A wave of force majeures (FMs) in Europe is putting unprecedented pressure on already tight chemicals markets across the region, with strong demand sending prices rocketing to record levels.

According to analysis by ICIS, there are currently FMs affecting 43 products in Europe, adding to existing global supply tightness caused by the US polar storm and plant closures in the Middle East and Asia.

In some product areas, material is in such short supply that downstream production is threatened by a lack of feedstocks. Some packaging convertors have had to declare FM due to a lack of supply, which is very unusual.

In the polypropylene (PP) chain, a couple of finished goods buyers are said to have taken the very unusual step of declaring force majeure on their own goods, as supply is not available.

Global supply chains were already under pressure from disruption to the global shipping container system since the second half of 2020. Chemicals that rely on container transport, including polymers such as polyethylene terephthalate (PET), have been subject to delays and rocketing costs especially on the China to Europe route.

In the US Gulf, February’s polar storm knocked out 100% of some US chemical capacities, with around 20% of overall chemical capacity still offline, according to ICIS analysis. Although plants are gradually restarting, it will take weeks or even months to repair all the storm damage.

With the US now becoming a significant exporter of ethylene derivatives such as polyethylene (PE) and mono ethylene glycol (MEG), the US storm outages are having global impact. The CEO of Brenntag said last week that availability is now more important than pricing. Christian Kohlpainter said he expects the situation to persist at least until the third quarter of 2021.

A strong investment focus on new capacity in Asia over many years, at the expense of Europe and a strong dependence on imports from Asia or from the US has exposed Europe’s vulnerabilities. Import flows are now heavily disrupted from Asia and the US Gulf.

“The situation has been caused by some big brains in the ‘80s who decided to invest in new capacity in Asia and not in Europe, it is a big mistake and we are paying for it now,” said one Europe ECH and BPA buyer.

Disruption to key structural flows from the US to Europe, due to the polar storm in the US Gulf and weather effects in South Africa have impacted supply in Europe for many products, especially those heavily dependent on imports, such as ethylene glycol, ethanolamines, methyl methacrylate (MMA), methyl-acrylate, VAM and acetic acid.

The spate of force majeures in Europe across many products, along with import disruption is causing unprecedented challenges for purchasers, who are trying to help each other out through swaps, but even these arrangements are falling through, as supply uncertainty is hitting everyone very hard.

There are suggestions that a lack of spending on preventative maintenance may be increasing the frequency of outages and FMs. Coronavirus restrictions may have forced delays to maintenance schedules.

John Richardson, ICIS senior consultant, Asia, said: “I’ve been covering chemical markets for 24 years and never seen them so tight. These disruptions could be a confluence of lack of maintenance spend and disruption caused by the pandemic.”

Paul Hodges, chairman of New Normal Consulting added: “The easiest way for chemical companies to boost their earnings is to cut back on maintenance. If you are not spending your depreciation on maintenance then you are running a risk – you may get away with it for a few months but it will turn around and hit you.”

With demand so strong, there is also the possibility that plants are being run too hard to try and meet customer requirements.

Demand stays strong

Demand for chemicals and polymers has been very strong across many value chains since the second half of 2020. The coronavirus pandemic caused a big switch in consumer spending from services such as travel and eating out, to products like home electronic goods, furniture and home improvement products. The boom in online shopping fuelled demand for packaging, as did increased supermarket shopping.

A trend towards domestic over import sourcing across many chemicals due to missing or uncompetitive imports, rebounding downstream markets and panic buying – due to supply security concerns have all kept European demand at an elevated level well into Q1 2021. ■