Makers of polyethylene and PVC are pushing their pricing agendas in early 2001 to keep up with rising raw material costs and rebuild profit margins.
Since midsummer, film-grade PE prices are down an average of 6 cents per pound, nonfilm PE prices are down an average of 3 cents per pound and suspension PVC prices are down an average of 4 cents per pound, according to processors and producers contacted.
Now, major PE makers have responded by nominating increases of 5 cents per pound, effective Jan. 1, and 6 cents on Feb. 1. In turn, major PVC producers are working on 3 cent price hikes that were to be effective Jan. 1.
"There was some serious price attrition in the second half of 2000," said Bob Beil, commercial vice president for the North American polyolefins business of PE leader Dow Chemical Co. of Midland, Mich. "Nobody in this business is having a lot of fun right now."
"It's not very often that [PE makers] put 11 cents on the table within two months," added Jeff Taylor, PE business manager for Chevron Phillips Chemical Co. LP in Houston. "We've had a very unusual combination of circumstances where demand was pretty weak, new supply was coming on and feedstock costs were rising. We've been pinched from both directions."
Beil is optimistic about the increase attempts because he believes PE processors have destocked their inventories in recent months and will need to buy. This year could offer a more accurate look at PE demand, Beil said, since 1999 demand was overstated because of Y2K concerns and 2000 was understated as processors shed excess inventory they had built up.
Early orders for January also are stronger than expected, giving a much-needed push to the price hike tries, according to Stacey Hawley, PE business director for Westlake Corp. in Houston.
Through September, U.S./Canadian growth rates for high, low and linear low density PE each were down from their averages in recent years. HDPE was up 2.4 percent, LLDPE was up 4.4 percent and LDPE was down 2.3 percent, according to the American Plastics Council in Arlington, Va.
These meager growth rates have prompted several PE makers to cut production. Although no producers have announced long-term shutdowns, some have idled lines temporarily for well-timed maintenance work, while others are running their reactors at slower rates, in some cases dropping production from 50,000 pounds an hour to 30,000, industry insiders said.
The feedstock side of the PE picture may not offer any short-term relief. Prices of natural gas, which provides a majority of the ethylene used to make PE in North America, remain around $9 per million Btu — a level roughly three times as high as a year ago.
In PVC, the increases are "very much needed and warranted," said Barry Hendrix, vice president of Dallas-based market leader Oxy Vinyls LP.
"Market prices have been falling for the last six months, and we're expecting huge cost increases for operations in January."
PVC makers are facing a tough environment in early 2001 because of an expected downturn in the construction market, according to Dick Roman, an industry consultant based in Cleveland.
"Spending in construction could be slow, especially if new housing starts drop from 1.6 million [units in 2000] to 1.5 million [in 2001] as they're expected to do," Roman said. "Ethylene costs are also going to have a great impact on [PVC makers]. It could be a rough quarter."
Overall U.S./Canadian PVC sales were down almost 3 percent through September, according to APC. Domestic sales were flat, while export sales were off more than 50 percent.
Sharp reductions in demand jolted the market during the third quarter of 2000, leading to a loss of $8 million at Borden Chemicals and Plastics LP's Geismar, La.-based PVC business, which ranks fifth in North American production. In spite of that loss, higher PVC prices allowed Borden to show a slight profit through September 2000. It had lost more than $21 million in the same period in 1999.
Tough market conditions and high natural gas prices also have led Borden to temporarily close its acetylene-based vinyl chloride monomer unit in Geismar. Borden will continue to operate its ethylene-based VCM unit there.
Georgia Gulf Corp. of Atlanta, the region's No. 3 producer, also announced Dec. 13 that a continued slowdown in PVC resin sales would cause the firm to lose 20-25 cents per share in the fourth quarter of 2000.
Georgia Gulf acquired the vinyls business of Condea Vista Corp. last year and now derives about 80 percent of its sales from PVC and related feedstocks and compounds.
The year was not kind to stock prices at both Borden and Georgia Gulf. Borden's stock price was close to $6 in January but had slipped below $1 by late December. Georgia Gulf started the year near $30, but sank close to $10 in the fall before passing $15 at year's end.
Even Oxy Vinyls cut back production as demand fell in late 2000. Through September, its PVC production stood at just under 3 billion pounds — a drop of almost 7 percent from the same period in 1999.