Resin makers were fighting an uphill battle last spring to raise prices. In late summer, the hill turned to mud.
Polypropylene and polystyrene buyers have seen next to nothing of proposed price increases totaling 6 and 7 cents, respectively. Many polyethylene buyers have seen their prices go up an average of 3 cents, while PE makers have tried to boost those numbers by a dime. PVC prices have jumped 3 cents to a nickel amid a dizzying series of 4 increases totaling 9 cents.
And if that isn't enough, early price softening has hit most of those markets, driving prices down shortly after some increase attempts were announced. PVC makers have attempted to stave off the slump by announcing another 4 cents in increases to take effect between October and December.
PET alone has been successful, with a full 11 cents in increases going through to most buyers. But that boost has to be tempered by remembering the bloody 1996 campaign, in which PET prices fell from an average of 76 cents per pound to 44 cents. Bottle resin prices currently stand at an average of 55 cents per pound.
Resin production numbers are up, according to the Washington-based Society of the Plastics Industry Inc.'s statistical report for July, with PP and linear low density PE each enjoying better than a 10 percent increase in production rates, compared with last year.
SPI's sales and captive-use numbers are not as strong — with high density PE and LDPE taking a 3.6 percent dip so far — but they also are not weak enough to account fully for the industry's fall fade.
A series of industry interviews conducted late last month leads to the conclusion that these summertime blues can be chalked up to either a simple inventory correction — in which buyers are ridding themselves of resin purchased during a time of escalating prices in 1996 — or the first darkening of a shadow which could fall on the industry in 1998 and 1999.
Len Azzaro, PE business director for Dow Chemical Co. of Midland, Mich., takes the inventory correction option.
``There are no ethylene fundamentals that are causing prices to drop; ethylene has been balanced and tight,'' Azzaro said in a Sept. 29 telephone interview from his Midland office. ``But people overbought last year because prices were going up. Now they're shedding their inventories and that's causing the price to drop off.''
Azzaro added that the market seems to be correcting itself, as Dow's PE orders for October have ``picked up dramatically.''
The current situation is similar to one that hit the industry in 1995, according to Tom Sennett, PP business director for Amoco Polymers of Alpharetta, Ga.
``There was a lot of purchasing in late '94 and early '95 and that slowed us down in the second half of '95,'' Sennett said. ``We're not going to see 6 percent growth every quarter, but it's not as if we've gone into the tank.''
Steven Cummings, market intelligence leader for Nova Polymers of Calgary, Alberta, points out PS operating rates are ``below where they need to be'' to affect resin pricing.
``We're seeing stronger demand than we expected, but we also have margins at historic lows at a point when operating rates were as low as they were,'' Cummings said. ``It's a tough time to have all of those things happen at once.''
BASF PS sales and marketing director David Vranesich said additional capacity is still affecting pricing, causing supply to exceed demand.
Cummings added that ``supplier discipline'' could help the industry turn things around on the pricing front. A 4 cent PS price increase attempt collapsed last month, when Huntsman Corp. of Salt Lake City eliminated the increase on crystal PS and reduced it to 2 cents on high-impact PS. Other PS makers soon followed suit to avoid losing market share to Huntsman.
That 2 cent increase since has been removed by most suppliers.
David Huntsman, vice president for Huntsman's PS and expanded PS business, agreed that supplier discipline would be ``a big factor'' in improving the market, but he added the issue is too complex to be limited to a single cause.
``It's an extremely competitive market out there, with more capacity coming on,'' Huntsman said. ``These are multifaceted drivers that got us to where we are and it will take a combination of things to get us back to where we need to be.''
The less-optimistic outlook comes from market analysts such as Paine Webber Inc. and Salomon Bros. and consultants such as Rob Harvan of Houston's Bonner & Moore firm.
In its Aug. 8 chemicals industry report, New York-based Paine Webber predicts 1997 will be the peak of the cycle.
``We suspect that the industry has been running hard and these good times will be missed in 1998 when operating rates drop,'' the firm wrote.
Salomon Bros., also of New York, stated in a Sept. 8 report that commodity chemical profitability is beginning to deteriorate.
``Supply-demand fundamentals indicate utilization rates will not meaningfully recover for the balance of the decade,'' the report predicts. ``This suggests prolonged margin pressure for ethylene, its derivatives and other commodity chemicals.''
Harvan said 1997 may be looked at as a time when the market began to turn.
``We're seeing a fundamental change in the supply-demand cost structure for polyethylene and polypropylene,'' he said. ``Buyers are increasing their control at the expense of sellers.''
The chemical/plastics market is following the national economic cycle of seeing a recession every 7-10 years, according to Harvan.
``The economic downturn on fundamental chemicals and plastics is pulling the price increases down,'' Harvan said. ``No question we'll see a pricing trough in '98 or '99 in the broader cycle.''
Howard Blum, a consultant with Catalyst Group of Spring Grove, Pa., admits resin prices have been ``slushy,'' but says he is not sure if that trend is entirely because of a drop in demand, since many of the economic and industrial drivers that would signal a long-term decline are not in place.
``There's a surplus condition with some new plants under construction and companies don't want to lose market share,'' Blum said. ``But if companies are awe-struck by the possibility of a recession year and reduce prices in a knee-jerk reaction, that doesn't necessarily mean the market is changing.''
Blum also points out that if the national economic model is being used as an example, a recession should have hit by now.
Harvan defends his position by referring to Huntsman Corp.'s recent decision to review segments of its specialty chemicals businesses for possible sales.
``If the resin producers knew there was profit ahead, Huntsman wouldn't be looking over its chemical products,'' Harvan said. ``[Resin producers] are preparing for winter.''
