Prices for commodity thermoplastic resins continue to drop. Based on expectations that monomer supplies will remain strong for the rest of this year, industry analysts said they expect prices for thermoplastic resins to continue to soften and to remain slightly lower through December.
Prices for polyethylene, polypropylene, polystyrene and PVC tumbled - in some cases, by 15 percent - from May through August and into September as demand slackened. Demand did not strengthen appreciably in September as many resin firms expected, and reduced demand is helping correct what some analysts see as artificially high prices.
While prices have fallen sharply, no one expects further declines to be precipitous. Rather, they are expected to follow the downward trend set by monomer prices.
If any unexpected events cause a shortage of monomers and a price increase for them, analysts cautioned that polymer prices would increase proportionally again.
Last year's polymer prices were boosted significantly through a combination of three factors, said industry analyst Ron Gist, a senior consultant with Pace Consultants in Houston.
First, production problems reduced the supply of ethylene and propylene monomers, driving inventories down and prices up. Accompanying the monomer problems, a surging economy and a shortage of cotton in the Far East combined to increase demand dramatically for thermoplastic resins. Then, the realities of the petrochemical industry kicked in, Gist said.
``There is much more capacity to consume ethylene and propylene monomers than to produce them,'' Gist said.
``That is not usually a problem. But, when you have all of the derivative markets demanding those products at the same time, you run into artificial shortages. That is what happened last year,'' Gist said.
Other analysts agreed with Gist, say-ing the artificial shortages led to the artificially high prices.
Monomer inventories fell to critical levels late in the third quarter of 1994, and shortages continued through the first quarter of this year. However, monomer inventory levels were being corrected by the second quarter, and they reached normal levels by mid-June.
Separately, a slower economy in March and April helped processors to slow their purchases of thermoplastic resins and, with the slowing, they began to draw down on their inventories of polymers. The effect was that prices for commodity thermoplastics peaked in May, then began to drop.
Now, despite maintenance outages of ethylene crackers scheduled for September and October, industry analysts expect there will be comfortable inventories of ethylene through the end of this year. Suppliers will add more capacity by the middle of next year.
Analysts expect prices for ethylene monomer to continue to decline to about 21 cents per pound by January. Ethylene was selling at 31 cents per pound in May.
Meanwhile, prices for high density PE have fallen 7-9 cents per pound since May. In the same period, prices for linear low density PE dropped 10-16 cents a pound, and LDPE prices slipped 8-10 cents. Prices for PP have fallen 3-4 cents per pound, and prices for PS and PVC fell 7-10 cents a pound.
While prices for prime resins have been dropping slowly, there also has been a surge of near-prime, pencil-prime, wide-spec and off-grade resins on the markets throughout the summer.
Those resins are sold at prices lower than prime resins, and they were not available from the second half of 1994 through May of this year.
Buyers said they consider the fact those resins are again available as another sign that supplies are sufficient to meet demand today.
With such signs that supplies are sufficient, buyers are holding the line against further increases and are demanding more reasonable pricing, Gist said.
``It seems that everyone thought resin prices were too high, and now they are starting to retreat,'' Gist said.
``While we are forecasting that prices will go down, we are not expecting producers' margins to get as low as they were in late 1993 and early 1994,'' he said, explaining he expects prices to continue to give producers an adequate profit margin.
PC hike uncertain
Separately, analysts said the success of a price increase announced for polycarbonate may be in doubt.
The PC increase was announced by GE Plastics of Pittsfield, Mass., Dow Chemical Co. of Midland, Mich., and Bayer Inc. of Pittsburgh. The increases were to be effective on varying dates in September.
Analysts believe PC supplies are increasing because the producers have put manufacturing problems behind them. Also, analysts believe supplies will increase further as the producers place new capacities into pro-duction.
Increased capacities and the traditional lesser demand in the fourth quarter may make it difficult for producers to put price hikes into effect, analysts said.