Polyethylene and polypropylene prices continued to drop in August, but both producers and buyers said 1998's downward pricing spiral could be losing speed as winter approaches.
PE prices have dropped an average of 8 cents per pound this year, while PP prices have declined an average of 6 cents. Those changes represent an average downturn of 20 percent in PE and 15 percent in PP, according to Plastics News' resin pricing chart.
Industry officials said the bottom of the market is fast approaching.
``I think we're setting the floor,'' said Rick Salvador, PE business manager for Nova Chemicals Inc. of Calgary, Alberta. ``Supply and demand are getting closer to parity. Prices could rebound the first part of next year.''
Nova is one of North America's three largest PE makers.
Salvador added that PE prices could be bolstered by continued strong demand and a recent increase in Asian PE prices, which he said have climbed as much as 2 cents a pound in the past month.
Price erosion could slow significantly in the fourth quarter if trends tighten markets for PE/PP feedstocks ethylene and propylene, according to Rob Harvan, a market analyst with Houston's Bonner & Moore consulting firm.
``Ethylene and propylene are pretty much at the bottom,'' Harvan said. ``And cracker feedstocks like ethane, propane and butane could see a cyclical rise because of alternate uses including winter heating expenses.''
Harvan warned that poor margins in ethylene could lead ethylene makers to reduce production, but he added that such a move would not necessarily have a direct impact on PE production.
``It's possible the PE and PP producers could limit their losses in the fourth quarter,'' he said.
An Ohio-based high density PE buyer said demand could be affected by seasonal HDPE slowdowns in pipe and liquid packaging, but he agreed that HDPE makers are ``close to blood'' in terms of pricing.
Soft PE pricing has led several suppliers — including Nova, Dow Chemical Co. of Midland, Mich., and Equistar Chemicals of Houston — to push back until Oct. 1 the 5 cent hikes originally set for Aug. 1 or Aug. 15, industry sources said. Many buyers were skeptical of the increases' chances based on healthy availability.
In PP, several producers are seeking a 3 cent-per-pound increase, but the absence of No. 2 player Amoco Polymers of Alpharetta, Ga., could undermine that effort.
The impact — real or psychological — of new capacity is on the minds of buyers and producers. Fina Oil and Chemical Co. of Dallas will add 550 million pounds of PP in La Porte, Texas, next month.
The PE market is staring at a trio of capacity additions by year's end. Fina will add 400 million pounds of HDPE, Exxon Chemical Co. of Houston will add 550 million pounds of HDPE/linear low density PE in Mont Belvieu, Texas, and Westlake Polymers of Houston will add 500 million pounds of HDPE/LLDPE capacity in Lake Charles, La.
A New York-based PE buyer expects the overcapacity situation to continue, adding that producers' investments in machinery and technology are leading them to add to the glut to justify their costs.
``It's either run the machines or park them and let them rust,'' the buyer said.
The PP downswing could slow to a 1 cent reduction every other month, said a Pennsylvania-based PP buyer. However, the buyer added that continued undercutting and ``lack of solidarity'' among PP makers still is driving the market.
Buyers and producers agreed there's no overestimating the impact Asia's economic crisis has had on pricing through the first eight months of the year. Pricing was expected to decline somewhat this year because of the overriding cycle of the chemical industry and the overcapacity it creates, but Asia's woes have magnified the scenario by decimating export markets.
``[Price erosion] might have happened anyway, but it wouldn't have happened as soon as it did and it wouldn't have been to this extent,'' Nova's Salvador said.
Harvan chalked up at least half of this year's price erosion to the export fallout, while the Pennsylvania PP buyer put the number as high as 75 percent.