Polypropylene prices ticked up 3 cents in April, while PVC makers decided to focus on enforcing their latest price hikes in May instead of April as originally announced. The 3 cent PP jump was part of a series of price increases that PP makers have sought since January. Since then, most PP processors contacted have paid 5 cents out of attempted increases of 9 cents per pound.
But industry watchers said the increases have done little to improve industry profitability, as propylene monomer prices have sped up at an even higher rate. If May price increases on propylene are successful, prices would be at or close to all-time highs, according to several sources.
"It's not about us making money or recovering," said Charles Damianides, PP business manager for BP Amoco Corp., the Alpharetta, Ga.-based firm that ranks as North America's second-largest PP maker. "We're just passing on monomer increases."
Damianides added that markets for injection molded goods, films and fibers have remained strong in early 2000. Most major PP makers will try to raise prices 4 cents per pound May 1, while BP Amoco has announced a further 4 cent-per-pound attempt for June 1.
An Illinois-based PP buyer said he expects further price increases in May, adding that PP makers "are hurting" because of the propylene situation.
A Georgia-based PP buyer added that it seems that in trying to raise prices, PP makers surprisingly are emphasizing demand growth instead of the monomer pinch.
"It's like [PP makers] are keeping [monomer prices] at arms-length in case [monomer] starts coming down as oil prices drop," the Georgia buyer said.
Rob Harvan, an industry analyst with Honeywell Hi-Spec Solutions in Houston, admitted he's a bit unsure as to why PP makers haven't been able to increase prices at a steeper rate so far in 2000.
"You have two key factors in place for the price to go up," Harvan said. "There's cost push from monomer and snug supply/demand, but [PP makers] aren't getting everything they're asking for."
Harvan added that the diversity of the PP market may be playing a role, in that such commodity-oriented businesses as housewares and carpet fibers often have experienced buyers who are "spectacularly tough" in dealing with their materials suppliers.
Harvan also said he discounts the impact that new capacity — more than 2 billion pounds of PP came on line in North America in 1999 and more than one billion pounds is set to hit the market this year — is having on keeping prices down.
"There's not really overcapacity, even with the new plants, since demand has been so strong," he said. "Producers might try to keep prices lower for a while when they base-load a new plant just to make sure it sells out, but that effect tends to go away really quickly."
PP sales in January were 4.5 percent higher than they were for January 1999, according to the American Plastics Council in Arlington, Va.
In PVC, market leader Oxy Vinyls LP of Dallas ended its holdout for a 2 cent-per-pound price increase March 1 and joined other producers on an April 1 date which, given 30-day price protection, would go through to most buyers in early May.
One industry executive said PVC makers have been operating in an "inventory drawdown" phase where sales have outpaced production in recent months. This pattern has resulted in producers' inventories — which had reached the 16-day mark after being as low as nine or 10 days in 1999 — to dip back to the 13-14 day level.
Traditionally, PVC makers have averaged between 20-25 days of inventory.
U.S. housing starts, viewed by many as an indicator for the construction-strong PVC market, dropped more than 11 percent in March, but an industry executive pointed out that much of the drop was in multifamily housing.
Multifamily housing tends to have less of an impact on the PVC market since it consumes less PVC pipe footage per unit than single-family housing, the executive said. Single-family starts rose 0.2 percent in March in spite of the sizable overall drop.
Part of the drop also was linked to a historic high in multifamily starts that was reached in February because of mild weather.
But a New England-based PVC buyer sees the housing numbers, as well as slowdowns in PVC's wire and cable and automotive sectors, as a sign that the extended runup in PVC pricing that began in late 1998 may be slowing down.
"We've come close to the ceiling now," the buyer said. "Even smaller buyers are showing some resistance."
But the New England buyer also had a recent experience that showed there's some tightness left in the market.
When two rail cars didn't meet his firm's specs, the supplier did not have enough PVC on hand to replace them. The buyer was able to source a replacement material with another PVC maker, but only after "pressuring" the second firm.
"That kind of thing normally doesn't happen," the buyer said.
A Midwestern PVC buyer said PVC makers are becoming split between companies that want to enjoy prices at their current high levels and firms that want to push for more price increases.
"The smart companies want to maintain prices where they are, but the others want to keep going until they pop the bubble," the buyer said.
January PVC sales in the United States and Canada were 6.6 percent higher than levels from January 1999, according to APC.