News focus: Shell Moerdijk blast could change Europe's propylene landscape

13 June 2014 10:43 Source:ICIS Chemical Business

The blast at the styrene monomer/propylene oxide facility at Moerdijk, the Netherlands, could impact markets ranging from propylene and downstream to styrene and polyols

An explosion at a Shell Moerdijk unit in the Netherlands on 3 June could change the supply and demand landscape for propylene for the remainder of 2014, and also have major impacts on styrene, along with derivatives.

“This explosion is still fresh,” said a source on 6 June, “and I can think of a number of scenarios depending on the extent of the damage.”

“We think there will be a serious impact,” the source added.


 The 3 June blast was at the reactor of the MSPO-2 installation at Shell’s Moerdijk production site

Copyright: PA

The blast happened at the reactor of the MSPO-2 (styrene monomer (SM)/propylene oxide (PO)) installation at the Moerdijk production site on 3 June. The MSPO-2 facility is owned by Elba, a 50:50 joint venture between Shell Chemicals and BASF. It can produce 550,000 tonnes/year of SM and 250,000 tonnes/year of PO, according to Shell’s website.

Shell’s steam cracker and BD extraction units at Moerdijk are running according to plan following the explosion at the SM/PO plant, a Shell spokesman said on 10 June.

The cracker has the capacity to produce 900,000 tonnes/year of ethylene and 500,000 tonnes/year of propylene, while butadiene (BD) extraction capacity is 115,000 tonnes/year, according to the company’s website.

A source noted that the impact on naphtha was “very small, compared to their position,” as Shell had been seen backing out just one naphtha feedstock cargo.

Shell declined to comment on the duration of repair work and BASF declined to provide any comment on the SM/PO Moerdijk operations, stating that the site was operated by Shell.

Some impact on the propylene market in Europe is still anticipated, with the supply and demand balance widely expected to lengthen as a result of the MSPO-2 unit outage, although it was said to be on a maintenance turnaround at the time of the incident.

Given the extent of the damage at the site, some styrene players earlier estimated that the unit be could offline for a minimum of three months.

Several sources said they thought cracker rates would be reduced in the near term in order to compensate for the loss of outlet but felt that in the medium term, this would add some length to the European system.

“Already before the incident, we saw some real length in the market with some sellers desperate to place cargo. Most systems are full at least in first-half June and options for last minute cargoes are very limited,” a second source said.

Several sources said they had been offered spot polymer grade propylene (PGP) by Shell as well as others in the aftermath of the incident but for many the problem was that they were already pretty well covered.

“I have received quite a lot of offers but I am not in a buying position – unfortunately,” said a propylene consumer.

“I have been asked to take an additional barge, but I am trying to push material back into the market as well,” said another consumer who was facing its own lower than expected demand downstream.

“They [Shell] are in the market, but it will be difficult to place tonnes in the first half of June. We are not even getting to the point of discussing prices,” said a third source. “It’s all about – can you take it?”

“No one knows what the situation is and how long it will take – this could be a game changer as Shell is a big player in the overall propylene market,” a trader said. “Before I would have said the market is balanced to slightly tight – now its balanced and maybe even long.”

Sources said that it was too early to say whether the incident would be a game changer, just that at the very least it had certainly changed the outlook for June.

Spot PGP prices are currently being indicated at June CP (contract price) minus 3-4% on both the coastal and inland market, but many expect discounts at the coast to deepen.

One spot deal is already heard for July at July CP minus 4.5% on a FD ARA (free delivered) (Amsterdam, Rotterdam, Antwerp) basis. Spot prices were at CP flat or even showing a premium back in April.

European styrene players are carefully monitoring developments at Shell’s Moerdijk site. Several players on 10 June said Shell had declared force majeure on styrene out of the unit. A Shell spokesperson said: “We have no new comment on Moerdijk. There’s nothing further to report at this stage and we don’t comment on the duration of repair operations.”

Bids for June styrene were heard at $1,610/tonne while July was slightly firmer on 10 June at $1,615/tonne, but there were no firm corresponding offers. Europe styrene spot levels have risen almost €100/tonne in the aftermath of the explosion.

The European styrene market had previously been struggling with oversupply amid Asian bearishness and imports arriving from the US, but the incident at Moerdijk saw some players scrambling for material, pushing spot levels up.

