By: Frank Esposito
November 9, 2012
CHICAGO (Nov. 9, 3:05 p.m. ET) — Jim Morris and Chris Bezaire may be on different sides of the polyethylene trade — Morris is a PE buyer, Bezaire works for a PE producer. But they both agree that the industry needs to find common ground to improve its pricing practices.
Morris is chief operating officer of Heritage Bag Co., a major PE bag maker based in Carrolton, Texas. Bezaire is senior vice president of PE with Nova Chemicals Corp., a Calgary, Alberta-based firm that ranks among North America’s largest PE producers. The two took part in a roundtable discussion at an industry conference hosted by IHS Chemical, Oct. 24-25 in Chicago.
“The unnecessarily volatile and dysfunctional resin market is our biggest challenge,” said Morris, who worked 16 years for PE maker Fina Petrochemicals (now Total Petrochemicals) before spending the last 12 years as a consultant and processing executive. “I’m confident that we can improve with leadership and honest dialogue between buyers and sellers.”
“We work together with our customers, but when the conversation turns to price, we’re usually diametrically opposed,” added Bezaire, who’s been in the material market with DuPont Co. and Nova for 23 years. “It becomes a combative environment that’s not very pleasant.”
Chief among the issues in this troubled relationship is the practice of not settling PE resin prices until late in the month, well after orders have been made and shipments have been delivered.
“When the resin price goes up, we have to pass it on as quickly as we can,” said Morris, whose firm ranks as one of North America’s 25 largest film and sheet makers, according to the most recent Plastics News ranking. “But usually by the time we know about it, we’re already behind the curve.
“To take a price into the market, we need clarity. We can’t take a ‘maybe’ to the market. We need to settle at the beginning of the month before the market shifts. A [price] drop after an increase can have a devastating effect on converters. There’s a big opportunity for mistakes to be made.”
In recent years, pricing has become more volatile, he noted.
“There have been bigger fluctuations and more frequent ones. We don’t know the price until the product ships and we’ve consumed it. It makes no sense. Producers feel like settling early [on pricing] is a sign of weakness.”
At Nova, Bezaire recently has seen “more and more discussions of short-term dynamics in areas like the spot market and crude oil, and that’s brought a level of animosity.”
“I don’t see the value in spending the first 30 minutes of every meeting debating short-term market dynamics,” he said. “Animosity is counter-productive.”
Late pricing also causes orders to back up to the end of the month, Bezaire explained, resulting in large accumulations of inventory, placing strain on the available number of rail cars and rail siding.
Multiple price-increase letters and announcements also can cause confusion in the PE market, according to Morris.
“Increases are always on the table, regardless of market conditions,” he said. Morris urged PE makers to “stop sending price-increase letters [that] all say the same thing.”
“Instead, please talk to us,” Morris added. “Find the [customers] who want the market to succeed. You need to talk to business owners and senior executives in the organization. We need to make the whole boat rise together.”
Nova’s relatively new status as part of a private company might make it easier for the firm to react to customers’ needs, compared with what it could do when it was a public company that had to answer to shareholders, Bezaire said. Nova was purchased and taken private in 2009 by International Petroleum Investment Corp. of Abu Dhabi, United Arab Emirates.
“Our new owners have a long-term perspective on things,” Bezaire said. “We’ve gotten away from [quarterly] earnings calls for equity analysts. We used to sell inventory at the end of the quarter in order to report a low inventory number. Before, we didn’t have a five-year plan. Now we have plans going to 2020 and 2030.”
The addition of new ethylene and PE capacity throughout North America because of newfound discoveries of natural gas in shale deposits also will affect the market. “In the last 10 years, there had been no new [ethylene] feedstock, until shale gas gave us a tremendous boost,” said Bezaire. “Producers and customers now have an opportunity to grow.”
Morris and Bezaire also each questioned the use of third-party indexes to influence prices. “I don’t like the fact someone who’s not sitting at the [negotiating] table is influencing the price.”
Both Bezaire and Morris agreed that cooperation among PE buyers and sellers will improve the market for both sides.
“Resin is our lifeline,” Morris said. “We’re not against resin producers. We want you to make profits. The only way for us to sell your product is to make something of it, but we can’t do that without timely settlements and a rational approach to price increases. What we’re doing today is not working.”
Bezaire added that, in the last several months, Nova has had dialogue with numerous PE customers “to understand how to help you.”
“We want open and honest dialogue,” he said. “If our customers are successful, Nova will be successful.”