21 June 2013 09:54 [Source: ICB]
Spot ethylene prices spiked after the explosion at Williams' cracker in Lousiana, but there may not be a lasting impact
Despite a spike in US ethylene spot prices following the explosion at US-based Williams Companies' olefins plant in Geismar, Louisiana, US, the tragic event that killed two and injured more than 70, may not have a long-lasting effect on chemical markets.
Two people died and over 70 were injured in Geismar explosion
US ethylene spot prices rose by an average of 2.875 cents/lb the week ending 14 June, trading at between 59-60 cents/lb to close the week. The rise in spot prices came on expectations of tighter supply in the market after the fire and explosion at Williams' cracker on 13 June.
Prices could rally
By 17 June, ethylene for June was heard bid at 55.5 cents/lb ($1,234/tonne, €918/tonne) against offers at 60.0 cents/lb. Market players said that if Williams announces a long-term shutdown of the unit, prices could rally. No timetable has been given regarding the plant's return to operation.
The cracker shutdown also weakened demand for feedstock ethane. This led ethane prices to fall to 10.54 cents/lb from 11.52 cents/lb, further strengthening ethylene margins.
US spot ethylene margins rose by 8.6% for the week ending 14 June to 48.83 cents/lb.
On the day of the fire, 13 June, bids had climbed to 57-58 cents/lb compared with a deal done the previous day at 53.5 cents/lb. US spot ethylene prices had been trending lower in the past several weeks because crackers have come back online following maintenance.
While these types of events "have enormous local impact immediately, the industry typically adjusts/rebalances within a few months [as] there is plenty of excess capacity globally. So even local economic impact typically passes quickly", said John Roberts, analyst with global investment bank UBS. "We think global impact should be negligible as all individual plants are less than 1% of global capacity," he added.
Ethylene will be rationed locally until back-up supplies are arranged, Roberts noted. Vulnerable units nearby that could find themselves short of supply include "a styrenics operation, a glycol unit, and a PVC [polyvinyl chloride] operation", said the analyst.
Impact on pvc
"If - a big if - PVC competition is impacted, then these parts of Axiall and Westlake Chemical could see modestly higher margins. US volumes and margins are already strong, so overseas competitors instead could see any benefit," he commented.
Indeed, sources in the European market said the explosion could have more of an impact on European derivatives, specifically PVC and polyethylene (PE), that compete with US-origin product in certain areas.
"There might be an indirect effect, maybe on derivatives. We might be better placed when competing against the US," a trader in Europe said.
The next steps
As of 17 June, Williams was continuing to work with the US Occupational Safety and Health Administration (OSHA) and US Chemical Safety Board (CSB) to investigate the cause of the incident.
A command centre at the company's headquarters in Tulsa, Oklahoma, has been set up to support activities in Geismar, the company said, and a team of employees returned to the unaffected area of the plant to further decommission the facility.
Williams said it is working up plans for OSHA's approval to restore power and other basic services to the facility.
The Geismar facility annually produces about 1.3bn lb of ethylene and 90m lb of polymer-grade propylene (PGP), according to the company's website.
The plant had been in the middle of a turnaround because it was in the process of expanding its ethylene capacity to 885,000 tonnes/year from 613,000 tonnes/year, officials said.
Additional contributions from Nel Weddle in London, Tracy Dang in Houston and Joseph Chang in New York
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