Makers of polyethylene and polypropylene have won surprising price increases since Sept. 1.
Industry contacts cited strong third-quarter demand - as well as concerns about higher natural gas prices this coming winter - as reasons for the increases, which reverse a downward trend for those materials over the summer.
Prices for all grades of high, low and linear low density PE, with the exception of blow molding grades of HDPE, are up an average of 5 cents per pound since Sept. 1. HDPE makers split the increase on blow molding grades from 5 cents on Sept. 1 to 3 cents on Sept. 1 and 2 cents on Oct. 1, sources said.
PP prices are up an average of 2 cents per pound since Sept. 1. Producers had been seeking 3 cent increases, but various discounts and deals reduced the average to 2 cents, according to several buyers.
PE makers ``are raising prices because they can,'' a major East Coast PE buyer said.
``[PE producers] have merged to the point where they have an oligarchy and they can do what they want,'' the buyer said. ``There are very few producers remaining for certain materials.''
Major PE mergers of recent years include the formation of ExxonMobil Chemical Co. and Chevron Phillips Chemical Co. LP, as well as Dow Chemical Co.'s merger with Union Carbide Corp. Those moves essentially turned six PE suppliers into three.
Dow's recent decision to idle 900 million pounds of North American PE capacity also is starting to affect supply, but not to the degree that it would in a stronger demand climate.
A PE buyer in the Midwest said PE makers are ``charging ahead'' with increases because of strong demand in August and September and concerns about a repeat of the high natural gas costs that socked the industry last year. Natural gas prices affect PE, since gas is a major component of PE feedstock ethylene.
Natural gas prices had been around $2 per million Btu for an extended period of time before shooting past the $9 mark in the winter of 2000-01 and doing the same last winter. The spikes led PE makers to implement ``energy surcharges,'' which basically were instantaneous price increases designed to pass on the brunt of high gas prices.
``If there are going to be higher gas costs, [PE makers] need to get prices up,'' the Midwestern buyer said. ``This way if they have to give back a nickel [in pricing] later this year, they'll have one to use without tearing down their margin.''
The September increase ``is more of a salvage job for the [PE] industry than anything,'' the buyer added.
Lori Loria, a PE analyst with Phillip Townsend Associates Inc. in Houston, described PE pricing negotiations as ``a Mexican standoff between buyers and producers.''
``Producers are arguing they need the increases because of high energy fundamentals, but buyers are saying the orders aren't coming in,'' she said.
In PP, stronger demand allowed producers to lift prices, even if market confusion and shifting allegiances prevented total success.
``You're seeing more movement in [PP] pricing,'' a Chicago-area PP buyer said. ``[Producers] aren't all pushing at the same levels. One's doing the samba and one's doing the tango.''
``Days of supply at the PP processor level dipped down in the third quarter, but now are building, which is an indication that buyers are coming back into the market and pre-buying,'' added Craig Fisher, a PP analyst with Phillip Townsend.
In both materials, producers reported that a solid first-quarter gave way to a dismal second quarter, caused in part by decreased demand and excess material inventories created when processors bought in advance of price increases. When processors failed to use even their standard second-quarter resin allotment, material backed up in the chain.
Taking into account the summer price erosion and September increases, average selling prices for butene-based grades of LLDPE extrusion liner film resin are up an average of 31 percent this year. Prices for blow molding homopolymer grades of HDPE and injection molding/general-purpose grades of homopolymer PP each are up about 24 percent.