A stumbling economy continued to affect resin prices in July, taking polyethylene prices down an average of 3 cents per pound and knocking suspension-grade PVC prices down an average of 1 cent per pound.
PE prices now are down an average of 1 cent per pound from the start of 2001, as producers have given back all of a 5 cent-per-pound increase they had won earlier. PVC prices still are up an average of 1 cent per pound from January levels, with producers relinquishing 2 cents of a 3 cent-per-pound increase.
Resin buyers and producers contacted recently estimate that PE and PVC resin production is down as much as 20 percent from 2000, although totals reported to the American Plastics Council in Arlington, Va., show a drop of 5-11 percent through May.
High density PE sales through May were down more than 8 percent, according to APC, with low density PE sales dropping almost 12 percent and linear LDPE sales slipping more than 5 percent.
``I don't think anybody anticipated this much of a slowdown,'' an Ohio-based PE buyer said. ``But natural-gas prices are down, and there's a lot of ethylene and polyethylene in the chain. Cutting prices is the only way out if [resin makers] want to move material.''
Prices for natural gas, which is used as a feedstock for about 70 percent of North American PE, were above $7 per million Btu in the first quarter of 2001 but dropped below $5 in the second quarter. That's still high compared with the $2 historic range natural gas had occupied in recent years but far below the more than $10 levels it hit in late 2000.
But the PE demand picture still is grim, with some big-volume areas reporting sizable losses. In LDPE, sales into nonpackaging film - which accounted for 12 percent of domestic sales through May - are down almost 28 percent.
In HDPE, sales into pipe and conduit - representing more than 11 percent of domestic sales through May - are down more than 23 percent. In LLDPE, sales into trash and can liners - representing almost 14 percent of domestic sales through May - are off more than 17 percent.
And more capacity is on the way, even though it's the last thing resin makers want to see right now. Nova Chemicals Corp. of Pittsburgh is ramping up a billion-pound HDPE/LLDPE plant in Joffre, Alberta. The plant started commercial operations July 1 and currently is producing several grades of HDPE. Film grades of LLDPE will be added by the end of the year.
``We'd obviously like to see a stronger market, but we're not letting the current business environment affect the way we're operating the [Joffre] plant,'' Nova PE Vice President John Hotz said.
Hotz added that Nova is ``managing inventory at minimum levels'' in light of decreased demand.
``We know what markets are strategic to us, and we're sticking to that so we'll be ready when the market comes back,'' he said.
Hotz also offered an explanation for the big drop in HDPE sales into pipe and conduit. Much of the drop is in the conduit area, where Hotz said demand is almost nonexistent in the wake of financial struggles experienced by numerous high-tech firms, including those in the fiber-optics area. If conduit were removed from the total, HDPE sales in high-pressure pipe would likely be flat when compared to 2000, according to Hotz.
Nova, which ranks as one of North America's five largest PE makers, saw its PE sales volume drop more than 11 percent in the first half of 2001. Its olefins/polyolefins sales were up more than 9 percent, but the unit's pretax profit was off more than 53 percent, according to a July 25 financial report.
Livingston, N.J.-based Formosa Plastics Corp. USA is bringing on more than 900 million pounds of HDPE in Point Comfort, Texas, in late 2001 or early 2002. Midland, Mich.-based Dow Chemical Co. also is in the process of opening a billion-pound HDPE/LLDPE plant, also in Joffre.
``The resin companies have to plan these new plants way ahead of time, but their timing hasn't worked out,'' a Texas-based PE buyer said. ``We're expecting prices to continue to dribble down for the next couple months at least.''
In PVC, a slower-than-usual construction season has led to massive PVC pipe inventories, slowing PVC demand and lowering resin prices along the way.
Total North American PVC sales were down almost 3 percent through May, according to APC. Sales into rigid pipe and tubing - representing more than 45 percent of domestic PVC sales through May - were down almost 8 percent.
Although new-home sales in the U.S. increased slightly in June, according to the National Association of Home Builders, the trade group is anticipating ``a modest decline'' in housing activity in the second half of the year.
``These should be the good times,'' a Midwest-based PVC buyer said. ``So God help us in the bad times.''
A number of pipe makers were rumored to have taken lines out of action, although accurate totals were difficult to verify. Some estimates of how much North American pipe production was out of commission ran as high as 20 percent.
Distributors were keeping their inventories as lean as possible, leaving pipe to linger in producers' yards until demand picks up.
``Distributors can get all the pipe they need shipped the next day, so they don't need to keep any on hand,'' an Ohio-based PVC buyer said.
On the supply side, Columbus, Ohio-based Borden Chemicals and Plastics LP continues to idle 200 million pounds of commodity-grade PVC in Illiopolis, Ill., but Houston-based Shintech Inc. brought on half of a billion-pound plant in Addis, La., late last year and plans to bring the other half on line in late 2001.
One potential upside for PVC in 2002 could be increased availability of federal funds earmarked for sewer district construction or repair in several states including Iowa, Illinois and Texas, the Midwest buyer said. If these projects are approved, PVC pipe demand could surge in spring 2002.
Pat Duke, an industry analyst with DeWitt & Co. Inc. in Houston, said although funds may exist for those projects - as well as for construction of manufacturing plants, office buildings and airports - they're not necessarily being used as investors have held back, waiting for consumer confidence and the economy to improve.
Duke credited North American PVC makers with keeping a steady hand on the market.
``So far, [PVC] producers have been able to control production to the point where they haven't devastated the domestic market,'' he said. ``But it's still a difficult market to be in.''