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All Texas ethylene capacity offline on freeze: Westlake CEO

Highlights

Cold weather takes out 75% US ethylene capacity: CEO

Westlake benefits from higher PE, PVC prices pre-freeze

Houston — The deep freeze that enveloped the US Gulf Coast took 75% of the 40 million mt/year of US ethylene capacity offline, and 100% of such capacity in Texas, Westlake Chemical CEO Albert Chao said Feb. 23.

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He said during the company's Q4 2020 earnings call that the risk of restarting "may impact availability and prices of ethylene, which will impact prices of polyethylene as well. We don't know yet to what extent the ethylene shutdown will impact prices of polyethylene going forward."

That stark fallout from sustained sub-freezing temperatures that hit the petrochemical-heavy region remained in place Feb. 23 as companies worked to inspect shut plants for any damage as part of the restart process.

CFO Steve Bender said the extreme winter weather, which affected some Louisiana operations as well though not as heavily, "caused widespread power outages and disrupted feedstocks, raw materials and utilities to many plants in our industry, including some of our plants. As a consequence, several of our facilities experienced disruption to their operations."

He said Westlake, which operates plants in Louisiana, was still assessing impact and expects losses in margins, sales and repairs to reach $120 million.

Westlake did not have to shut down most of its Louisiana operations, but the company did shut down its Calvert City, Kentucky, complex, which includes a 331,763 mt/year cracker and downstream units in the production chain for construction staple polyvinyl chloride. The company's joint-venture 1 million mt/year cracker operated by Lotte Chemical in Lake Charles, Louisiana, also was among crackers shut because of the freeze, and remained shut on Feb. 23.

Sub-freezing temperatures hit the region Feb. 14, and remained below freezing through at least Feb. 17.

Texas faced widespread power outages as well, with 40 MW of the state's generation offline at its height. Those outages affected industrial plants, including water plants, leaving widespread swaths without running water for days, and boil water notices when water began flowing again.

US Gulf Coast temperatures returned to normal by Feb. 19.

Westlake reported Q4 2020 net income of $113 million, up 57% from $72 million in the year-ago period. For the year, Westlake reported net income of $330 million, down 21.6% from $421 million in 2019.

The uptick in quarterly results stemmed from higher prices for polyethylene and PVC amid tight supply and strong demand for both, Chao said.

He noted that the coronavirus pandemic's early months hurt 2Q results, particularly for PVC, as widespread shutdowns stymied construction activity. However, demand began to rebound in May for PVC, PE and Westlake's building products business.

"With a strong rebound in demand, we're able to capitalize on the increasing price environment that drove improving product margins," he said.

Bender noted results were offset by lower sales volumes in the aftermath of Hurricanes Laura and Delta in August and October, which forced a weeks-long shutdown of the company's Lake Charles site and lengthy force majeures on PE and PVC. Weak caustic soda prices also dragged on results, he said.

However, continued strength in US housing starts through Q4 on top of strong global PVC demand boosted margins, Bender said.

The freeze forced about 57% of 8.26 million mt/year of US PVC capacity offline, including Westlake's 680,388 mt/year PVC unit in Kentucky, according to S&P Global Platts data.

Export and domestic PVC prices reached all-time highs in late 2020 on tight supply and strong demand. Export PVC was last assessed Feb. 17 at $1,400/mt FAS Houston, down from an all-time high of $1,450/mt FAS in January, but was expected to rise again. Shintech and OxyChem, the chemical division of Occidental Petroleum, each had turnarounds slated for March at their respective 1.45 million mt/year Freeport, Texas, and 1 million mt/year Pasadena, Texas, PVC operations.

Both had been stockpiling PVC to fulfill contracts during that work, and freeze-related shutdowns interrupted those efforts, market sources said.

Domestic PVC prices also were at an all-time high of 71-73 cents/lb. Market sources expected a 3 cents/lb price increase announced by all four producers for February to be accepted, and Westlake and Oxy on Feb. 22 each announced an additional 7 cents/lb price increases for March, according to customer letters seen by S&P Global Platts.