Drone attacks on two of Saudi Aramco's facilities in eastern Saudi Arabia have resin sector analysts speculating on the impact on global resin prices, especially polyethylene and polypropylene.
Over the weekend, a number of companies announced feedstock supply disruptions as a result of the Sept. 14 attacks, which forced Aramco to reduce crude supply by around 5.7 million barrels per day, or about 50 percent of its total production.
Key producers, including Saudi Basic Industries Corp.; Sahara International Petrochemical Co. (Sipchem); Advanced Petrochemical Co.; National Industrialisation Co. (Tasnee); Yanbu National Petrochemical Co. (Yansab); and Saudi Kayan Petrochemical Co., all disclosed "curtailment" of feedstock supply, ranging between 30 percent to 50 percent.
The Saudi situation "will clearly help the U.S. polyolefins business by making exports even more competitive," according to Robert Bauman, president of at Polymer Consulting International in Ardsley, N.Y.
"Volumes should increase, which is critical given the amount of new polyethylene capacity coming on stream in 2019," he added. "If Asian prices increase dramatically, the U.S. may even be able to export into China."
Bauman also said that if exports volumes increase and PE and PP operating rates are high, he would expect domestic prices to also increase.
"It's a sad commentary when disasters are needed to improve polyolefins performance," Bauman said. "In 2017 and 2018, it was Hurricane Harvey. In 2019 and 2020 it's the Saudi attack."
A key to the impact on the North American market will be how much crude oil prices rise, even though most commodity resins in the region are made from natural gas, not oil.
North American resin producers already have a feedstock cost advantage. The Aramco disruption could make that even more pronounced.
"This is a significant reduction in crude oil production that could have a shocking impact to all products if not resolved quickly," James Ray, senior consultant with ICIS in Houston, said.
"How high this will drive oil prices yet to be seen. Higher oil prices increase the U.S. shale oil and associated gas advantage globally, but passing on price increases is always a challenge and can temporarily reduce seller margins, while higher prices can dampen consumer demand."
Ray added that the further down the value chain a product is, the less impact crude oil prices have. In the case of U.S. PE resin, Ray said, crude oil has a very low correlation to the U.S. market price, because a large share of that price is margin.