INSIGHT: Freezing weather in Europe exacerbates tight chemicals supply

Author: Morgan Condon

2021/02/12

LONDON (ICIS)--Cold weather has restricted chemicals production and logistics in Europe, mirroring conditions possible on the US market.

Disruptions have already shaped near-term fundamentals for some products, tightening supply and preventing deliveries.

Some have likened conditions to the Beast from the East storm in 2018, but against the backdrop of the pandemic, the strain on production and supply chains could be even more pronounced.

DIRECT MARKET IMPACT
Evonik announced a force majeure on acrylic acid production at its plant in Marl, Germany on 9 February, as the disruption to railways and roads halted the flow of raw materials and finished products.

“While the acrylic acid plant is still operating, depending on the duration of this event we may be unable to receive raw materials via rail and/or road for continued operations of our acrylic acid plant which could cause a prolonged supply interruption,” the producer said in a letter to clients.

Another force majeure was called by Italian producer Radici at is adipic acid site in Zeitz, Germany because transport had been suspended due to the bad weather.

Restarts have not yet been declared at either of these sites, and the reach of the bad weather has extended to impact sentiment for other products.

The cold weather has affected some polyethylene terephthalate (PET) production in Germany, with the affect rippling up the value chain to monoethylene glycol (MEG).

The impact across value chains does not always show this correlation. But one epichlorohydrin (ECH) producer in Germany is monitoring the weather to assess the likelihood of any disruption to propylene deliveries.

Production further down the value chain has not been hit. An epoxy buyer said that processing material for floor coatings remained unaffected.

A buyer on the titanium dioxide (TiO2) market advised said that deliveries were affected by heavy snowfall around Salzburg, Austria, with delays on railways exacerbating lead times.

Disruptions extended across markets, with a fertiliser distributor explaining that some sulphuric acid lines had frozen at the beginning of the week due to the sudden drop in temperature.

“I have nothing on prices as everybody is screaming for material,, " it said. "Some customers accept that you cannot move by rail, others (mostly the big end-users) are threatening their suppliers with shutdown costs.

"I just tell [them] if they can make the trains run again then please inform me and I will see what I can but as no company can tell Deutsche Bahn what to do or not, everybody has to be patient.”

Frozen pipes have added to the strain according to feedback from the polyethylene terephthalate (PET) and polyurethanes (PU) markets, but the impact of this is not likely to be sustained.

One butanediol (BDO) player said that the weather had started to affect truck deliveries, but that this would only cause disruption over the course of a few days.

“We will see, because trucks are seeing delivery delays for a small number of days. Vessel can still arrive and discharge. There is some issue as pipes are frozen as they don’t have heating system, but, overall, the whole system is under control,” it said.

Olefins production is not affected as steam crackers are designed to endure severe conditions and will not stop running in low temperatures.

One olefins producer described weather conditions as “Siberian”, however. And while production has continued, logistics problems could encourage further price rallies for propylene, which has already escalated.

FROZEN SUPPLY CHAINS
The key cause for concern across the markets is what impact the bad weather will have on deliveries, which have already been contending with pressure from limited storage capacity.

Freight rates for urea coming from the Baltic are at a premium to vessels from the Mediterranean or China.

Intra-European trading has been fraught due to high water levels on the Rhine.

While river levels at the Kaub measuring point have declined from highs reached earlier in the week, waters remain much higher than they were a month ago.

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One distributor of toluene and mixed xylenes (MX) advised that it was the combined pressure of high water levels and cold weather that was leaving supply constrained, which has caused disruptions on ARA (Amsterdam-Rotterdam-Antwerp) routes.

In the phenol/acetone market, deliveries via railway were more disrupted than those by truck, with one trader commenting: “If you can bring the materials at the requested time (a higher) price is possible.”

THAWING CONDITIONS
While the poor weather has caused some disruption on the markets, it has mainly acted as an amplifier, and has added to existing tensions.

A terephthalic acid (PTA) producer said: "We are impacted by the weather and are having some issues because [of it]...If you have normal inventories you can overcome this, so every slight problem is a problem for us,"

As the weather returns to milder conditions, the flow of material will pick up again, which could release some of the tightness from the market, but structural supply chain issues will not melt with the snow.

A warm front is expected across northwest Europe but  eastern parts of Germany and Austria could remain up to four degrees Celsius below average for this time of year.

Front page picture: Snowplough removes snow on a road in Rennes, west France, 10 February
Source: David Vincent/AP/Shutterstock

By Morgan Condon

Additional reporting by Zubair Adam, Marta Fern, Heidi Finch, Andy Hemphill, Melissa Hurley, Fergus Jensen,  Mathew Jolin-Beech, Caroline Murray, Deepika Thapliyal, and Nel Weddle