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Europe Chemical Producer Ponder Harvey Impact, German Train Issues

Posted on September 26th, 2017 by in Chemicals Industry News and Analysis

Storm

Some European companies have noted a degree of disruption in their markets caused by Hurricane Harvey in the US chemicals hub of Texas and Louisiana. But Europe’s industry is growing more concerned by the day about a less dramatic logistical issue, Germany’s rail transport problems.

For some players, however, Harvey has represented a business opportunity. One executive noted on 13 September that up to 50,000 tonnes of benzene would be heading to the US as Europe had become a “key supplier” in the Hurricane’s aftermath.

However, the impact of Harvey on Europe’s chemicals logistics has varied across different markets and, in fact, a source in the Italian polymers market dismissed potential knock-on effects from the Hurricane as “producers’ gossip”, showing much greater concern about Germany’s rail transportation problems.

Germany’s rail problems commenced in August in what, at the time, seemed a problem fixable within weeks. During construction work at the New Rastatter Tunnel, some subsidence occurred, causing the closure of the rail route between Karlsruhe and Basel and between Rastatt and Baden-Baden.

The issue, meant to be resolved by 26 August, put chemical players in alert mode as they started reporting higher transport costs as a consequence of the incident.

Things only got worse as September went by. On 7 September, the still-unresolved problem was already affecting 75% of chemical transport in three key markets in northwest Europe: France, Germany, and Austria.

Moreover, as of 5 September, European chemical major INEOS’ subsidiary Styrolution had declared force majeure on polystyrene (PS) and acrylonitrile-butadiene-styrene (ABS) on its deliveries to Italy and Switzerland, in a letter seen by ICIS on 14 September.

Other sources in southern Europe also described on 14 September how Harvey’s knock-on effect was nothing compared to the havoc brought by the Rastatter Tunnel incident.

“In Italy, things are quite nervous because of logistics problem from northern Europe. Some big accounts are in trouble. Smaller ones can generally be supplied from warehouses,” said a source. “There’s more trouble with local transport issues than Harvey.”

However, Hurricane Harvey’s impact on European chemical logistics has been strongly felt in some specific markets which have critical commerce links with the US.

Ports in the Houston area were shut during the Hurricane, and in fact the International Energy Agency (IEA) on 13 September described the US Gulf Coast as a potential new Strait of Hormuz (the Middle East’s Red Sea pinch point for the export of crude and crude derivatives) given growing production both upstream and downstream.

Both the US government and corporates were strongly advised to revise and update infrastructure in the area to cope with future weather events in a more diligent manner, according to the agency.

A European producer of plasticisers said recently there would “definitely be a Harvey impact” in its market, noting that the region’s importers may not have suffered any effect yet, but would do so in the next month or so.

The source added its company was being “prudent” with volumes in Europe in order to prepare for any potential restrictions in the fourth quarter.

Within the oxo-alcohols market, a producer said it was evaluating the potential impact from Harvey, adding: “There are a few things on the starting blocks, but nothing confirmed yet.”

A similar story was playing out in the methylene chloride market, with one producer wondering about availability in the coming weeks. Europe depends to some extent on imports from the US, where producer Olin had declared force majeure on shipments from its Freeport site in Texas at the end of August.

“The question is how availability will be in the next few weeks… How are the worldwide balance and European balances?” the European producer questioned.

Sources in the cyclohexane (CX) and monopropylene glycol (MPG) markets said Harvey-related disruption could be likely, with CX sources fearing it could worsen existing tight market conditions. Meanwhile, MPG players said buying appetite had increased due to uncertainty over availability in coming months.

“I continue to see the market tight, imports will be delayed because of the US difficulties… We expect less availability in September and October because of the delay in the imports from US,” said a CX producer.

An MPG producer in Europe said Harvey had caused “turmoil” in the region’s market and described customers who are already trying to secure material ahead of de-icing season.

“A lot of freight and volumes flows from the US to Asia and Europe came to a halt. Different drivers within the region [are] affecting supply and demand balances. Supply to Asia [has been] cut off [and we] have to focus on domestic market, [which is] less dry,” the MPG producer said.

“Global producers like [US chemical major] Dow and ourselves [are] focusing on optimisation… Sentiment is bullish.”

A similar mood was described by sources in the European acrylates market, with supply expected to tighten in October as the effects of Harvey filter through to trade logistics.

European acrylates supply for the coming weeks is sufficient for contractual demand requirements, but additional volumes will not be easy to obtain due to both domestic outages and Asian material going mostly to the US to ease the lost volumes.

Significant volumes of European and Asian origin paraxylene (PX) are also headed for the US, where the impact has been severe.

There has been more demand for orthoxylene (OX) as well, as players look to fill short-term requirements.

In the European methyl methacrylate (MMA) industry, sources are bracing for an even tighter fourth quarter as a result of both Harvey and the persistent global shortage for that product following several outages in the first half of the year.

“It’s like a very dark cloud [that] is hanging over this market at the moment,” an MMA buyer said on 8 September, adding that its priority was more security of delivery, rather than price.

US Gulf Coast operations are typically in low-lying port areas that are prone to flooding, with mud and debris a problem when floods occur. Those on the ‘dirty side’ of hurricane Harvey will be impacted the most.

This will disrupt US Gulf Coast operations and those that depend on the region for feedstock. There is a ‘virtual pipeline’ of product on the road and on the water, en route, as well as some reserve supply on site for operations outside the area.

Typically the logistics time from the US Gulf Coast to the US East Coast is about seven days. To Eastern Europe, it is about 14 days and to Asia 21 – 28 days.

Waterborne shipments could be delayed by the weather. On-site inventory levels are likely to be 7 to 28 days maximum. So disruption will be delayed for those outside the US Gulf Coast.

However, once the logistics pipeline is disrupted for even a few days, there is a gap that is difficult to plug. This will hit customers at some point if their suppliers are not able to accelerate deliveries or if they are unable to tap into alternate feedstocks or alternate feedstock sources.

The impact from Harvey has clearly been felt in global chemical prices, according to the latest IPEX index by ICIS tracking the main petrochemicals across the US, western Europe, and northeast Asia.

While Harvey only made landfall at the end of August, the month’s IPEX already showed that concerns about logistic-related issues were dampening sentiment in the industry.

Swiss investment bank UBS also said on 11 September the impact from Harvey had put upward pressure on chemical prices across the globe, noting how following Hurricane Katrina in 2005 – which also battered the US Gulf Coast – refiners took around three months before utilisation rates returned to normal.

“We may see a similar timeframe for the chemicals names [located in the Harvey-affected area],” the analysts concluded.

Additional reporting by Stefan Baumgarten, Eashani Chavda, Nigel Davis, Heidi Finch, Jane Massingham, Linda Naylor, Vasiliki Parapouli, Katherine Sale and Helena Strathearn and comment from James Ray

To read more news and analysis stories from ICIS, go to www.icis.com/about/news

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All opinions shared in this post are the author’s own.

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