INSIGHT: Cold front may cause chem outages if temperatures stay too low

HOUSTON (ICIS)–A cold front could disrupt plant operations on the US Gulf Coast and further tighten markets if temperatures spend enough time below freezing.

Forecasts show that the coldest temperatures in Houston will take place on Monday, with some showing lows below 20 degrees Fahrenheit (-6.67 degrees Celsius).

Forecasts can still change, and the daily highs could be warm enough to prevent plant shutdowns.

Earlier in the week, that appeared to be the case. If that forecast holds, chemical plants along the Gulf Coast could avoid widespread shutdowns from the cold weather, according to analysts from CDI, part of ICIS.

PAST COLD-WEATHER SHUTDOWNS
The last time that frigid weather shut down plants on the Gulf Coast was in mid-January 2018.

On 17 January 2018, the temperatures ranged from 20-37 degrees Fahrenheit in Houston, according to the Weather Underground. On 18 January 2018, the range was 26-38 degrees Fahrenheit.

Before that, cold temperatures disrupted operations in 2011, when temperatures were 24-34 degrees Fahrenheit from 2-4 February.

For the latest cold spell, the Weather Underground expects temperatures will be 29-47 degrees Fahrenheit on Sunday, 18-33 degrees Fahrenheit on Monday and 38-44 degrees Fahrenheit on Tuesday.

If the forecast holds, then temperatures will unlikely be low enough for a long enough time to disrupt plant operations, said Brian Pruett, senior vice president of polyethylene (PE) and polypropylene (PP) with CDI.

Generally, plants are designed to run within a set range of temperatures, said James Wilson, senior analyst at ICIS. Below that range, some pieces of equipment may not run well and some lines can freeze.

In places such as Russia, companies design plants with cold temperatures in mind, Wilson said. Process lines are heavily insulated or even heat traced.

Such frigid temperatures are rare on the Gulf Coast. It is unlikely that chemical companies adopted such extra steps in the new units that they built during the past decade, said Kimberly Haberkost, director of olefins at CDI.

Freezing temperatures will become less likely as the year progresses and the weather warms up.

Already, propane prices in the US have come down a bit, Haberkost said.

Propane is used as a heating fuel as well as a feedstock for crackers and propane dehydrogenation (PDH) units. PDH plants convert propane into propylene, which is currently in short supply.

As propylene prices continue to rise, then PDH units will see margins rise significantly in February and March, Haberkost said.

TIGHT CHEMICAL MARKETS
If temperatures fall low enough to shut down chemical plants, then the disruptions could squeeze markets that are already tight.

This is illustrated by prices. The daily ICIS Petrochemical Index (IPEX) shows a remarkable price rally since the beginning of December 2020.

Earlier this week, February polymer-grade propylene (PGP) traded near an all-time high set more than a decade ago.

Chemical producers have commented that tight supplies are preventing companies from rebuilding inventories.

Trinseo CEO Frank Bozich said tyre retailers and producers have been unable to replenish stocks. Tyres are an important end market for styrene butadiene rubber (SBR).

LyondellBasell CEO Bob Patel said the company has been unable to replenish inventories because demand has been so strong. He expects global PE markets to remain tight through the first half of 2021.

LyondellBasell’s PP inventories in North America and Europe hit all-time lows, Patel said.

Downstream, specialty chemical producer DuPont said constraints in raw materials could cause it to miss out on $60m-80m in sales during the first quarter in its legacy Transportation & Industrial segment, which it has since renamed Mobility & Materials. This segment serves the automobile market.

DuPont CEO Ed Breen expects the company should recoup a lot of those sales.

Notably, US-based formulator Avient said it has not seen price inflation for its raw materials. But it has seen shortages in some of its raw materials. Meanwhile, freight costs have been rising.

By Al Greenwood

Thumbnail image shows snow. Photo by James Gourley/REX/Shutterstock