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A purchasing manager for a New Jersey film processor said last week he had 12 letters on his desk from polyethylene producers, and he admitted to being confused.

``These letters are from guys who are vice presidents at their companies, and I can't make heads or tails out of them,'' the purchasing manager said. He asked not to be identified.

It's little wonder he is confused.

``This has been the most chaotic exercise in price changes that I have ever seen,'' an industry executive — a vice president for a PE producer — said.

PE producers have announced several price increases ranging from 3-10 cents per pound , with effective dates including Jan. 1, Jan. 15 and Feb. 1.

Complicating an already knotty process, several producers said they were removing temporary voluntary allowances they announced back in October or November.

TVAs are contractual devices used to defer price increases. In effect, they allow producers to announce price increases while actually delaying them for several weeks or months.

TVAs can be used to circumvent contract clauses with high-volume buyers that give them pricing protection for 30, 60 or 90 days.

Processors are stumped amid the letters that they have announcing increases, trying to decipher who is lifting a TVA, who has made a new announcement, and whose increase is for what amount.

Several producers, including Dow Chemical Co. and Union Carbide Corp., announced 5 cent increases for Jan. 1, then moved those increases back to Jan. 15, and said they would be for 3 cents per pound.

Meanwhile, some buyers said last week they are skeptical that any announced PE price increase will be effective in the first quarter of this year.

Separately, several polystyrene producers have announced they are seeking a 3 cent-per-pound increase, and many PVC makers have announced multistage price increases that would raise their

prices between 6 and 7 cents per pound by March. Several poly-propylene makers announced last week they would seek a 3 cent-per-pound price increase, effective March 1.

PE, PS and PVC producers all said last week they are suffering from a margin squeeze caused by the decline in prices for polymers over the past three months coupled with increases in their costs for raw materials — especially ethylene, benzene, styrene and chlorine.

The increased cost for ethylene, which ultimately affects the costs of benzene and styrene, is the result of high prices for crude oil and low inventories of ethylene. Inventories were diminished by seasonal demand and low cracker capacity.

Besides that squeeze on margins, PE producers said they were seeing improved sales in the first weeks of January.

``This is not like in the first quarter, 1996, but it is good,'' an executive for a PE maker said.

While he and other executives acknowledged that processors' PE inventories are still at high levels, he said sales indicate growing demand.

``We expect to return to sustainable high levels of sales by the end of the first quarter,'' another executive said. He said he is growing optimistic about prospects for sales in 1997.

``I wasn't bullish before, but I'm getting there'' he added.

Of six PE processors contacted last week, four said their companies had relatively high inventory levels, but their orders were good and growing. The other two said their inventories were not high, and that they expect growth in the first quarter.

However, the processing company executives said — almost unanimously — they did not believe sales were strong enough to allow their companies to pass price increases on to their customers.

``This is only the start of the year. They [PE producers] are just trying to keep prices from slipping further,'' one processor said.

Indeed, an executive for a PE producer said none of his customers have called to argue about the price announcements.

``The buying side is not worried about this yet. They are not getting to the point where people are telling them: `This is my price today, and it's 3 cents higher than yesterday.'

``I think inventories are gone at the processor level, but it remains to be seen. Basic supply and demand will rule on these increases, not costs. [Producers] can moan about costs all day long, but if demand is not there, the increases aren't going through,'' he added.

In PS, producers are seeing a similar squeeze on margins, and are hoping to recover price erosion from 1996's fourth quarter.

``In 10 months of 1996, industry demand for PS exceeded the average growth rate for the previous 10 years by a half a percentage point,'' one industry executive said.

Although capacity utilization rates hovered in the mid-80 percent range in 1996, he said utilization rates were up one full percentage point from 1995, and the industry expects rates to be up further in 1997.

In PVC, producers are eying low mortgage lending rates and appear to be preparing for a good seasonal boost in sales should housing starts take off significantly at the end of the first quarter.

``There are two drivers for these price increases,'' an executive from one PVC company said.

``First, demand has been good. Demand for PVC jumped 11 percent in 1996, yet prices fell.

``Secondly, our costs for raw materials — ethylene and chlorine — are up, and we are seeing our margins shrink. They can't slip much further,'' he added.

In PP, Amoco Chemical Co. announced Jan. 15 it will increase prices by 3 cents per pound March 1.

Other producers could not be contacted by deadline for further comment.