situation closely in anticipation of potential impacts on their production schedules. 

Winter Storm Uri’s impact has also been noticeable in the supply of acetone, which is used as a solvent in the pharmaceuticals, medical devices, and cosmetics industries. Spot prices have been on a record high, according to SP Global, with two large producers, Olin Corp and Shell Chemicals, declaring force majeure amid the winter storm in North America. 

Figure 6: Confirmed restarts at plants under force majeure. Source: Everstream Analytics

As 80 percent of U.S. benzene production capacity was disrupted by the storm, the market for styrene has also been upended amid a period of planned turnarounds and a few unplanned issues even before the freeze. With three producers announcing force majeure, spot prices have surged since mid-February, and the supply shortage could potentially spill over to other regions as the U.S. is a major styrene exporter. 

The market for acrylonitrile has also been facing strong demand, pushing prices to a 9-year high in the U.S., which in turn has impacted prices for co-polymers such as  styrene-acrylonitrile (SAN) and acrylonitrile-butadiene-styrene (ABS). The former is used in household products and packaging, while the latter has applications in the construction industry.

Supply Shortages to Continue into the Second Quarter of 2021

While plant restarts have been increasing over the past week, only a little more than one-fourth (28 percent)  of all plants that are under a force majeure notices have confirmed gradual resumption of parts of their operations amid ongoing damage assessments. As the industrial infrastructure in the petrochemical industry has not been built to withstand sustained sub-freezing temperatures, inspection and repair works are likely to take longer to ensure plant integrity. In addition, the complex interdependence between different units at petrochemical plants means that restarts will likely have to be sequential, further adding to the delays. Restarts at refineries are expected to pick up in the week of March 8, which has significant ramifications as they provide important feedstocks to downstream processing units.   

Similarly, the European and global acrylonitrile markets currently rely on Asia as supplies have been tight in Europe since early 2021 due to a force majeure announced by Ineos in Cologne, Germany in addition to the ones announced by Cornerstone and Ineos in the U.S. 

Other building blocks that have experienced restricted supply in Europe in recent weeks, partially due to the compounding effect from Winter Storm Uri, are polyethylene, polyvinyl chloride, and polyamides such as nylon 6.6. In particular for polyethylene and polypropylene, prices have risen 25 percent since December 2020, the highest level since 2015, according to market information service ICIS. Over the past few days, associations for the packaging industry have warned of the negative impact of the supply shortage in Europe which could disrupt the production of packaging materials used in the consumer goods and medical equipment industries. 

Supply chain managers should keep abreast of the ongoing supply disruptions both in the U.S. and Europe, enact contingency measures with regards to critical materials by securing supplies from alternative locations or suppliers in unaffected regions, as well as understand the impact of the shortages and price surges on their sub-tier supplier network. 

While the average duration of force majeures in the aftermath of the flooding and wind damages caused by Hurricane Harvey lasted about 47.5 days, the repercussions of Winter Storm Uri are widely expected to last well into the second quarter of 2021. The average duration of force majeures could, in the end, be twice as long compared to Hurricane Harvey in the event operations do not fully return to normal before mid-May 2021. 

Organizations should also be mindful of potential spill-over effects on the availability and prices in other regions. Prices for styrene have been tight in Europe as well following an outage at the biggest styrene facility in Maasvlakte since early February, and the situation has been compounded by the effects from Winter Storm Uri that curtailed production of U.S. exports to Europe. In the coming weeks, suppliers in China, which account for one-fourth of global production capacity, may face increased demand for the feedstock amid the ongoing global shortage.

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