UpdateUS FMs halt fall in EG spot prices

05 September 2008 21:05  [Source: ICIS news]

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HOUSTON (ICIS news)--Two US ethylene glycol (EG) producers have declared force majeure (FM) in the wake of Hurricane Gustav, a situation that has halted a decline in prices, market sources said on Friday.

MEGlobal and Shell Chemical have declared FM as a result of shutdowns and disruptions at Louisiana plants, sources said. The companies could not immediately be reached for comment.

Spot prices on EG had been falling during recent weeks in response to lower crude oil values, but that decline was now halted as market players wait to see how long the outages last.

MEGlobal, a joint venture between Dow Chemical and Petrochemical Industries Company, markets EG for Dow. Dow's Union Carbide EG plants at Taft were shut down because of power outages, according to sources.

Shell Chemical’s Geismar facility was also shut down after the storm made landfall on the Louisiana coast, EG buyers said.

Dow stated that operations in ethylene oxide (EO) and higher glycols were temporarily idled in preparation for Hurricane Gustav, and that subsequent disruptions in power, utilities and transportation delayed a return to normal operations and shipments.

Downstream polyester producers said that the problems at MEGlobal and Shell stemmed primarily from electrical outages and not from mechanical damage.

MEGlobal’s FM also applied to diethylene glycol (DEG). MEGlobal sales allocations for EG were at 70%, while DEG sales allocations were at 100%, based on the historical demand over the past 7 months, according to participants.

The MEGlobal FM was also expected to affect propylene oxide (PO) and downstream products, although these were not subject to supply allocations.

Buyers and traders said EG spot barge values had declined from late-August levels, of around 49-50 cents/lb ($1,080-1,102/tonne,  €756-771/tonne) according to global chemical market intelligence service ICIS pricing.

One polyethylene terephthalate (PET) producer noted that EG inventories had been built up in anticipation of planned turnarounds during October. However, because electricity is needed to load the material into railcars, logistics would be a factor in filling any immediate orders.

“There isn’t any market panic,” said a trader, “But if the problems... aren’t worked out within a week then there could be some panic.”

The trader added that natural gas supplies had been disrupted and could present further problems for various producers that depend on the fuel for local power generation.

($1 = €0.70)

(Additional reporting by Gene Lockard)

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By: Landon Feller
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