Formosa Plastics USA declared force majeure on PVC supplies from its Texas and Louisiana plants, due to difficulties bringing an upstream chlor-alkali plant back online after a lengthy turnaround, according to sources familiar with company operations.
Formosa's issues were expected to further shrink already tight PVC supply, leaving little available for export as domestic customers seek to fill orders from other producers.
Formosa informed customers of the declaration in a letter dated Aug. 14.
"Formosa Plastics Corporation, USA, on behalf of Formosa Plastics Corporation, Texas, and Formosa Plastics Corporation, Louisiana, has experienced unexpected difficulties in its upstream facility at Point Comfort, Texas, impacting the PVC production at both manufacturing sites," the company said in the letter.
A spokesman for Formosa Plastics USA, Formosa Taiwan's US arm, did not immediately respond to questions regarding the declaration, and Formosa Taiwan officials could not be reached for further comment.
Formosa had already informed traders that the company would not offer PVC volumes for export in September, as was the case for August and July. The company launched a turnaround at the 736,000 mt/year chlor-alkali plant in mid-June, having built reserves of ethylene dichloride, a PVC precursor made when reacting chlorine with ethylene.
During July the company also conducted a turnaround at its 513,000 mt/year PVC plant in Baton Rouge, Louisiana.
While the Baton Rouge turnaround wrapped up at the end of July as planned, the chlor-alkali work in Point Comfort stretched into August. Market sources said the company reached out to other EDC producers seeking volumes to maintain downstream PVC production, but none was available.
The EDC spot market has been thin at best for weeks, as integrated producers direct all their output to downstream PVC production. Olin, the only non-integrated EDC producer, has been temporarily idling chlor-alkali plants to manage costs and keep caustic soda supply in check amid weak demand.
Caustic soda, a key feedstock in pulp and paper and alumina industries, is a byproduct of chlorine production.
"There's no availability, everyone's scrambling," a market source said.
In addition, Formosa Plastics declared force majeure on Aug. 8 on polypropylene production because of "unexpected operational difficulties" at a PP plant in Point Comfort. A 630,000 mt/year cracker at Point Comfort also has been shut since March.
"Whatever could go wrong is going wrong," another source said.
PVC DEMAND ROSE AS LOCKDOWNS EASED
PVC is a construction staple used to make pipes, window frames, vinyl siding and other products. PVC demand plunged in late March through early May amid widespread coronavirus pandemic-related shutdowns that halted or slowed construction.
Demand then rebounded as shutdowns eased and buyers played catch-up after stepping outside the market for six weeks and sought more volumes on expectations of rising prices. Tight supply boosted pricing because of turnarounds, with producers slow to resume normal rates that were reduced in April.
Formosa Plastics' outage on top of that price strength was expected to further boost export PVC pricing while shrinking already tight export supply availability.
US export prices fell 39% over six weeks to a 12-year low of $520/mt FAS Houston by the end of April, and have since risen nearly 54% to last be assessed Aug. 12 at $800/mt FAS, based on deals done for September volumes.
Domestic PVC prices saw a similar plunge and rebound. Prices fell 8 cents/lb over April and May to 46-48 cents/lb, but rose 3 cents/lb when the market accepted a June price increase of that amount announced by producers. All four producers also sought 3 cents/lb price increases for July, and three added a penny to 3 cents/lb price increases for August on expectations that 2 cents of the July increase would be accepted. OxyChem has held firm on its 3 cents/lb July increase.
OxyChem also on Aug. 13 announced a 3 cents/lb price increase for September, according to a source familiar with company operations. The company did not respond to a request for comment.
Asian market sources in Asia said the Asian PVC market would likely remain firm in the near-term as spot supplies also tighten further after Formosa USA's force majeure.
The CFR China PVC price on Aug. 12 rose $20/mt week on week to be assessed at a five-month high of $840/mt, according to S&P Global Platts data.
