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U.S. winter freeze hits global olefins market

February 20/2021

MOSCOW (MRC) -- A winter storm has paralyzed U.S. petrochemical production and disrupted 15% of the global olefins market, as per Hydrocarbonprocessing.

Patrick Kirby, Wood Mackenzie Principal Analyst, said: The recent cold snap in the US has dramatically impacted the countrys petrochemical industry. The concentration of the winter storm has been particularly pronounced in Texas, which geographically represents the workhorse of the US olefins industry.

"The impact of extremely low temperatures, alongside the loss of gas and power supplies, has caused widespread disruption to US olefins operations. The region is familiar with hurricane activity causing disruption to activities. However, the nature and operational impact of the unseasonably cold temperatures has been a surprise to many market participants."

Genscape, Wood Mackenzies sister company, currently estimates that over 80% of US olefins capacity is offline. Additionally, capacity that is still online is most likely operating at reduced rates or impacted by wider supply chain disruptions. "This is a significant impact to one of the worlds largest concentrations of olefins capacities, just under 20% of the global total, and tops recent disruption seen in August 2020 from Hurricane Laura.

"US olefins industry capacity has been in expansion mode over the last several years, facilitated by shale gas economics. The recent disruption is therefore impacting a larger base of US and global olefins supply. "Upstream and downstream disruptions will likely result in a staggered and complex capacity restart once immediate weather and power disruption issues pass. This could potentially extend the emergency from days to weeks before market continuity and stability returns, added Kirby.

Unplanned US outages have combined with a strong consumption backdrop with the return of China from the Lunar New Year, seasonally higher demand patterns in Q2, and recovery in global demand moving through the evolution of the coronavirus pandemic. The stage is looking set for a period of tightness and volatility in global olefins balances and prices, according to Wood Mackenzie.

One factor that is increasingly clear heading into early 2021 is the increasing fragility of global supply chains and the disruption that can arise from structural interconnectivity. For regions that are able to step up to meet the call on olefins and derivatives supply through the near-term, such as the Middle East and other locations, the opportunity and rewards are likely to be high, said Kirby.

As per MRC, a winter storm has brought unusually cold temperatures, snow, and freezing rain to Texas and western Louisiana, forcing a large share of US light olefins production offline. As of the evening of Tuesday, 16 February, IHS Markit had confirmed the shutdown of at least 61% of US ethylene capacity, 59% of US chemical- and polymer-grade propylene (CGP, PGP) capacity, and 22% of US fluid catalytic cracking (FCC) capacity. Many plants that remained online were running at reduced capacity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
Author:Anna Larionova
Tags:petroleum products, PP, PE, Russia, USA.
Category:General News
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