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H2 Outlook: US resin export logistics face more logjams amid growing output

Houston — Logjams that hindered moving resin out of US ports from late 2018 through April have lightened up, but market participants expect the same problems to re-emerge later this year and into early 2020 as more polyethylene capacity comes online.

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"We are expanding with all the polyethylene projects," a US market source said. "This year will be much worse than last year in terms of the amount of resources needed."

More than $200 billion in new petrochemical infrastructure has started up, is under construction, or planned in Texas, Louisiana, Pennsylvania and Ohio amid the US natural gas shale boom that has unearthed unprecedented access to cheap ethane feedstock.

New polyethylene resin production dominates the expansion renaissance, with capacity set to rise by 13.67 million mt/year, more than 50%, from 2017 through the next decade if all known projects reach fruition.

That new production is targeted for export, although 29% of new capacity that is operational already has taxed supply chains that move resin from producers to docks. Another 17% of the total slated to start up in the second half of 2019 is expected to bring at least a repeat of holdups that delayed resin exports for up to two months or more.

Some resin packagers are expanding capacity to place PE and other resins in bags and then containers to ship out from ports, but multiple market participants expect the same pinch points to emerge -- loaded railcar storage-in-transit yards, long wait times to get resin packaged, warehouse-to-port flows hindered by regulations that limit drive time for trucks and, in New Orleans, a chronic shortage of empty containers. "It will be very, very tight," a veteran resin trader said.

THE DELAYED SURGE

Hurricane Harvey's assault on the Texas Coast in August 2017 delayed the expected surge of new exports from new PE startups as producers focused on domestic demand for months after the storm.

But in the second half of 2018, PE inventories were high after producers held back volumes through late summer to protect thick margins. Prices began to retreat and export-bound volumes grew amid higher overall production, loading up Houston-area supply chain stops between plants and docks that did not meaningfully begin to clear until late April 2019.

Polyvinyl chloride volumes were mired in in the pileups as well, held up so long at times that customers canceled shipments, according to multiple traders.

The lack of consistent empty container availability in New Orleans also prompted Louisiana PE and PVC output to flow to Houston for packaging and export, exacerbating delays.

PACKAGING EXPANSIONS COMING

More than 5 million mt/year of new PE packaging capacity added in the US as the first wave of new PE production began starting up in 2017 and 2018 got a hefty workout after the Harvey-related lull, and more additions are coming alongside more PE startups. Resin buyers also have pushed for producers to sell prepackaged material so they could bypass SIT yard holdups, and more packaging expansions are starting up or planned.

"We had a lot more packaging than packaging need -- too many hunters looking for that one skinny rabbit," said Marc Levine, CEO of resin packager Plantgistix, regarding the lull that left some expansions underused. "But now, for producers and resellers, the demand for our services is way high."

Plantgistix will add capacity to handle up to 300 more resin-filled rail cars amonth, or more than 310,000 mt/year, in Baytown just east of Houston, Levine said.

Global logistics company Katoen Natie also will add 1.35 million mt/year of packaging capacity in July at its massive Baytown site and expand rail capacity 22% to 915 spots for hopper cars, according to Brandon Huynh, vice president of sales at KTN.

KTN also may expand its 270,000 mt/year packaging facility in Dallas, which opened in October as an option for producers and traders to move pellets there for packaging before transport through Union Pacific to Los Angeles for export to Asia.

Frontier Logistics, which has packaging operations in Houston, near Dallas and at Charleston, South Carolina, recently broke ground on a nearly 415,000 mt/year expansion in Charleston, the top resin export point on the US East Coast. That facility will open in about a year, said Paul McClintock, senior vice president at the South Carolina State Ports Authority. Mid-States Packaging also aims to expand packaging in Charleston this fall, he said.

While Houston easily dominates waterborne US resin exports, given its proximity to the largest cluster of new production, ports in Charleston, New Orleans, Los Angeles, and Savannah, Georgia, are gaining larger chunks of that growing pie. Moving pellets adds an average cost of 3 cents/lb, or $5,700 per loaded rail car, but those expenses can be balanced by more frequent loadings on container ships, consistent empty container availability, cheaper rates to move containers between warehouses and docks and other savings.

After the 2018-19 backups, producers and traders that had been skeptical of such alternative export points are showing more interest, McClintock said.

'We're not going out begging customers to pay attention," he said. "Everybody's looking this way."

While market sources appreciate such efforts to accommodate more PE output, many remain convinced that backups will be the norm as exports keep growing.

"At best it's going to stay the same," a resin trader said. "With all the effort they are making, it might offset some of the extra volume that is coming."

-- Kristen Hays, kristen.hays@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com