The fourth quarter saw a significant drop in prices of commodity thermoplastics such as polyolefins and PET, which largely negated the price increases of the second and third quarters. Lower energy and feedstock prices were one reason for soft resin prices. Others included somewhat lackluster domestic demand, which led many processors to reduce year-end resin inventories about two months earlier than usual.
At the same time, resin suppliers reduced operating rates, which had been above 90% for most of the year, and dramatically liquidated their polyolefin inventories through aggressive competitive pricing in secondary markets. Industry sources now believe polyolefin prices have bottomed out, and suppliers are poised to push new price increases starting this month. PVC prices are expected to hit bottom soon, and polystyrene may already have turned around.
Pricing projections for 2007 are sketchy at best. Most industry sources hesitate to venture beyond the first quarter, citing the difficulty of gauging how energy and feedstock prices will fare. Michael Greenberg, CEO of The Plastics Exchange, a Chicago-based resin-trading web site, believes the balance of supply and demand will shift pricing power toward resin suppliers, particularly in polypropylene. He adds, “In the long run, energy and feedstock prices will remain the largest influence on resin prices.”
Last year, polyethylene prices went up 11¢/lb in the second and third quarters, followed by a plunge of 17¢ in the fourth quarter. Suppliers aim to recoup 6¢ as of Jan. 1. Most industry sources think PE prices have bottomed out, and PE suppliers appear bullish that they will be able to raise prices this month.
Mike Burns, managing partner of resin purchasing consultant Resin Technology, Inc. (RTI) in Fort Worth, Texas, says this of the first couple of months of 2007: “Generally, we expect a flat market, but with a hard push from resin suppliers to implement price increases. We are telling processors that prices are unlikely to move up until at least February.”
However, the London Metal Exchange (LME) short-term futures contract for January in g-p blown-film butene LLDPE sold at 52.2¢/lb, up from December’s 50.1¢/lb.
Contributing factors: In the last couple of months, plant operating rates dropped from over 90% to the mid-80s. Nonetheless, one major supplier says, “PE spot prices have stabilized while prime resin prices have dropped, so the difference is now the typical 5¢ to 6¢/lb. We don’t expect to see lots of spot resin available. We see the destocking and seasonal slowdown coming to an end. We have even seen some December prebuying in anticipation of price increases.” Ethylene monomer prices are also considered likely to firm up because supply is tight.
Resin demand for 2006 was expected to show at least a 2% increase over the previous year. Suppliers expect another banner month for exports this January because North American PE resin is based on natural gas feedstock, which costs less than crude oil.
Demand growth for this year is generally projected at about 2% to 3%. “I expect demand will be less in the first quarter and supply/demand will be balanced or a bit tighter in the second and third quarters,” predicts one supplier. Based on this scenario, some sources say price increases could be issued in the first quarter.
Polypropylene prices in 2006 rose by 10¢ to 12¢/lb but dropped about that much by mid-November. A price hike emerged in early December when Ineos and Basell issued a 5¢/lb increase for Jan. 1. Believing PP prices to have bottomed out, industry sources expected this increase to gather strength. Meanwhile, LME’s January futures contract for g-p injection-grade homopolymer sold at 53.4¢/lb, up from December’s 50.1¢.
Contributing factors: Industry sources expect upward pricing pressure on PP resin for at least the first quarter due to a push from energy prices (both crude oil and natural gas). They note that while PP prices are low, there is not a lot of margin between the resin and monomer. Says Scott Newell, a managing partner at RTI, “Propylene monomer prices have bottomed out, dropping 9¢/lb in November to 40.5¢/lb. December contracts could rise a bit, but no more than 0.5¢/lb.
Says Newell, “The market was extremely oversupplied for 30 to 60 days, but then PP resin suppliers dropped operating rates and the export market also picked up significantly for them.” Demand for PP through October was down 1.6%. Some suppliers indicated that year-end sales appeared a bit stronger, so 2006 overall could possibly show flat instead of negative growth. Growth projections for 2007 are a cautious 2% to 3%.
PP operating rates were in the 90% to 95% range for most of the year but dropped to the mid-80s by the end of November. Inventory levels at suppliers and customers are said to be very low. Says RTI’s Newell, “We see domestic processors starting to restock. They think PP prices are at or near the bottom, so it is risky not to start buying because prices will likely move up.”
Last year saw PET prices rise 12¢ to 15¢/lb, but a sharp decrease of 8¢ between September and November brought the net increase to about 4¢/lb. Domestic demand grew about 7%, now considered typical for PET, although suppliers concede that it slipped by year’s end due typical end-of-year inventory destocking and anticipation of possible further price decline. Some industry sources say PET prices this year could remain about where they wound up at the close of 2006.
Contributing factors: PET suppliers say their profit margins were slashed by 50% last year, as feedstock tabs rose faster than resin prices. Then PET prices dropped after a sharp decrease in prices of feedstocks paraxylene and ethylene glycol. December contract prices for paraxylene appeared likely to rise a couple of cents.
Although demand growth of about 7% is projected for 2007, the PET market will look quite different from the past two years. Says one major supplier, “After a tight 2005, and a somewhat balanced 2006, the market will be oversupplied this year and into the next. Supply and demand are not expected to be balanced until 2009.” This is a result of about 20% growth in domestic resin capacity due to new plants being brought on stream by Wellman (500 million lb/yr last July), Eastman (770 million lb starting up now), and DAK Americas (400 million lb coming soon). Says one industry source, “The domestic market is approximately 8 billion lb/yr, so it will take some time for all that new capacity to be absorbed.” As a result, PET plant utilization rates, which had been in the 90% to 95% range through most of 2006, are expected to drop this year to the upper 70s or low 80s.
PVC prices were slumping again last month. Pipe producers expected the slide to cut 2¢ in December, 1¢ more in January, and then flatten out.
Contributing factors: Overall PVC demand in 2006 was flat, as the drop in housing starts began to be felt. The American Plastics Council reported domestic production for the first nine months of 2006 down about 1% from 2005. But taking into account Asian imports, which made up for post-hurricane disruptions early last year, total domestic PVC consumption was either flat or up a little bit. Demand in December was so slow that processors closed plants around Dec. 20 for an unusual 10-day shutdown. Because of slower home sales, market observers are predicting that PVC demand will continue to slow for at least the first six months of 2007.
Polystyrene resin producers are all asking for a 3¢/lb increase Jan. 1. EPS producers announced 4¢ hikes for Jan. 15.
Contributing factors: APC data show PS demand down 3% for the first three quarters of 2006, with no sign of improvement in the fourth quarter. The consensus for 2007 is that since Dow and Nova each took 300 million lb/yr of PS capacity out of the market in ’06, pricing shouldn’t be too soft. Resin demand, however, may slip further. Demand for crystal PS is stronger than for HIPS, largely because of foam packaging applications. HIPS has felt more competitive pressure from PP and coated paper. North American styrene monomer is flowing to Asia, where prices are higher–an outflow that could tighten monomer supplies and raise prices here in ’07. Meanwhile, the downward trend in benzene prices appeared to end in mid December, when spot benzene tabs began to rise again.
|Market Prices Effective Mid-Dec 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..