Softer prices for several monomers, accompanied by feeble demand for polymers in the past three months, have combined to ease prices for major commodity resins. However - contrary to some buyers' wishful thinking - the bottom has not dropped out, and resin prices are not free falling. And resin suppliers say they do not expect that to happen.
Prices have declined for polyethylene, polypropylene, polystyrene and PVC since May 1, and may remain soft through the end of this year, executives of resin supplying companies said last week.
Of those commodity resins, PP has remained strongest, and PVC has been the softest, suppliers said.
``In polypropylene, the average operating rates are still well over 90 percent, and right now, the market for copolymer is looser than the market for homopolymer, which remains a good business,'' Rob Harvan, a polymer analyst with the Houston firm of Bonner & Moore Associates Inc., said last week.
However, operating rates for PVC production have fallen to 88 percent, according to Dick Roman, a consultant based in Cleveland.
Those operating rates for PVC are well below the nearly 100percent rate the industry saw between May and September 1994, and well under the average of 95 percent the industry saw from September 1994 through March 1995.
``Producers [of PVC] have cut back production, and there was a sharp decline in June, but I expect that will pick up later this year,'' Roman said.
Roman, Harvan and other industry analysts said the drop in resin prices was a direct result - albeit after a six-month lag - of higher interest rates imposed in December by the Federal Reserve Bank.
Added to the Fed's action, many resin suppliers said exports to China slowed considerably in May and early June, closing off a market that was growing. As a result, more resins became available on the domestic market.
Economic indicators, such as consumer spending and retail sales, showed gains in June and July, giving plastics industry analysts and executives hope that the slowdown in the national economy was at an end. The industry expects growth in the national economy to help keep polymer resin prices at a plateau for now, and boost them again by the end of this year or early 1996.
Further, sales to China also are expected to resume in late August or September, taking up slack from the U.S. market.
In the meantime, Harvan said resin buyers are watching monomer prices closely.
``Resin producers have always maintained the link between increases in monomer prices and higher resin prices, and they've got to take the down side too,'' Harvan said.
Prices for styrene monomer have fallen to 50 cents per pound, 4 cents since June, but are still well above the 20 cents a pound price of February 1994.
Meanwhile, prices for ethylene have fallen 2 cents per pound since May, and the slower demand is expected to help ethylene producers rebuild inventories within the next three months. As late as April, several industry executives said they expected ethylene inventories to remain below those levels until well into the first quarter of 1996. Prices for vinyl chloride monomer and polymer-grade propylene monomer have not dropped appreciably, but are expected to decline slightly in the next few weeks, analysts said.
