Harvey has ‘paralyzed’ a critical part of the US manufacturing chain

Luke Sharrett | Bloomberg | Getty Images

A damaged railroad crossing gate stands near the Valero Energy Corp. oil refinery after Hurricane Harvey in Texas City, Texas, on Tuesday, Aug. 29, 2017

Many of the plastics and specialty chemicals that factories across the United States depend on are stuck on the Gulf Coast in the wake of Hurricane Harvey, threatening to create supply shortages and raise prices for U.S. manufacturers.

The U.S. Gulf Coast is home to about 90 percent of the nation’s capacity to turn out base plastics, the building blocks for a wide range of consumer and industrial goods. Petrochemical plants that make the products and the rail companies that ship them are still restoring service after Harvey brought devastating flooding to southeast Texas.

“The supply channel is paralyzed currently,” said Kathy Hall, executive editor at PetroChem Wire, an industry information service. “Plants are coming back, but we’re not seeing anything moving out of the area.”

About 60 percent of U.S. capacity to make the most widely used inputs, ethylene and propylene, remains offline, analysts say. These two products play the role in the petrochemicals industry that crude oil, the feedstock for gasoline and diesel, plays in the refining industry.

“You can’t make very much without them,” Hall said.

So far, the industry hasn’t seen shortages and prices spikes because factories are burning through their inventory of plastics like polyethylene, which come in small pellets.

But manufacturers do not typically keep huge stockpiles, and they could start running out of those inventories as soon as next week, analysts say.

“If we get into the middle of September and we’re not back up and running and producing various plastics, even at some minimal sustainable rate, you’re going to start being concerned about the overall supply chain,” said Mark Eramo, vice president of global chemical business development at IHS Markit.

Oil refineries and petrochemical plants are coming back online slowly because operators have to conduct inspections and restart the sophisticated equipment in phases to prevent damage. These plants, called crackers, heat oil and natural gas byproducts in order to break them down — or “crack” them — and turn them into base chemicals.

“I liken it to a jet,” Eramo said. “Your most difficult times are takeoff and landing. Once you’re gunning at cruise control, you’re good to go.”