US markets react cautiously to Gustav, oil plunge

02 September 2008 15:27  [Source: ICIS news]

By Stephen Burns

HOUSTON (ICIS news)--US markets reacted cautiously on Tuesday morning to the relatively painless passage of Hurricane Gustav, which has apparently spared energy and chemical production facilities and also set crude oil prices plunging.

"So far, it appears the industry may have dodged a bullet on this hurricane," a polyolefin buyer said, although he added it was too early in the day to hear of any supply chain disruptions.

General sentiment held that the markets were facing a quite different set of parameters than when participants left their offices to start a long weekend on Friday.

"We are re-assessing," said one ethylene producer, who had not heard any specific damage reports.

Gustav appeared to have caused only minimal damage to the Port of New Orleans, which stopped operations on Saturday in advance of the storm, said port spokesman Chris Bonura.

“Today is a day of assessment, not just for the port but for the city as a whole,” Bonura said.

If all goes well the port should be able to resume operations in a few days, versus weeks as was the case in 2005 with Hurricane Katrina, Bonura said.

The Houston Ship Channel reopened to traffic at 7:51 Houston time (12:51 GMT), after being closed to inbound ships on Monday, the US Coast Guard said.

As of 8:50 Houston time, there were 48 vessels waiting to enter the Houston port, the Coast Guard said.

Forecasts on Friday said Hurricane Gustav would make landfall on Tuesday morning and deal a powerful blow to a swath of production facilities in Louisiana, and also take a swipe at the heart of the US chemical industry concentrated on the Texas coast.

Gustav did cause widespread flooding and blacked out large areas, but aside from the loss of power there have been no reports yet of serious damage to any production facilities.

Many refineries and chemical plants had been shut down ahead of the storm, which has relinquished its hurricane status as it moves further inland.

In one example, PPG Industries said its Lake Charles chemicals complex in Louisiana felt only a minimal impact, spokesman Jack Maurer said.

"Over the weekend, plant managers implemented a controlled and phased shutdown of the facility," Maurer said. "Except for two power generator units, the entire plant was down and lines were cleared."

About 200 PPG employees volunteered to stay through the storm to ensure continued power capability.

The facility is now working on logistics for a start-up once city officials lift the evacuation order and the company can begin to bring employees back to work, which is expected to take three or four days.

The PPG Lake Charles complex manufactures chlor-alkali products, including chlorine and caustic soda, and employs about 1,300 people.

Likewise, Dow Chemical was still assessing its site in Plaquemine, Louisiana, and its Union Carbide operations in St Charles, said spokesman David Winder.

Part of the company's Plaquemine site had been taken down, while the entire St Charles site was closed before Gustav hit, Winder said. The company had yet to schedule a time it could restart the plants, he said.

US Gulf olefins buyers were hanging on the sidelines on Tuesday morning, waiting on firmer information.

There were no fresh bids heard in the ethylene or propylene markets, which were both supported on Friday by fears that Gustav might interrupt supplies.

Before the storm came on the scene, both markets were softening amid perceptions of plentiful supply, reflecting in part high operating rates as producers took advantage of improved margins due to the downtrend in oil and natural gas prices.

The overnight plunge in crude oil values would likely bring fresh pressure on price ideas, said one olefins buyer.

Soon after the opening of the regular session, New York Mercantile Exchange (NYMEX) front-month crude oil futures hit a low of $105.46/bbl, down $10.00 - or 9% - from Friday's close.

US aromatics producers and traders said they expected prices to move lower in response to falling crude on the NYMEX and weaker aromatics prices in Europe.

"Definitely down," said one east coast aromatics trader. "Benzene bids will be below $4.00/gal."

No fresh US benzene numbers have emerged yet. September benzene spot levels were last heard at $4.50/gal (€921/tonne) FOB HTC (Houston-Texas City), according to trade sources.

Downstream, US polypropylene (PP) buyers had expected - prior to the emergence of Gustav - that contract prices to fall by at least 10 cents/lb in September on the back of weaker demand and feedstock pricing.

Domestic injection grade homopolymer was at 98.0-102.5 cents/lb DEL (delivered), according to global chemical market intelligence service ICIS pricing.

Polyethylene (PE) contract prices were expected to fall by at least 5 cents/lb, matching a similar trend in PE spot prices seen in late August.

US low density polyethylene (LDPE) film was at 95-98 cents/lb, according to ICIS pricing.

($1 = €0.68)

(Additional reporting by Brian Ford, Leela Landress, David Barry, Brian Balboa, Steven McGinn, Al Greenwood, Heather Doyle, and David Rosen.)

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