Makers of PVC and polypropylene continued to sing the overcapacity blues in January, as bloated supplies drove PVC prices down an average of a penny per pound and PP prices down an average of half a cent.
"There are a lot of spot deals out there [for PVC], but people aren't buying," a Midwestern PVC buyer said. "A lot of companies are on inventory control because they're not sure what the economy is going to do."
PVC pipe makers in particular are feeling the blow, as prices for their product have fallen more steeply than prices of PVC resin. Resin prices have dropped an average of 5 cents per pound since mid-2000, while some pipe prices are down at least twice that much, industry sources said.
"Pipe had lost so much margin that [pipe] producers couldn't afford to make product," one industry contact said. "Plus, it's been a really cold winter and that's hurt pipe sales by keeping the construction market down."
Through November, U.S. and Canadian PVC sales into rigid pipe and tubing were down almost 2 percent over 1999, according to the American Plastics Council in Arlington, Va. Siding-related PVC sales were down almost 6 percent as well. Combined, pipe and siding accounted for almost 60 percent of total U.S. and Canadian PVC use through November.
PVC makers are trying to heat things up with 3 cent-per-pound price increases announced for Feb. 1, and 2 cent hikes set for March 1. The February increases were not given much chance initially, but in recent weeks processors have suggested that one or two of the three might take hold.
High natural-gas prices have put PVC makers in a bind, since natural gas is used in the production of key feedstocks chlorine and ethylene. Natural gas sold for around $6.05 per million British thermal units Feb. 12 after going for about $2.65 at the same time a year ago.
The supply/demand ratio also is being tipped by new material being brought onstream at Shintech Inc.'s new plant in Addis, La., although some sources have said Shintech is shipping much of that material outside of North America, or shipping material from its Freeport, Texas, plant outside of the region to balance out the new material from Addis.
In PP, overabundance continued to hold sway in January, even as producers were preparing to dig in their heels on 3 cent-per-pound jumps slated for Feb. 1.
"I'm getting calls from suppliers I've never even bought from before," a Chicago-area PP buyer said. "Our demand has been solid, but I think a lot of processors are seeing demand go down and there's still a lot of polypropylene out there."
Most recently, Dow Chemical opened a 660 million-pound-per-year PP plant in Freeport, Texas. Formosa Plastics Corp. USA and a joint venture between Dow and Tosco Corp. are set to add more than a billion pounds more to the North American market by the end of the year.
One industry source estimated as much as 10 percent of North American PP capacity currently may be down as producers throttle back to limit supply.
"[PP makers] have been hurt by slowdowns in automotive and housewares," he said. "They've gained some in polyethylene replacement, but not enough to cancel out their losses."
U.S. and Canadian PP sales into housewares boomed in 2000, climbing 13 percent through November. Automotive PP growth was more modest at just under 3 percent. Both of those end markets outpaced the region's total growth, which was less than 2 percent.