Commodity resin prices are moving upward, slowly and mainly in small steps, owing to market resistance to the much larger increases announced by resin suppliers. However, monomer prices may resume their upward march after a brief pause, which will push resin prices up, too. The PET pricing outlook for the first quarter is fairly quiet.
Polyethylene prices were on the way up in the first month of the new year as suppliers aimed to implement 6¢/lb increases. Meanwhile, The London Metal Exchange (LME) short-term North American futures contract for February in blown film LLDPE was 64.7¢/lb, up from January’s 62.6¢.
Contributing factors: Feedstock prices are driving the global plastics market, explains Mike Burns, global business director for polyethylene at resin purchasing consultant Resin Technology, Inc. (RTI) of Fort Worth, Texas. The U.S., which relies on natural gas for PE production, continues to be the lowest-cost producer, while resin makers in all other regions are paying the higher crude-oil prices.
Consequently, export demand remains high and is likely to continue as long as crude-oil prices remain high. Domestic demand showed an uptick in December as some processors opted to stock up before the new price hike went into place, according to RTI’s Burns. But other processors followed the more conventional year-end approach of running down their inventories, thus facing the new year with a need to restock at higher prices.
Meanwhile, ethylene monomer contract prices in December remained at November’s level of 61.5¢/lb, but bids on January contracts were 5¢ to 7¢ higher, driven by supply tightness caused by planned and unplanned outages. Ethylene’s precursor ethane is now selling at $1.15/gal, up from 60¢/gal a year ago.
Polypropylene prices were expected to move up only 0.5 to 1¢/lb last month, although suppliers had issued price increases of 3¢ to 4¢ for Jan. 1 in addition to the delayed 6¢ hike that was slated for December but pushed back to January. Even so, LyondellBasell notified customers of still another increase, of 2¢/lb effective Feb.1. LME’s North American short-term futures contract for g-p injection-grade homopolymer in February sold at 67.8¢/lb, up from January’s 65.5¢.
Contributing factors: PP resin suppliers are unlikely to get the bulk of their increases, which they deemed necessary to recoup increases in monomer costs. December monomer contract prices moved up only 0.5¢ to 62¢/lb, despite producers’ initial attempts at hikes from 3¢ to 7¢. This was reportedly the cause of the December 6¢ PP resin increase being held until January. But January monomer contract bids included increases of 3¢ to 4¢/lb, prompting PP suppliers to issue resin price hikes of the same size for January.
Industry analysts do not expect the market to support these increases. “January propylene contracts could settle up by another 0.5¢/lb at most. Polypropylene suppliers, in turn, are likely to increase prices by 0.5¢ to 1¢/lb,” says Scott Newell, director of client services for PP at RTI. Adds Newell, “The polypropylene market cannot support any more increases. The real question, which resin suppliers will now test, is where is the real demand—both domestic and export?” Exports, he says amounted to more than 1 billion lb in 2007.
Newell and other industry sources note that the high PP prices have already dampened exports, while domestic demand in December was also the slowest of the year. This led to PP operating rates falling to the 84% to 86% range.
PVC resin producers posted 2¢ higher prices for Jan. 1 and 2¢ more on Feb. 1. Some buyers still haven’t settled the last hike in November, but most accepted a 4¢/lb increase, including indexed buyers, who normally pay based on a published market index that was up only 3¢/lb.
Contributing factors: In a very slow construction market, these hikes are all feedstock-driven. Ethylene feedstock was tight in the fourth quarter, due to plant turnarounds and outages. Ethylene contracts were expected to go up 2¢/lb.
When Dow and Total both announced 4¢/lb polystyrene increases for Feb. 1, Chevron and Ineos/Nova, which had earlier announced 4¢ increases for Jan. 1, moved their increases to Feb. 1 also.
Contributing factors: PS demand saw a slight pop in mid-January, possibly helped by higher prices for competing polyolefins or by hedging against announced increases. The custom sheet market was strengthening. Styrene monomer was steady, though benzene, at $3.45/gal, was up from December.
Last year, PET prices moved up 12¢ to 14¢/lb. Although they are not likely to drop, they are also unlikely to rise much further, except possibly for an increase at the end of the first quarter, due to a typical cyclical uptick in demand.
Contributing factors: Last year’s price hikes brought little, if any, gain in profit margins for resin suppliers, according to Mike Dewsbury, global business director for PET at RTI. These increases were driven by record-high costs of feedstocks, particularly paraxylene, driven by high oil prices, as well as ethylene glycol, which suffered a global shortage due to a SABIC plant explosion that sidelined 7% of global production. The price of ethylene glycol was expected to drop with the restart of SABIC’s plant, but it could be offset by high paraxylene prices if crude oil stays around $90/barrel.
Although domestic PET growth in 2007 was projected at 7%, some industry sources think it was actually somewhat lower. The growth rate for this year is similarly projected to fall under 7%. A key factor is said to be lightweighting, particularly of water bottles, which are dropping from 20 g to 12 g. This trend is projected to continue in beverage bottles and other PET packaging. Says RTI’s Dewsbury, “While this reduces PET demand, in the long term it is favorable for PET as it will continue to improve its cost-effectiveness in packaging.”
Some 600 million lb of new PET capacity is due this year. Eastman is shutting down an old plant but also debottlenecking a newer one, for a net increase of 300 million lb. M&G is bringing on 300 million lb through debottlenecking its Texas and Mexico plants. Both companies said their new capacity would come on stream in the first half of the year. If that doesn’t occur until the second quarter, RTI’s Dewsbury foresees that a tighter PET market could develop beforehand.
Nova Chemicals Corp., Pittsburgh, plans a series of polyethylene plant modernization and expansion projects in the Sarnia, Ont., area. The projects will add a total of up to 250 million lb of LDPE, LLDPE, and HDPE capacity in stages over the next two years.
Citing volatile raw-material costs, Chemtura Corp., Middlebury, Conn., last month imposed a volume-based surcharge on its Adiprene, Vibrathane, and Caytur urethane prepolymers and curatives. The surcharges range from $2/lb on top of the base price for less than one pallet to 15¢/lb on top of the base price for 11 to 17 pallets. No surcharge is levied on 18 or more pallets.
|Market Prices Effective Mid-Jan A|
KEY: Colored areas indicate pricing activity. An arrow () indicates direction of price change. aTruckload, unless otherwise specified. bUnfilled, natural color, unless otherwise specified. cBased on typical or average density. dNot applicable. eNovolac and anhydride grades for coils, bushings, transformers. fNovolac and anhydride grades for resisitors, capacitors, diodes. gIn quantities of 20,000 lb. h19,800-lb load. jLME 30-day futures contract for lots of 54,564 lb..