After sheepishly accepting price increases for the past year, polyethylene resin processors have turned into wolves. Like a wolf pack smelling blood, PE buyers seized on the lack of unity in a price increase announced for March 1, and snapped up resins sold by producers who did not participate in the price increase and processors seeking to trim inventories.
Their shrewd shopping delayed the increase by 30 days.
A combination of market conditions favored buyers' positions in the past few weeks, yet resin makers say the market will turn in April, again bolstering prices and making the wolf pack a flock of sheep.
``There was a general sense that this price increase had difficulties from the beginning due to a lack of unity on the part of the sellers,'' Rob Harvan, an industry consultant with the Houston firm Bonner & Moore Associates Inc., said in a telephone interview March 7.
``Processors were just waiting for any reasonable chance to get a break in this market,'' he said.
Harvan does not believe that the PE industry acts monolithically, but he noted that the priceincreases that buffeted the industry in the past 15 months were supported by all of the major producers.
While many producers announced an increase for March 1, Phillips 66 Co. of Bartlesville, Okla., adopted a wait-and-see attitude, and Quantum Chemical Co. of Cincinnati announced increases of 3 cents per pound for March 15 for its low and linear low density PE. Dow Chemical Co. of Midland, Mich., announced it would increase prices by 5 cents per pound March 1, while Exxon Chemical Co. of Houston announced a 3 cent-per-pound increase for March 1. Other producers made similar announcements.
Phillips makes high density PE for which many producers wereseeking a 3 cent-per-pound increase. Meanwhile, Quantum produces a wide line of high, low and linear low density PE, and did not seek an increase for its high density products.
It was Phillips and Quantum that were seen as having undermined the price increase.
``Processors now are acting as if their backs are against the wall,'' Harvan said, noting that some are having trouble passing increases on to their customers.
Also, Harvan said processors perceive that the crisis in ethylene supply is over with the addition of ethylene production capacity by Dow Chemical Co. and Exxon Chemical Co. and others.
Another industry consultant, who spoke on the condition that his name not be used, said he believes the lack of unity among suppliers and the perception that the crisis in ethylene production is over, combined with a lull in demand and high interest rates, encouraged processors to reduce resin inventories.
``Processors are carrying inventory today at 9 percent interest rates rather than the 6 percent interest rates they saw last year. It just makes sense [to reduce inventories],'' the consultant said.
None of the consultants or executives contacted last week said they believed price increases for PE would be canceled.
Phillips announced March 8 that it would increase its HDPE prices by 2 cents per pound, effective April 15. Meanwhile, Quantum - which had delayed its increase for LDPE and LLDPE - announced an HDPE increase of 3 cents, set for April 3.
Tim Roberts, business planning supervisor for PE for Phillips, said Phillips based its price increase directly on the 2 cent-per-pound increase it saw for ethylene in the first quarter.
Another industry executive who did not want his name used noted that ethylene is expected to remain in tight supply through this year.
The current ethylene inventory is at 75 percent of historic levels, at 1.1 billion pounds - about a nine-day supply. The industry prefers to have a 15-day supply to maintain flexibility in case of an outage, he said.
``The key here is the ethylene supply. Ethylene is not yet abundant and, until it is, there will be further price increases for it and a price increase for PE is just a pass-through,'' the executive said.
Separately, polypropylene producers and polystyrene producers put price increases into effect March 1, and producers of PET resins announced price increases for April 1.
In PP, PS and PET, producers cited continued tightness of their raw materials and continued high demand as reasons for the price increases.