Will Hurricane Ida Affect Chemical Industry Third Quarter Results?
Hurricane Ida, which struck Louisiana with devastating force on August 29, left behind widespread destruction across the US Gulf Coast and the northeast. The Category 4 hurricane caused significant damage to critical industries in the Gulf Coast region, with chemicals among the hardest hit.
Ida dealt another blow to the supply chain, which was already weakened by the coronavirus pandemic. It came at a time when the chemical industry is recovering from the effects of soaring raw material and supply chain costs, resulting from the devastating winter storm on the US Gulf Coast, the world’s largest refining and petrochemical production center in North America.
A number of chemical companies idled their factories before the storm. Huntsman Corporation HUN said all units at its manufacturing facility in Geismar, LA, were safely and systematically shut down before Ida reached land. The Geismar site is involved in the production of the Polyurethanes and Performance Products divisions of Huntsman. Westlake Chemical Corporation WLK also closed its facilities in Louisiana prior to Ida’s arrival. Dow Inc. DOW has also safely closed its manufacturing operations in Plaquemine and St. Charles. BASF SE BASFY has idled its methylene diphenyl diisocycanate and butanediol plants in Geismar.
Ida exacerbates the supply chain crisis
Chemical producers are grappling with rising raw material costs as well as rising supply chain and logistics costs. Supply chain disruptions from the coronavirus and weather events have resulted in a significant increase in raw material costs. Higher input costs partly due to the impacts of winter storm Uri weighed on the margins of chemical companies in the first half of 2021.
Extreme weather conditions in Texas and Louisiana and power outages disrupted the supply of raw materials. The shutdown of ethylene plants in the United States affected the availability of ethylene, a major raw material used in the production of several industrial chemicals and plastic products, including polyethylene and polyvinyl chloride. The deep freeze on the US Gulf Coast took about three-quarters of US ethylene capacity offline. The US Gulf Coast is home to about 20% of the world’s ethylene production. The winter storm has dampened chemical production on the US Gulf of Mexico coast and other parts of the country due to raw material and supply chain disruptions.
The supply tightening continues for a number of key raw materials, including several resins, natural gas, propylene, butadiene and fiberglass. The lingering impacts of supply chain and logistics bottlenecks, exacerbated by recent adverse weather events globally and the resurgence of coronavirus infections, are expected to be reflected in the September quarter.
The supply crisis is compounded by the disruptions associated with Ida. The force majeure events and plant closures associated with Ida are expected to have further reduced the supply of raw materials, especially ethylene and propylene, and push up their prices, the impacts of which are expected to be felt on the bottom line. chemical companies in the third quarter. Six ethylene-producing facilities were affected by Ida, according to IHS Markit, accounting for about 16% of US ethylene capacity.
Nevertheless, measures to increase the selling prices of chemicals to counteract cost inflation and supply chain tension, measures to improve productivity and improve operational efficiency should help. the chemical industry to maintain its margins in the third quarter. Strong demand in key markets, notably autos and construction, is also expected to boost volumes.
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