The Dirty Dozen and the Magnificent Seven have converged on polyethylene and polystyrene markets in the past 10 days. But those numbers don't represent classic movies, they describe cent-per-pound increases in resin prices.
Unprecedented surcharges - driven by spikes in prices of natural gas and related feedstocks - have combined with previously announced increases to lift prices of high, low and linear low density PE an average of 12 cents per pound and boost prices of solid PS by 7 cents per pound, according to numerous buyers.
The PE surcharges were 6 cents per pound, while PS makers tacked on 4 cent-per-pound surcharges. The only major PE maker not announcing a surcharge was ExxonMobil Chemical Co. - which, according to sources, had legal concerns since it is fully integrated into natural gas production. Houston-based ExxonMobil officials declined to comment.
The surcharges are in addition to increases of 6 cents per pound on PE and 3 cents per pound on PS that were announced for Feb. 1 and were to take effect March 1.
With 17 cents in place on PE from the start of the year and 10 cents for PS, average selling prices are rising at record rates. According to Plastics News' resin pricing chart, prices of homopolymer/dairy grades of HDPE are up almost 40 percent this year, while prices of liner film-grade LDPE are up almost 34 percent. Prices for butene-based, liner film-grade LLDPE are up almost 30 percent. The impact on prices of injection molding grades of high-impact PS has been about 15 percent.
Concerns over the impact of potential war with Iraq, plus high heating-fuel demand from a colder-than-expected winter, sent spot prices for natural gas rocketing to almost $20 per million Btu during the week of Feb. 24. Prices had cooled to $7.70 per million Btu by March 6, but that price remains triple its level of a year ago. Natural gas is used in about 70 percent of North American PE production and also affects production of PS feedstock styrene monomer.
Although fuel-based surcharges are common in trucking and other shipping industries, plastics industry veterans said they could not recall surcharges ever hitting the resin field.
In a Feb. 27 letter to customers, Nova Chemicals Corp. PE sales Vice President Grant Thomson said the firm is ``operating in an environment of extremely volatile feedstock and energy costs, which shows no signs of abating.''
``These are unprecedented times that demand unprecedented action on our part,'' Dow Chemical Co. PE Vice President Bob Beil said in a March 4 letter explaining the surcharge to customers.
PE buyers aren't too thrilled with the outcome, but many see no other choice than to take the 12 cents and attempt to pass it on to their own customers.
``[The surcharges] are a survival method for [PE makers] to stay operational,'' a Chicago-based PE buyer said. ``But they shouldn't pass their own mismanagement on to their customers. [PE makers] need to do a better job on the supply side.''
A major East Coast PE buyer said the surcharges are ``a perfect example of how markets work in normal times, but get out of control when limits are broken.''
``I've never seen increases this hard and fast,'' a Texas-based PE buyer said. ``If you're a contract supplier, you might be able to pass some of these on, but if you're in retail, forget it.''
A number of buyers said they are concerned about the indefinite nature of the surcharges, since there was no stated level of natural gas pricing that triggered them or that will remove them. The sudden price jumps also could open North American shores to lower-price import material, sources said.
The impact of the natural gas run-up on plastics and chemical businesses has prompted industry heavyweights William Stavropolous and Jon Huntsman to ask for government intervention.
In a March 4 letter to customers, Stavropolous - chairman, president and chief executive officer of Midland, Mich.-based Dow - urged them to contact their elected officials to voice concern over the unstable energy market.
``We believe that this country needs a sound, long-term energy policy that will ... prevent the very circumstances we now face, including incentives to increase the supply of natural gas in the U.S.,'' Stavropolous said.
Huntsman, president of Salt Lake City-based specialty chemical and LDPE maker Huntsman Corp., sent a letter Feb. 25 to 10 U.S. senators, including Pete Domenici of New Mexico, who serves as chairman of the Senate's energy committee. In the letter, Huntsman asks for the senators' assistance in stabilizing natural gas prices.
``Our company and all others in the chemical industry, and most of the manufacturing jobs in America, will go out of business with gas prices this high,'' Huntsman said. ``As our nation moves toward war, our entire manufacturing sector is jeopardized and becoming uncompetitive with the rest of the world.''
For PS, the surcharge was for a lesser amount, but the impact could be the same.
``We don't have that kind of ploy with our customers,'' a New England-based PS buyer said of the surcharge. ``We can't call and say, `Guess what? Your price is up today.' ''
Customer letters from PS makers Atofina Petrochemicals Inc. in Houston and Nova don't use the term ``surcharge,'' but describe increasing the 4 cent-per-pound hikes set for March 1 to 8 cents per pound, effective immediately.
Dow PS business director Jeff Denton confirmed Dow is calling the additional 4 cents a surcharge.
``For us, the two components are how natural gas affects the prices of ethylene and the cost of the energy used to power our plants,'' Denton said. ``Both are very significant in producing styrene monomer and that affects polystyrene."