With margins at critically low levels, makers of polypropylene and polystyrene resins have edged prices upward in the early part of the year.
PP prices have climbed an average of 2 cents per pound since Feb. 1, with PS prices up an average of 3 cents per pound in the same period. The changes are reflected on this week's Plastics News resin pricing chart.
``Margins had gone so low for [PP] producers that they weren't able to sustain themselves,'' a Chicago-area PP buyer said.
Buyers also cited minor tightness in the propylene monomer market and low resin inventories at the producer level. Excess capacity of about 1 billion pounds prevented producers from receiving the full 5 cents they had been seeking, although some small-volume buyers received March invoices for jumps of 3 cents instead of 2 cents.
``Producers are still hurting for market share, but they can't afford to fall behind on monomer increases,'' the buyer said.
``Fundamentals are such that buyers realized they needed to protect the health of their supplier base,'' said Craig Blizzard, PP marketing director for Basell Polyolefins of Wilmington, Del.
Blizzard said the PP market experienced ``a lot of destocking'' in late 2001. He added that several markets, particularly fibers, are showing solid growth to date in 2002.
``Material substitution is still going on, but this year a number of applications are using polypropylene for permanent substitutions instead of swinging into a material temporarily, based on price.''
The U.S./Canadian PP market finished 2001 with a sales gain of almost 4 percent over the prior year, as PP offered a lower-price alternative to competing commodity plastics. Sales of PP into rigid packaging - including cups, containers, caps and closures - grew about 14 percent in 2001, with sales into housewares up almost 9 percent, according to the American Plastics Council in Arlington, Va.
The gains compensated for losses of more than 7 percent in fibers and filaments, which contributed more than 20 percent of all U.S./Canadian PP sales in 2001.
Overcapacity continues to be a major factor in the PP market, even though producers British Petroleum plc, Basell Polyolefins and Huntsman Corp. idled almost a billion pounds in North America in 2001. Phillips Petroleum Corp. is set to open a 700 million-pound-per-year plant in Linden, N.J., by mid-2002.
In PS, the increase was pushed through by producers who ``were losing their shirts,'' according to a New England-based buyer.
``Our [PS] volume had actually gone down, but the producers wouldn't budge,'' the buyer said. ``But we can still get as much material as we need on a truck and delivered here in two days.''
U.S./Canadian PS sales slid almost 7 percent in 2001, according to APC. Its benchmark food-service end market - which chipped in almost 25 percent of total sales in 2001 - saw sales slip 9 percent. Rigid nonfoam packaging - with a 10 percent share of sales - provided a rare bright spot with a sales gain of almost 8 percent.
John Siegrist, styrenics vice president for market leader Nova Chemicals Corp. of Pittsburgh, said active processor restocking, a recovering U.S. economy, and price increases in PS feedstocks such as benzene combined to put price pressure on the PS market and move the increase through.
A series of both planned and unplanned outages in styrene monomer also played a significant role, Siegrist said.
``Seasonality is also coming into play, since we're moving into spring and we've had a mild winter,'' he said. ``This can help the polystyrene market, since we do a lot of business in consumer disposables.
``The perception of supply is definitely changing,'' Siegrist added. ``We've had operating rates in the mid-70s for 12-plus months, but now we're moving past 80 and with the styrene outages, our effective operating rates could be in the 90s.''
Atofina Petrochemicals Inc. of Houston is bringing on 500 million pounds of new PS capacity in Carville, La. Industry contacts said Atofina has worked for several months to position the new material, which should lessen its impact in the market.
Robert Bauman, vice president of consulting firm Nexant Chem Systems Inc. in White Plains, N.Y., said inventory restocking will be ``a major event'' for PP, PS and other commodity resins in the next few months. The trend may tide over resin makers until real economic growth arrives in the second half of the year, he said.
However, Bauman conceded that there was ``no physical justification'' for successful early-year price increases.
``Producers were more resolute [in raising prices],'' he said. ``A lot of them were shocked by how bad 2001 was.''
Bauman anticipates that government spending via economic-stimulus packages will energize the U.S. economy in the second half of the year. That, combined with low 2001 sales levels, could lead to major commodity resins showing growth rates of 10-15 percent by midyear.
However, PP and PS makers may have to wait a little longer than their commodity peers for the comeback, Bauman said. PP will lag because of its bloated capacities, while lack of new product applications will slow PS progress, Bauman said.
Lower-price PP also could continue to take business away from PS in thermoforming applications and from high density polyethylene in injection molding applications, he added.
Processors buying resin in advance of further increases also could be a sign that the economy could boom in the second half of 2002.
``For six months after 9/11, a lot of industries basically shut down,'' Bauman said. ``In theory, the bounce-back [in 2002] should be stronger because 2001 was so rough.''