While many did not initially expect the explosion to have a major impact on availability in Europe, there has been a squeeze on EU origin material in particular.

One trader also noted that prior to the explosion, there had been some pull on Amsterdam-Rotterdam-Antwerp (ARA) volume from the Mediterranean. Combined with the expected seasonal uplift in demand from key derivative markets, many are expecting a squeeze on European styrene availability as July draws closer.

“There is enough styrene in the world, so imports will make their way to Europe,” said one trader on 6 June. “But for now there is a big chunk of styrene missing from the market.”

The explosion is causing fears that polystyrene (PS) availability will tighten towards the end of this month or in July.

European PS costs look likely to fall by at least €35/tonne in June on the back of lower styrene monomer costs in the month, sources said on 6 June.

However, one seller said the explosion has altered June price expectations from reductions to increases, partly due to expectations of higher demand on the back of restocking activity.

“From today’s perspective, I expect higher [PS] prices than I would have expected last week,” the PS seller said.

“We stand for reliability. That is why we stick to our pricing announcement of minus €35/tonne. What I cannot exclude is that perhaps for certain business, where I would need more styrene than planned, if I had to go to spot and buy PS, then perhaps, I might have to raise prices,” it added.

One seller of expandable PS (EPS) said it will examine the impact of the explosion and anticipated upstream tightness before settling June contracts. It noted that before the explosion, it had anticipated a €10-20/tonne drop in June EPS contract prices, in light of weakness in styrene spot prices in May.

Now, however, the picture is unclear and it expects price reductions to be unlikely, especially in light of good EPS demand this year.

“June [is] not settled yet because of Moerdijk. [There is] going to be a shortfall in styrene availability, maybe not noticeable this month,” said the seller.

“Had that not happened, we were probably prepared maybe to give a symbolic drop in EPS €10-20/tonne, not more, but since the accident, we have revised our position. We don’t think there is any need to drop the price anymore,” the seller added.

Several buyers, however, said that they have already settled some June contracts, with reductions ranging from €30-45/tonne. Buy side sources indicated that the Moerdijk explosion is not currently impacting June contract prices.

“We got some contracts now for June. Reduction of €30-40/tonne – depends on suppliers,” it said.

Looking ahead, sources expect the summer holiday season, which is already starting to take hold in Europe, to diminish demand over the next couple of months.

The immediate impact on the European polyols market has been limited, market players said on 10 June. A Shell spokesperson declined to comment on its polyols situation in Pernis, also in the Netherlands, following the explosion at Moerdjik.

A spokesperson at Germany-based BASF said, “Concerning polyols we will do our utmost to supply all grades to customers in EMEA [Europe, Middle East and Africa] by utilising our global network. We are informing and discussing with individual customers the different supply scenarios and options at this time.”

One main polyols buyer said it is on sales allocation for polyols following the SM/PO unit blast. The same source added it did not see “any dramatic effect” on overall polyols supply, stating that any shortfall is being covered from elsewhere.

A second polyols customer said it has sufficient polyols supply for the time being, but added the situation is still being evaluated.

The same source and another buyer said any impact on the polyols market is unlikely to be felt immediately with low seasonality in the downstream bedding and furniture sectors having some mitigating effect at present and during the quieter summer holiday period in July and August in Europe.

One of the buyers however did not rule out the possibility of a delayed effect on overall polyols supply in the coming months, particularly if the upstream output constraints were to persist for some time.

A few sellers said they had already seen some additional requests and orders, which they attribute to the knock-on effects from upstream SM/PO output constraints at Moerdijk.

One of the suppliers said the polyols market has shortened as a result and it is hopeful that this would help him pass on price increases in July.

A second producer said it had concluded some spot business at a higher price with a customer which had previously rejected its offers for June, but had been forced to come back to take the volumes.

It said it had secured spot price increases of €70-100/tonne for flexible polyols in June over the contract level, although it declined to comment on actual price levels.

European contract June prices were at €1,750-1,810/tonne FD NWE for flexible polyols and €1,970-2,030/tonne FD NWE for sucrose base rigid polyols. This reflects a reduction of €10-20/tonne from May. While the contract sentiment in June was stable to soft, in terms of absolute numbers, prices were generally quoted lower. The majority of polyols contract business was concluded prior to the Shell/BASF MSPO-2 plant incident.

By Nel Weddle