Aided by surging demand, polypropylene makers have thrown conventional wisdom out the window and increased prices since mid-April.
PP prices are up an average of 1.5 cents per pound on homopolymer and impact copolymer grades and 2 cents per pound on random copolymer grades, according to several buyers and producers contacted recently.
The difference in the price hikes are the result of increased demand and higher production costs for random copolymer material, much of which is sold into consumer and industrial markets for products such as toys and storage containers.
With 1.9 billion pounds of new capacity set to come on line this year, few expected PP prices to rise. But resin statistics compiled by the Society of the Plastics Industry Inc. in Washington show demand was up almost 7 percent in the first two months of 1999. That growth combined with a maintenance shutdown at a major Fina Oil and Chemical Co. plant in La Porte, Texas, has tightened the market and given producers the push they needed to nudge prices higher.
Major producers had been seeking increases of 1.5-3 cents per pound for dates ranging from March 15-April 1.
The PP pricing picture remains convoluted amid a barrage of increase attempts that are dividing the industry's largest producers. Proposed price increases for May again range from 1.5-3 cents per pound.
Market leader Montell Polyolefins Inc. of Wilmington, Del., is seeking a 2 cent increase on homopolymer and impact copolymer grades, and a 4 cent increase on clarified random copolymer grades effective May 10. Dallas-based Fina, which ranks second in North American production, is seeking a 1.5 cent increase for May 1 and an additional 2 cent increase June 1.
The move that has the most support is a 3 cent jump scheduled for May 15. That attempt is being supported by BP Amoco Corp. of Alpharetta, Ga.; Equistar Chemicals LP of Houston; Phillips Sumika Polypropylene Co. of Houston; Solvay Polymers of Houston and Union Carbide Corp. of Danbury, Conn. Combined, those five firms control about 25 percent of 1999 industry capacity.
To date, Huntsman Corp. of Salt Lake City is the only producer to join Fina in the June increase attempt. Huntsman is seeking 3 cents June 1.
A Fina official said his firm split its increase attempt because low profitability and high utilization rates did not justify larger increases when it made its announcement in February. He added the June increase is needed because additional capacity won't actually hit the market until the second half of the year.
One industry executive said PP demand in the first quarter of 1999 was up 9 percent, exceeding industry expectations of 7 percent growth.
``There's been a generally strong economy and demand from the carpet and automotive sectors has been especially strong,'' the executive said. ``Operating rates are in the high 90s. The pressure [on the market] is very real.''
But the executive added that uncertainty on the part of some PP makers has prevented the industry from raising prices at the same rate propylene prices have climbed.
``There are different views on what the market should be doing,'' he said. ``Some [PP] producers may have underestimated moves by the propylene producers. The polypropylene increases have been taking a couple of months to go through, but the propylene increases have gone through right now. Boom!''
Industry consultant Staci Pursley, a market analyst with TownsendTarnell in Houston, said PP makers are getting what they can while they can.
``This is a really good time to get the increase,'' Pursley said. ``Things won't be as favorable later in the year because of capacity expansions.''
Epsilon Products Co. of Marcus Hook, Pa., is scheduled to add 800 million pounds of capacity in Garyville, La., this summer, while Aristech Chemical Corp. of Pittsburgh plans to add 550 million pounds of material in La Porte this fall.
In addition, BP Amoco started operations at a 550 million pound expansion in Alvin, Texas, in March. Company officials said the project is operating at 80 percent of capacity.
Buyers were somewhat surprised the increases have held, and remained skeptical about further upswings.
``It looks like [the increases] are going through, but it might just be because [PP makers] were totally wiped out last year,'' A Pennsylvania-based buyer said.
``Producers have tried to confuse the market with a blur of announcements,'' a Massachusetts-based buyer added. ``If [the increases] hold until September, that's gonna be it.''