Westlake Chemical declares force majeure on VCM, PVC after Hurricane Laura: letter

Houston — Westlake Chemical declared force majeure Aug. 31 on North American polyvinyl chloride and upstream vinyl chloride monomer, with widespread power outages and damage at its Lake Charles, Louisiana, complex leaving production offline for an indefinite amount of time, according to a letter to customers S&P Global Platts obtained.

"At this time, we are not able to predict the duration of this force majeure condition," the Westlake's letter dated Aug. 31 said.

"This force majeure condition will cause supply disruptions and limit our ability to meet anticipated product demand. While this force majeure event declaration is required at this time, Westlake/Axiall is continuing to work on commercial options to lessen the impact on our customers."

Market participants expected the declaration. Westlake's shutdown of its Lake Charles complex has idled 38% of its US VCM production with two VCM plants with a combined capacity of 952,318 mt/year offline.

The complex also has three upstream chlor-alkali plants with a combined capacity of 1.27 million mt/year of chlorine and 1.36 million mt/year of caustic soda — 46% of the company's overall North American chlor-alkali capacity.

The company said on Aug. 27, hours after Hurricane Laura came ashore with 150 mph winds, that it appeared its Lake Charles complex had "incurred limited physical damage."

Spokeswoman Erika Soechting reiterated that assessment in an email Aug. 31, before the FM letter began circulating, that restarts would primarily depend on the availability of electric power, industrial gases, and other feedstocks.

However, a source familiar with company operations said wind damage appeared to be more serious than initially thought upon further assessments. No further detail was available.

Westlake's FM will sharply tighten already tight PVC availability.

Formosa Plastics Aug. 14 declared FM on PVC at both its Texas and Louisiana complexes because a turnaround at its 736,000 mt/year chlor-alkali plant in Point Comfort, Texas, lasted longer than expected. Even though the chlor-alkali plant had restarted the week of Aug. 10, the company's downstream ethylene dichloride reserves were depleted, reducing its ability to produce adequate PVC further downstream.

Formosa's FM remained in place Aug. 31 as the company worked to replenish those EDC reserves and restore normal PVC output.

Export PVC availability already had been tight with Formosa's chlor-alkali turnaround that started in mid-June and a turnaround at its 513,000 mt/year PVC plant in Baton Rouge, Louisiana, in July.

In addition, domestic PVC demand has strengthened significantly since cratering in April amid widespread coronavirus pandemic-related shutdowns.

Export PVC prices plunged 39% in six weeks to $520/mt FAS Houston April 29, the lowest level since the global financial crisis hit in late 2008.

Prices have since surged nearly 54% to last be assessed August 26 at $800/mt FAS. Formosa and Westlake already had not expected to offer export volumes for September — Formosa because of its FM, and Westlake because of domestic demand. US PVC producers also had not resumed fully normal rates since reducing output in April, with chlor-alkali rates at 75% in July.

Westlake's FM could push prices to levels not seen since 2014, said Rob Stier, senior lead of petrochemicals for S&P Global Platts. Export PVC prices have not surpassed $1,000/mt FAS since February 2014, and domestic prices reached a high of $1,390/mt delivered later that year, he noted.

"Combining the operational problems experienced during August with Westlake's force majeure, it is possible that we revisit these 2014 high PVC prices," Stier said.