Plastics News resin pricing methodology

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By Frank Esposito

Contrary to popular belief, assembling the Plastics News resin pricing chart does not involve dice, board-game spinners, Ouija boards or tarot cards.

Instead, it involves scores of phone calls every week, as I contact officials at resin processors and producers, as well as consultants and analysts who follow the industry, to learn if prices are going up or down or staying right where they are.

This method entails sorting out a lot of data and opinions from a variety of sources. Part of the challenge is that each segment of the industry has its own built-in agenda: Resin makers typically like to see prices going up; processors typically like to see prices going down.

These agendas prompt some less-scrupulous industry operatives to try to push and pull the pricing chart in the direction they want it to go. There are producers who will claim prices rose, even in the face of overwhelming opposition, and processors who will claim prices dropped 4 cents per pound when most of their peers place the number at 2 cents.

These ploys usually are fairly transparent. Those phone numbers quickly get deleted from our database.

Another highly sensitive tactic -- and one that for some reason appears to be becoming more common -- is use of the PN pricing chart as an index for structuring contracts between suppliers and processors, and even between processors and their end customers.

PN always has strongly discouraged this practice -- unless the PN chart is used in combination with other price indexes, such as those compiled by Chemical Data Inc., Chemical Market Associates Inc., DeWitt & Co. Inc., TownsendTarnell Inc. and/or Icis-LOR. All of these consulting groups are based in the Houston area.

The reason we suggest combining indexes is not because we lack confidence in the accuracy of our numbers. But using three indexes allows for three times as much industry knowledge and a much broader polling base. Those of us who compile indexes don't all talk to the same people, and as a result our outlooks can vary, even if they're usually headed in the same direction.

We also discourage the one-index method to avoid getting phone calls claiming that PN "cost" a processor hundreds of thousands of dollars by reporting a price increase was a penny less or more than what the processor had anticipated. Supplier-processor negotiations still should be the main means for determining selling prices. An index can provide a useful guide, but it can't capture buying, selling or production practices that are unique to any given business.

Timing also plays a role in the pricing process. Since most sizable buyers receive 30-day price protection, the fate of any price increase can't accurately be determined until at least 30 days after its announced effective date. In other words, if polyethylene makers announce an increase attempt for Nov. 1, PN starts to call buyers around Dec. 1 to see if the increase took hold. Things typically are up in the air before then.

As a result, we apply a "P" for a pending change on the affected grades in the chart and do not change our published prices until we've determined that the amounts being paid actually have changed. We typically update our current pricing charts online each Thursday afternoon, with the same data appearing in the following Monday's newspaper.

PN always welcomes additional help in compiling its pricing data. Feel free to contact me by phone at (330) 865-6156 or via e-mail at fesposito@crain.com.

Frank Esposito is an Akron, Ohio-based senior reporter for Plastics News.