Polyethylene makers hammered another price increase through in May, while PVC prices continued their slow climb upward as well.
A combination of strong demand and assorted PE and ethylene outages combined to hike PE prices 5 cents per pound in May. High density PE prices are up 11 cents per pound to date in 1999, while low density and linear low density PE have risen an astounding 13 cents per pound.
PE prices had dropped 12 cents in 1998.
In PVC, prices rose 1 cent per pound in May, prompted by outages at plants operated by Condea Vista Co. and Georgia Gulf Corp. as well as a robust construction market.
With HDPE demand up almost 10 percent and LLDPE demand up more than 13 percent through March, some processors were scrambling for material while others realized they had little bargaining power.
``If you don't want to take the increase, you can't say you'll get it from the other guy because you can't get it from the other guy,'' an Ohio-based PE processor said.
The same processor said one PE producer told him the company was unable to take on any new business until August.
Another PE processor said his firm's California plant was left without material for three days in May because of resin tightness and rail delivery problems. In Texas, a processor had to turn down a customer's request to buy enough product to last for the rest of the year in order to avoid future price hikes.
Some industry contacts speculated that the demand surge was the result of processors building excessive resin inventory. But George Avdey, U.S. PE sales manager for Houston-based PE maker Chevron Chemical Co. LLC, said inventory building could only account for a fraction of the boom.
``It's hard to build inventory with the market in the condition it's in now,'' Avdey said in a telephone interview. ``And all indications are that this demand should continue on into the year.''
The industry still is seeing some inventory rebuilding, according to W. Norman Phillips, senior vice president of polymers for Houston-based PE maker Equistar Chemicals LP. But he added that the recent cost push also was tied to ``good underlying demand.''
In spite of assurances to the contrary, one industry source said inventory building could spell trouble for the industry as soon as late summer or early fall.
According to the source, combined PE inventory building — defined as material beyond what's needed for daily operations — totaled 600 million pounds in the first quarter of 1999, a total that's halfway to the levels the industry reached before prices crashed in 1995.
This trend has caused some in the industry to be concerned that prices could erode before any Y2K-induced buying kicks in later this year. A majority of processors contacted said they plan to increase their orders somewhat this fall to protect themselves from any computer glitches that might occur with the year 2000.
``That sort of constant up-and-down is not good for the industry,'' the source said.
Equistar's Phillips said some PE makers may be having difficulty reaching the production levels needed to meet current demand because of recent outages.
Equistar's troubled ethylene plant in Channelview, Texas, came back on line in late May, while struggling ethylene units operated by Shell Chemical Co. and Union Carbide Corp. in Louisiana also are back in action, according to industry contacts.
Still, Mobil Chemical Co. continues to operate under force majeure and 85 percent product allocation after production problems at its PE plant in Beaumont, Texas.
One Ohio-based PE processor showed little sympathy for the outages.
``[An outage] isn't an act of God,'' he said. ``[PE makers] don't know how to run the equipment, and then they expect us to pay more.''
Markets leading the PE sales drive are LLDPE shrink and stretch film (up 15.7 percent through March, according to the Society of the Plastics Industry Inc. in Washington); LLDPE trash and can liners (up 17.6 percent); HDPE household chemical bottles (up 30.8 percent); and HDPE pipe and conduit (up 19.1 percent).
PE makers are trying to capitalize by increasing prices an additional 5 cents per pound effective June 1. Exxon Chemical Co. is the only major producer not seeking a June 1 jump. The Houston-based firm has announced a similar attempt for July 1.
The PVC path has seen prices climb a total of 4 cents per pound this year as producers recover from the 7 cent drop in 1998.
Overall demand has grown 3.3 percent through March, according to SPI. The wire and cable market has led the pack, posting sales gains of almost 40 percent in the first quarter. Siding sales are up almost 14 percent while pipe sales are up almost 7 percent.
However, sizable drops in export sales, which are down 35 percent, and sales to resellers and compounders, which are down 22 percent, are slowing down overall growth.
Supplies remain tight as the construction market, spurred by new-home sales, enjoys its strong season. The Commerce Department reported new-home sales climbed more than 9 percent from March to April, with some analysts believing consumers are rushing to buy homes in advance of anticipated mortgage rate increases.
``Demand is high and export prices are improving,'' an Ohio-based PVC processor said. ``Volume is dramatic throughout the industry.''
A second shutdown at Condea Vista's 400 million-pound-per-year plant in Oklahoma City may further tighten the market.
The plant, which was down May 3-8 because of a tornado-related power outage, lost power again May 21-25, according to Condea Vista olefins and vinyl public affairs manager Mike Reynolds.
The firm had to install a new transformer at the site. Officials think the original transformer may have been damaged when it was restarted after the first outage.
Georgia Gulf Corp. also lost a week of production in May from a planned maintenance turnaround at its Plaquemine, La., site.
Major PVC makers also are trying to capitalize on the upward pricing momentum by announcing additional increases.
The industry is split between 2 cent and 3 cent increases for June 1, while most producers are seeking additional 2 cent increases July 1.