Like swimmers in an unmarked pool, polyethylene producers keep reaching for the bottom, but can't quite find it.
Price decreases in 1998 have totaled an average of 8 cents per pound. Overcapacity, decreased Asian exports and slumping feedstock costs chipped away prices.
The uncertain state of affairs pushed North American PE prices down another cent in September, although buyers reported there are some signs that producers are determined to stop the slide.
The reductions are particularly frustrating to PE producers since they have come in a year that has seen a healthy increase in high density PE sales — up 5.6 percent through July, according to the Society of the Plastics Industry Inc. in Washington — and a modest increase in linear low density PE sales, which are up 1.1 percent. LDPE has lagged, with demand dropping 2.6 percent through July.
A series of industrywide price increase attempts starting in July were unsuccessful. Many PE buyers said they do not take increase attempts seriously since producers consistently offer reduced prices to maintain market share.
Substantial capacity additions expected in late 1998 and early 1999 are adding to skepticism.
A small number of larger buyers said they had not seen the September reduction, but expected to see one in October. Some buyers who did see the decrease said they encountered more resistance than in past months, and they are not sure if they will see another drop in October.
``Things are tightening up in terms of setting the price floor,'' a Chicago-based HDPE/LDPE buyer said. ``There's usually seasonal softness in October, November and December, so the producers that are running now are building inventory. They're in a holding pattern to see how demand looks for the first quarter'' of 1999.
The Chicago buyer added that producers have underestimated the effect downgauging in the film industry has had. Film producers, which constitute more than 50 percent of North American LDPE demand and almost 60 percent of LLDPE demand, continue to use less material, the buyer said.
Buyers in Florida, Virginia, Georgia and Pennsylvania also confirmed the September drop.
A Georgia buyer said the slow fall-winter consumption period will be an obstacle for PE producers, as will producers' unwillingness to idle excess production.
PE producers ``aren't considering throttling back because they're afraid some other guy will take their market share,'' the buyer said.
Top executives at three PE makers, speaking on the condition that they not be identified, recently outlined the challenges the industry faces as 1998 reaches its final stages. All three expect to see some type of price increase take hold in the next six months to help the industry regain some balance.
``There's been a little bit of firming in the ethylene position and we might see an uptick because China has re-entered the export market,'' said an executive at a maker of HDPE, LDPE and LLDPE. ``But it's all a matter of how much red ink you can withstand.''
The industry also is being affected by low inventory levels, as buyers have been unwilling to stock up in anticipation of further price drops. The official estimated 10 percent of total industry sales are for inventory purposes.
Another producer said his firm has tight supplies and has struggled to meet some commitments.
``We've given away most of the margin we can give away, so I think a lot of what's going on now is just psychology,'' the official said. ``If you look at industry data, polyethylene shouldn't have come down in pricing the way it has.''
A third executive at a maker of LDPE and LLDPE pointed out that the same producers who are optimistic about a fourth-quarter price increase often are the same ones who are dropping prices to maintain market share.
The official said many industry fundamentals—including seasonal buying cycles, ethylene and PE supply and demand, and profitability for suppliers and buyers —indicate a fourth-quarter hike would be difficult to obtain.
``Downward velocity in pricing should decrease,'' the official said. ``But what's more of a criterion than anything else is that if producers feel sufficient pain, they're going to raise prices regardless of what happens to their market share.''