Chemical markets prepare for Canadian rail strike

Market: Chemicals, Petrochemicals
02/08/24

Chemical industries in North America are bracing for a potential rail strike in Canada, but some markets expect greater impacts than others.

Participants across a variety of industries have expressed greater certainty that a rail strike is now likely after momentum for a strike several months prior had fizzled out. The Canadian Industrial Relations Board (CIRB) is making considerations that are due to be posted no later than 9 August, with some market participants expecting a strike to be called somewhere within 72 hours thereafter. The CIRB is evaluating what, if any, materials would be constituted as essential to move even during a strike.

Chlorine

The chlor-alkali market has raised concerns about a potential strike, with some suppliers of chlorine and hydrochloric acid (HCl) in Canada pushing for a strike to be delayed or for its products to be considered essential. Chlorine and HCl are both used in water treatment, and suppliers have said a prolonged stoppage in rail service without proper considerations for such products could endanger some municipal water supplies.

In the lead up to a potential strike, Canadian chlor-alkali producers and their US counterparts positioned close to the Canadian border have been trying to build up buyers' on-site inventories as a precaution. Producers have warned, however, that such contingency plans only work if the strike is not prolonged, as stoppages lasting longer than a few weeks could be problematic. Wildfires across central Canada have been complicating the efforts to ensure downstream inventories, as the fires have encroached on crucial rail lines and delayed or rerouted supply.

Polymers

In the polymers markets, polyethylene (PE) and polypropylene (PP) producers in Canada, including Nova Chemicals and Heartland Polymers, made advanced preparations for a rail strike back in May. Both companies had moved some inventories in advance to storage warehouses in the US to limit supply disruptions to US customers.

In addition to storage on the US side, sources said the Canadian producers were also making plans for storage on the Canadian side so they could continue to operate, even if railcars were no longer moving. As long as a strike would not last more than a few weeks, most market participants said they believed there would be minimal disruption to the overall market.

An extended strike would likely result in some shipping delays, but producers on the US side could raise operating rates and potentially help to fill in any supply gaps.

Polyvinyl chloride (PVC) customers in Canada had stocked up on supply back in May as well, with minimal concerns of disruption so long as any stoppage did not drag on. Some pipe producers with plants in Canada have also said the need to stock up on inventory has been lessened due to Canada's weaker economy and construction sector.

Polystyrene (PS) distributors have been positioning resin supply in the northeast and Midwest to quickly move across the border if need be, but warehouses in Canada were reportedly oversupplied on PS and turning away extra railcars.

Recycled polymers market participants indicated that with current low demand and low volume trades, the rail strike will likely lead to more truck usage rather than completely halting trades altogether.

Chemicals

The butadiene (BD) market reported that a Canadian rail strike would impact cross-border trade flows of feedstock crude C4 and BD into the US.

A BD producer in Sarnia, Ontario, primarily delivers BD to US customers in the Midwest — a fact that has prompted some concern from US customers about the impacts of a potential rail strike. Some BD buyers have worried thatprolonged disruptions to Canadian volumes could add tightness to the domestic US market, especially in cases where consumers are unable to source volumes from the US Gulf coast.

Concerns from the ethylene and aromatics markets were muted, and the isocyanate and polyurethane (PU) markets expressed little concern as most buyers were able to bring supply in by truck. Moreover, the vast majority of supply for the isocyanate chain comes from production in the US Gulf, meaning the majority of any transit would be conducted on lines not impacted by the strike. Methanol market participants also did not express significant concerns.

By Aaron May, Michelle Klump, Joshua Himelfarb, Zach Kluver, and Catherine Rabe

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By Reina Maeda and Nanami Oki Japanese firms' methanol projects Methanol-fuelled ships Company # of vessel Type Target commercialisation Announcement Mitsubishi Gas Chemical, Mitsui OSK Line 1 Ocean-going methanol carrier Jul-05 May-23 Toyofuji Shipping, Mitsubishi Heavy Industries 2 Ro-Ro vessel 2027-28 fiscal year Jun-24 Mitsui OSK Line 1 Coastal methanol carrier Dec-24 Jul-24 NS United Kaiun, Nihon Shipyard, Jaman Marine United, Imabari Shipbuilding Multiple Bulk carrier After 2027-28 fiscal year May-24 Orix, Tsuneishi Shipbuilding 2 Bulk carrier Jul-24 Production Company Product Country Target commercialisation Target capacity (t/yr) Mitsui E-methanol US Jan-24 1630000 Mitsubishi Gas Chemical Bio-methanol Japan Jun-24 Small amount Mitsubishi Gas Chemical, Kobelco E-methanol Japan NA NA Cosmo, Toyo Engineering E-methanol Japan NA NA Sumitomo Chemical E-methanol Japan 2030s NA Mitsui, Asahi Kasei Bio-methanol US Jun-23 NA Toyo Engineering E-methanol India 2030 NA Investment Company Product Country Target commercialisation Target capacity (t/yr) Mitsui E-methanol Denmark NA 42,000 Idemitsu E-methanol Brazil, US, Chile, Uruguay, Australia 2,030 4,000,000 JOGMEC E-methanol Brazil, US, Chile, Uruguay, Australia 2,030 4,000,000 Mitsu OSK Line E-methanol Brazil, US, Chile, Uruguay, Australia 2,030 4,000,000 Table source: Firm's company releases Send comments and request more information at feedback@argusmedia.com Copyright © 2024. 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