Buyers of polypropylene and solid polystyrene are reaching deeper into their pockets, with prices up an average of 3 cents per pound on both materials since Jan. 1.
More increases appear to be on the way, as PP and PS makers struggle with rising feedstock costs, thin margins and an economy plagued by uncertainty about the cost of U.S. military action against Iraq.
``The polypropylene market heated up much quicker than we thought it would,'' said Bob Beil, North American polyolefins director for Dow Chemical Co. of Midland, Mich. ``There's been real demand pull and cost push.''
Cost increases of 4 cents per pound since January for PP feedstock propylene monomer have been accompanied by force majeure situations for propylene at Equistar Chemicals LP and Nova Chemicals Corp., according to several industry sources. The result has limited propylene supplies and put a crunch on PP makers, who enjoyed solid demand growth in January and early February.
PP supplies have been somewhat limited by a maintenance turnaround at Pinnacle Polymers' site in Garyville, La. A similar planned turnaround next month by Chevron Phillips Sumika Polypropylene Co. in Pasadena, Texas, also could dry up some supply.
``Any time you have a supply disruption in a market that's tight like this, the effect is magnified,'' Beil added.
``There might be price erosion later in the year, but for now these increases are sticking,'' a Chicago-based PP buyer said.
Industry consultant Robert Bauman cited a very strong export market for North American PP as another factor pushing prices forward.
Lack of supply in Asian markets, primarily China, has been a boon for North American PP makers, said Bauman, president of Nexant Chem Systems in Tarrytown, N.Y.
North American PP supplies, which had been overabundant as recently as mid-2002, were tightened by growth of almost 5 percent in 2002, a year in which no new capacity entered the market.
Through November, 2002 U.S./ Canadian PP sales were up more than 700 million pounds vs. the same period in 2001, according to the American Plastics Council in Arlington, Va.
More than 200 million pounds of that growth came in injection molded consumer products, such as furniture and housewares, according to APC. That segment accounted for more than 15 percent of all domestic PP uses in the first 11 months of 2002.
PP buyers now are wary of additional 3 cent-per-pound increases on the table for February, as well as 3 cent increases set for March 1. Dow has followed those up with a further 5 cent increase for March 15.
In PS, a 3 cent move has taken hold as price increases on styrene monomer and benzene continue to hammer PS makers.
``Feedstocks are more of an immediate issue because [PS] margins haven't been acceptable for the last couple of years,'' said Jim Telljohann, styrenics general manager for Chevron Phillips Chemical Co. of Houston.
``But don't discount the effect of the supply/demand picture. We saw good demand growth in January, and customers don't have a lot of inventory in their systems.''
North American PS supply was tightened further earlier this month when BASF Corp. reduced PS production at its Joliet, Ill., site. The move will cut Mount Olive, N.J.-based BASF's annual PS production by about 130 million pounds.
Telljohann expects the impact from the BASF move to be felt in the second quarter, which is a seasonally strong period for the PS market. His firm already is limiting customer purchases to contract amounts.
U.S. and Canadian PS buyers snapped up 400 million more pounds of material in the first 11 months of 2002 than they did in that same stretch in 2001, according to APC. Food-service applications accounted for almost 150 million pounds of those new purchases.
``Some people thought polystyrene use would go down with higher prices, but that hasn't happened yet,'' Telljohann said.
Average per-pound PS selling prices now have climbed an average of 13 cents per pound since early 2002.
That equates to a jump of almost 28 percent in prices for extrusion grades of high-impact PS, according to the Plastics News resin pricing chart.
PS makers now are pushing 3 cent-per-pound hikes for February and hikes of 4-6 cents for March.
Consultant Bauman said continued PS growth in durable goods can be chalked up to a lack of alternative materials, with the exception of higher-priced ABS.
``No [PS maker] seems to be backing off of these increases, even though we're going to have a hard time passing them on to our customers,'' a New England-based PS buyer said.