PVC and polypropylene prices each have risen an average of 2 cents per pound since April, while polyethylene makers continue to haggle with buyers over increase attempts ranging from 3 cents to 5 cents per pound. Added to this tumultuous mix is a report from an industry analyst that suggests the petrochemical and resin price climb that began in 1999 might be "a fool's rally" that occurred too early in the industry's historic business cycle.
The PVC hike took hold in early May, although several processors said a slowdown in the construction market and a rise in producers' inventories is taking away a good deal of the justification for additional increases.
"[PVC makers] just forced it through," a Texas-based processor said. "Their chlorine costs jumped up a little bit, but the tightness they thought they were going to see in the market never materialized. I don't know anybody who can't get resin."
A New York-based PVC processor added that demand for prime PVC may slow as processors deplete supplies of off-spec material they acquired when the market was tight earlier in the year.
Several processors also reported that they weren't hearing the same accounts of pipe shortages at construction sites that were circulating in the industry in February and March.
Oxy Vinyls LP, the Dallas firm that ranks as North America's largest PVC maker, had nominated a 2 cent-per-pound increase for June 1, but other PVC makers did not support that move.
Through March, domestic PVC use was up about 8 percent, according to the American Plastics Council in Arlington, Va.
The PP market continued its 2000 trend of winning partial increases and immediately announcing further attempts. Most processors contacted saw 2 cents out of a 4 cent attempt that hit in early June.
Strong competition among PP makers is one of the factors preventing full increases from taking hold, according to an Illinois-based PP buyer. To date, the source estimated, an average of 7 cents out of a possible 13 has been accepted by processors.
"There's some discord among producers," the buyer said. "They're trying to hold market share and are willing to shave a penny off the price to do it."
PP makers have claimed that the price increases have allowed them to keep pace with rising propylene monomer prices.
Most PP makers are seeking 4 cent increases for June 1, while BP Amoco Chemicals of Alpharetta, Ga., and Dow Chemical Co. of Midland, Mich., are pushing for increases of 3 cents and 4 cents, respectively, in July.
Sales-wise, PP has enjoyed a jump of about 8 percent in the United States and Canada through March, APC reported.
PE makers continue to fight a pitched battle in their attempt to raise prices. The fight is now in its third month, as many of the increases being haggled over originally were to take effect April 1.
"Supplies aren't absolutely tight," a Chicago-area PE buyer said. "The backlog of orders, new sales and higher growth rates aren't there either."
Producers are split on enforcement dates and amounts as well. HDPE makers split an original 5 cent, April 1 move into 3 cents for April 1 and 2 cents for May 1, while LDPE and LLDPE makers moved the whole nickel back to May 1.
Most processors contacted said they expected the price battle to be settled in late June.
"We're in a very fluid situation right now," said Howard Rappaport, a consultant with CMAI Inc. in Houston. "The third [PE] increase is in the process of implementation, but prices are at historic highs and some buyers still haven't been able to pass on earlier increases."
The notion that the 18-month-long pricing climb the market has seen might be "a fool's rally" comes from Probe Economics Inc., the Millwood, N.Y.-based consulting firm that recently completed its latest in-depth economic report on the U.S. plastics industry for Washington-based Society of the Plastics Industry Inc.
In a May 31 release, Probe President Fred Peterson suggests that rising oil prices, a strong economy and delayed overseas expansions led market prices to climb in 1999 rather than in 2002 as some observers expected.
"It's a little early for margins to improve," Peterson said June 13 . "It's very likely the economy will slow down and undo the extra demand we've seen in the last 12 months.
"If the economy gets below the point where processors can pass price increases through, then rising feedstock costs will catch resin producers from behind. You have to worry that we've already seen some natural demand for 2000 in 1999."
Recessions in 2001 or 2002 would drive HDPE prices below 30 cents per pound, while PP prices would sink below 25 cents per pound in that scenario, according to Probe.
"It will be a few years before PP soaks up the new capacity that's hit the market, so a lot of material will have to be sold cheaply," Peterson said. "PE supply is much tighter and isn't as bad off, but the whole industry is dangerously close to a boom-bust cycle."
