Volatility returns to the North American polypropylene market

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AKRON, OHIO (Feb. 16, 2:25 p.m. ET) — The North American polypropylene market made it all the way to the second month of 2012 before returning to the volcanic behavior it displayed in 2011.

Prices for the material have surged an average of 17 cents per pound since Feb. 1, according to buyers contacted by Plastics News. Selling prices in the region for PET bottle resin have seen a more modest price increase of 4 cents per pound since Jan. 1.

The PP move is the first increase since May 2011. At that point, prices had climbed 37 cents in the first five months of the year. Prices then tumbled 41 cents before 2011 ended. This extreme volatility – as well as long-term supply concerns about propylene feedstock – has led a number of processors to consider using other materials instead.

The February move resulted from tightness in propylene supply that was caused by a number of refinery maintenance turnarounds.

“Some big refineries are going down,” said Scott Newell, a PP market analyst with Resin Technology Inc. in Fort Worth, Texas. He added that propylene prices “had bottomed out and were bound to come back up.”

PP buyers might be getting accustomed to double-digit price swings after seeing five such movements in 2011. But that doesn’t make the volatility any easier to take.

“We work hard to pass these costs on, but our contract changes to our customers are delayed,” a PP buyer in the Midwest U.S. said. “Our costs go up immediately, but our customers’ might not go up for another month or two or longer.”

“Changes in price are part of life, but these big swings are hard to deal with. It hurts us short-term on cash flow.”

As a result, the buyer said that his firm is looking at buying some of its PP from outside of North America for the first time, and also is working on switching some of its products to polyethylene. That second item could be challenging, since more than half of his firm’s products are required to use PP.

Refineries temporarily out of production for maintenance included Exxon Mobil Chemical’s unit in Baytown, Texas, and Dow Chemical’s St. Charles unit in Hahnville, La. A refinery operated by Flint Hills Resources in Port Arthur, Texas, also was down because of a power outage, according to the PetroChem Wire consulting firm in East Orange, N.J.

The double-digit increase comes as the North American PP sector is coming out of a 2011 year in which sales fell more than 4 percent, according to the American Chemistry Council in Washington. A loss of almost 3 percent in domestic sales was worsened by a 24 percent plunge in exports.

North American PP sales for 2012 totaled about 16.4 billion pounds, with 94 percent of that amount being sold domestically, according to ACC. Sales into injection molded cups and containers provided a bright spot for the market, climbing almost 13 percent, but sales into injection molded housewares tumbled by a similar percentage. Sales into monofilament and multifilament fibers – including carpet face yarn – also slipped almost 11 percent during the year.

Compared to the eruptions in PP prices, the 4-cent increase seen in the PET bottle resin market in January and February was a gently rolling hill. Some buyers reported seeing increases of as much as six cents in that two-month period, but four cents was the consensus amount.

Higher prices for paraxylene feedstock were among the primary reasons for the PET increase, which came after prices for the material fell an average of 5 cents in December. One PET market watcher said that higher feedstock prices are creating pressure for additional price increases in March as well.

During 2011, average North American selling prices for PET grew by a net of 5 cents per pound, or about 6 percent.