US port strikes threaten polymers trade

US traders and importers for various polymers are concerned that looming strikes at key US ports could upend trade flows and prices.

Ports and railroads servicing the US east and Gulf coasts are making preparations for the potential strikes by the International Longshoreman's Association. Some operations could halt as soon as 30 September at ports in New York, New Jersey and Virginia, as well as in Houston, Texas, and New Orleans, Louisiana, if a new labor agreement is not reached.

The strike is expected to cause the most challenges for products moved by container, including polyvinyl chloride (PVC), polyethylene (PE), and polypropylene (PP).

The end of a given month is typically when producers and traders in the US agree to volume and pricing for PVC trade for the month ahead. But PVC exporters said this week that fewer traders are closing deals with producers for October shipments out of fear that lengthy strikes in Texas and Louisiana could leave volume trapped at ports or in warehouses. Some traders are even avoiding replenishing inventories that have gotten too low.

Traders are also saying that the strike could produce higher logistical costs and prevent export prices from rising. Some container ship companies are warning customers that surcharges for port disruptions could be implemented after a strike begins. Surcharges could reach as high as $3,000 per forty-foot container unit.

That is challenging efforts by PVC producers trying to secure higher prices for offers to traders in October. Export availability is being tightened by planned maintenance at Formosa's Point Comfort, Texas, plant and an unplanned outage reducing rates at Westlake's Plaquemine, Louisiana, facility. But weak demand overseas has made traders risk averse to holding more expensive volume for too long, especially after some were caught with higher priced volume during the summer when export prices fell on average by $145/t in just two months.

Emulsion-grade PVC (E-PVC) buyers are worried about the impacts of a strike as flooring and automotive buyers in the eastern US have become more dependent on imports from Europe. Cheaper European imports of E-PVC have served US buyers as a check on domestic pricing and plentiful volume has compensated for a dwindling pool of domestic producers.

But both those attributes could be made void by a lengthy strike, and buyers currently have little recourse to remedy the situation quickly or on a consistent basis. The threat of more expensive imports from Europe could disrupt what has otherwise been a stable price base for many E-PVC customers in recent months.

PE producers reliant on exports

With US polyethylene producers exporting 46pc of production in January-August this year, a potential port strike could leave US producers with few options to export their goods, and not enough demand in North America to absorb excess volume. Exports to Mexico and Canada would remain an option, as exports to those countries move by rail, but those countries can only absorb so much volume.

Of the portion of US PE exports that move by container ship, 96pc of it moves through Gulf coast and east coast ports, with only around 3pc of it shipped from west coast ports, according to data from Global Trade Tracker.

The most likely result of an extended port strike would be production cuts by US producers.

"If it lasts more than a few days, we are going to have to adjust our operating rates to manage," said one US PE producer.

Polypropylene market participants said the biggest impact is likely to be on logistics, as PP exports have been limited for much of the year due to high prices.

"It makes sense that warehouses could get backed up really quickly if stuff is not going out and resin continues to come in," said one PP trader. "Maybe rail could be impacted too."

In Mexico, PE and PP market participants are bracing for an influx of US resin, as US producers look for alternative ways to move product. If resin inventories grow in Mexico, it is likely that prices in the region will fall.

By Aaron May and Michelle Klump