North American PE Markets Face Serious Supply Disruptions as Canadian Rail Labor Talks Stall August 22, 2024
Following 9 months of good faith negotiations with Teamsters union, Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) have formally locked out 9,000 employees after a final attempt to avoid labor disruption failed to prompt a response from the union during the Teamsters Canada Rail Conference. Opting not to use its power to send the dispute to binding arbitration, the Canadian government asked the railroads and union to continue working toward a resolution.
The shutdown of rail transportation in Canada will have far-reaching consequences for both US and Canadian economies. One third of freight handled by CN & CPKC crosses the border and disruptions to critical industries such as energy, agriculture, forestry, and manufacturing will occur. It will also lead to supply chain disruptions, economic slowdown, job losses, inflation, environmental impacts, and logistical challenges. The severity of these effects depends on the duration of the shutdown and the availability of alternative transportation modes.
Polyethylene is primarily transported via rail and truck across the Canada-U.S. border, utilizing established supply chains that link Canadian production facilities to U.S. customers and distribution centers. The U.S. imports Canadian polyethylene to serve a wide range of industries, including packaging, automotive, and construction. The Midwest and Gulf Coast regions are significant destinations for these exports.
70-80% of Canadian polyethylene (PE) production is exported to the US, while over 16.2% or 9.8 billion pounds of total North American PE supply is produced in Canada by several majors including Dow, Nova, Heartland and Exxon. These reactors produce various grades of PE like HDPE, LDPE, LLDPE, and MDPE. Total non-US exports account for 10-20% material produced in China among trading partners in Asia, Europe and Latin America.
According to Resintel sources, Nova has not offered or sold a spot polyethylene car from either of its Joffre or Sarnia reactor sites since Thursday last week. "They won't offer anything until they know they can ship and will need to shutdown reactors soon before they run out of available space to store material." The source had heard both Nova and Dow in the province of Alberta, Canada had shipped cars to offsite storage yards for short term keeping to make room for cars they couldn't ship if the strike materialized. "It's a big deal for us and other brokers that rely on Canadian juice to fill orders, sources said."
In a letter to customers dated August 22, LyondellBasell declared a force majeure due to the labor disturbance resulting in the company's ability to obtain transportation or face potential delays or other issues beyond their 'reasonable control'.
Polyethylene prices in North America are likely to continue facing price hikes amid a significant shortage of imports from Canada, while monomer costs have risen which are also squeezing producer margins to the smallest level seen since January 2021.
Pipelines are the primary method for transporting ethylene feedstocks from Canada to the U.S. and exports should largely remain unaffected, most ethylene exports are from the production hubs in Alberta which are shipped to petrochemical complexes in the U.S. Gulf Coast and Midwest.
Rail transportation shutdowns in Canada will have widespread and significant impacts across various industries and the broader economy. Rail is a critical mode of transport for crude oil, coal, agricultural grain and livestock feed, lumber and paper products, automotive and manufactured parts or finished goods, especially from landlocked areas like Alberta. A rail shutdown will severely disrupt the flow of crude oil to refineries and export terminals, potentially leading to supply shortages and increased oil prices.
|
|