Chevron Phillips declares force majeure on PE on ethylene shortage

HOUSTON (ICIS)–US polyethylene (PE) producer Chevron Phillips Chemical declared force majeure on PE this week relating to a shortage of ethylene, sources said on Tuesday.

In a 14 July customer letter obtained by ICIS, the company said it “experienced a contingency event” relating to issues affecting the company’s production of ethylene, and “is in a force majeure situation with respect to CPChem’s polyethylene supply.”

The announcement comes a week after a fire at Chevron Phillips’ Port Arthur facility. Two employees were injured in the blaze, which sources have said disrupted the company’s 803,000 tonne/year ethylene plant.

The letter did not state how long the ethylene or PE disruptions were expected to last. It also did not discuss allocation levels.

Sources said the situation will tighten an already tight PE market. LyondellBasell last week declared force majeure on PE produced from two Texas plants in Victoria and Matagorda. Also, Westlake Chemical experienced a supply disruption on an linear low density PE (LLDPE) unit in Longview, Texas.

Sources have said high prices and disruptions in the ethylene market are contributing to the tightness in the PE market, with PE producers who are short on feedstock unwilling to buy spot ethylene at current prices.

US spot ethylene prices reached an almost 18-month high on Monday, with July ethylene on the benchmark Williams System trading at 66 cents/lb, the highest since a trade at 68.25 cents/lb during the week ended 25 July 2013.

Until ethylene prices come down, sources said they expect the PE tightness to continue, which will contribute to potentially higher PE prices in the future. July prices are expected to settle flat, while some sources said there is the potential for prices to rise starting in August.

Chevron Phillips has nearly 2.1m tonnes of PE capacity at three plants, including high density PE (HDPE), low density PE (LDPE) and LLDPE. They also have a joint venture with INEOS for an additional 372,000 tonnes/year of HDPE capacity.

Source: ICIS plants and projects