In spite of low demand and a weakening economy, polyethylene producers have pushed through 5 cent-per-pound increases announced for Jan. 1.
PE makers may have to pull a rabbit out of a hat to top that feat.
"[PE makers] are basically scaring us," an Illinois-based PE buyer said. "They're saying if they don't get [the increase] they'll have to shut down reactors, and that will lead to a disruption of our businesses."
Hammered by high natural-gas and crude-oil costs and by second-half 2000 price drops of 4-7 cents per pound, PE makers had their backs to the wall entering 2001. They responded with a series of price increases — 5 cents for Jan. 1, 6 cents for Feb. 1 and 5 cents for March 1 — that many thought were preposterous at the time.
Those same doubters now are paying the first nickel and dealing with the 6 cents on the table for February.
Ethylene cracker shutdowns carried out by Union Carbide Corp., Westlake Corp. and Equistar Chemicals LP have led to reduced PE production. Various industry estimates claim the amount of PE capacity taken down ranges from 10-25 percent.
"This is a total supply push," one industry contact said. "With natural gas going for $5 to $7 [per million BTU], it's not economical to run steam crackers, and that supplies about 60 percent of the polyethylene market.
"The amount of PE production that's down isn't enough to affect contract buyers, but the spot market has totally dried up," the contact added. "And that's had an effect because processors allowed their inventories to get really low with prices dropping in the second half of last year."
With PE demand as weak as it was in late 2000, a price increase was the furthest thing from processors' minds.
Linear low density PE sales into trash and can liners — its largest domestic end use — were down more than 6 percent through November, according to the American Plastics Council in Arlington, Va. In November alone, sales were down almost 9 percent from the same month in 1999.
High density PE faced similar woes. Sales into its flagship blow molding market were down almost 3 percent through November, fueled by a drop of more than 15 percent that month. LDPE fared no better, seeing sales into the film market — almost half of its domestic total — down more than 9 percent through November.
An Ohio processor reported seeing the 5 cent jump but admitted it runs contrary to business conditions at his plant.
"We had a really slow December and January," the processor said. "If we have one machine down, it's a rarity, and there were times in the last couple of months when we had as many as four down."
PE makers are doing what they have to do to restore profitability, a Pennsylvania-based PE buyer said.
"They've reduced supply to be more in line with demand," he said. "[PE makers] aren't overproducing, so they're not having to dump material just to get rid of stock."