While processed plastics shipments grow this year in the United States, processors' margins will be squeezed by high oil prices, according to a study published by CIT Equipment Financing. The CIT study predicts that continued economic expansion will boost shipments by 2 percent after inflation this year. The "Plastics Industry Update" study, issued by the Livingston, N.J., firm predicts U.S. processed plastics shipments will reach a record $132.9 billion in 2000 and grow another 3.2 percent — after inflation — to $137.3 billion in 2001.
The major bad news for processors has been an increase in plastic resin prices spurred by higher oil prices, said Michael Paslawskyj, vice president of economic research. Resin prices account for 15-20 percent of processing costs and it is hard to pass those costs on to customers, he added.
Paslawskyj said by telephone that it took less than three months for rising oil prices to translate into higher resin prices.
He predicts world oil prices this year will drop to $22-$25 a barrel from the recent $30 tag, but resin prices could fall slowly.
"There's a bit more delay" for resin prices to track falling oil prices than when oil prices rise, Paslawskyj said. Complicating resin price movements are capacity utilization rates among resin producers. When their plants run at capacity rates in the mid-90 percent range, prices tend to firm up no matter what is happening with oil prices. Last year, thermoplastic resin producers on average ran their plants at about 90 percent of capacity.
The CIT study said foreign trade driven by the North American Free Trade Agreement also will spur shipments. U.S. exports should rise 6.9 percent this year and 6 percent in 2001. Imports also are expected to grow, to $9.7 billion by 2001, up 7.7 percent from 1999.
Paslawskyj said the predictions rely on continued growth in the current economic cycle, which has been the longest growth period without high inflation in U.S. history.
He said the Federal Reserve Board will be conservative in interest-rate hikes as it tries to keep inflation under control.
Paslawskyj called Fed Chairman Alan Greenspan a "gradualist" who will only raise interest rates by 25 basis points at a time.