(Bloomberg) -- Record plastic prices are poised to push even higher as a storm that’s forecast to evolve into a major hurricane bears down on the U.S. Gulf Coast region that manufactures almost 20% of the world’s ethylene.
Tropical Storm Ida is strengthening and by the time it slams into Louisiana on Sunday afternoon is expected to be packing winds of 115 miles per hour (185 kph). That puts chemical plants owned by Exxon Mobil Corp., Dow Inc. and others squarely in the bull’s-eye, threatening supplies of polymers used in everything from shampoo bottles to water pipes.
Gulf Coast contracts for polypropylene, high-density polyethylene and PVC already are trading at all-time highs in the aftermath of a deadly February freeze amid brisk demand for consumer goods.
The storm has the chance to “severely strain” supplies of PVC and chlorine given its current path, according Jeremy Pafford, head of North America market development at data provider ICIS. Additionally, polypropylene, which is used in furniture, cleaning products and carpet, could jump almost 45% to $4,000 a metric ton if a significant amount of supply is taken offline for more than three weeks, he said.
“Long-term outages induced by tropical weather could fuel stratospheric price rises that downstream supply chains and consumers cannot easily afford,” Pafford said. “With the majority of U.S. commodity plastic resin capacity stationed on the Texas and Louisiana coasts, one devastating hit could bring months’ worth of polyethylene, polypropylene and/or polystyrene shortages.”
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America’s petrochemical hub has spent much of this year trying to recover from extended shutdowns stemming from the February storm. The supply crunch was compounded by surging demand for manufactured goods and packaging. Global shipping constraints also hampered chemical supply chains, boosting prices.
“Another major disruption, similar to the February cold snap would impact production schedules, operating rates and output,” said Muhamad Fadhil, vice president at market price reporting agency Argus Media Ltd. That’s especially bad for the “critical” fourth quarter, “when global petrochemical demand typically picks up ahead of festive demand for finished products,” he said.
(Updates with analyst comments in 4th and last paragraphs.)
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