North American polyethylene and polypropylene makers are starting the new year off with higher prices after experiencing some mild erosion in late 2003.
PE prices dropped 1 cent per pound in late 2003 before producers were able to enact 4 cent-per-pound increases in January. The only variation occurred in blow molding grades of high density PE, where prices fell 2 cents per pound in late 2003 before the 4 cent increase took hold in January.
The net result of those moves is an increase of 2 cents per pound on blow molding HDPE and 3 cents per pound on all other grades of PE on this week's Plastics News resin pricing chart.
A number of buyers contacted said that pre-buying in the face of a 5 cent-per-pound increase announced by major PE makers for Feb. 1 played a role in the success of the January move.
``Our volume isn't up enough to justify the [January] price increase,'' a California-based PE buyer said. ``But a lot of people don't want to get caught paying higher prices later in the winter.''
A January cold snap in the Midwest and on the East Coast also drove up prices of natural gas, a feedstock used to make ethylene monomer used in PE production. Transaction prices for natural gas were around $5.50 per million Btu on Jan. 20, but futures prices for March were close to $6 per unit.
Natural gas prices now are on the rise, even though the amount of natural gas in storage is about 14 percent higher than it was at the same time last year.
Supplies also are more than 8 percent higher than the five-year average for this time of year, according to the Department of Energy.
PE makers hope January's quick start bodes well for 2004, after a 2003 in which sales of low and linear low density PE each were down almost 4 percent through November. Sales of HDPE also slipped almost 3 percent in that period, according to the American Plastics Council in Arlington, Va.
One PE executive said that although ``fundamental demand has improved'' in the PE market, margins ``still have to be restored.''
``Demand started to improve late in the second quarter of 2003,'' the executive said. ``The film market has been stronger than blow molding, but pipe hasn't been as strong as we thought it would be.''
Pat Duke, an industry analyst with Dewitt & Co. in Houston, described the current North American PE supply/demand picture as ``balanced, with a bit of snugness'' in LLDPE and high-molecular-weight film grades of HDPE.
``Basically, North America has become a captive market,'' Duke said. ``But [PE] producers can't build new PE plants or ethylene crackers on the margins they're getting.''
And in spite of pressure from natural gas, contacts on both the buying and selling sides said they think it is unlikely that PE makers will return to the ``energy surcharge'' tactic of early 2003. That never-before-seen move leveled an immediate 6 cent price increase on all PE grades because of skyrocketing natural gas prices.
``I've had a number of [PE] companies tell me they'd never do [a surcharge] again,'' a Midwest-based PE/PP buyer said. ``They got it through, but they paid a high price as far as relations with their customers are concerned.''
In PP, increases of 3 or 4 cents per-pound set for Dec. 1 took hold at the 3 cent level in January after prices dipped an average of 1 cent per pound in late 2003. The result is a net gain of 2 cents per pound on this week's PN resin pricing chart.
``This isn't really surprising, based on what feedstocks have been doing,'' a Chicago-area PP buyer said.
PP makers now are working on additional 3 cent increases for January and February.
PP fared better in 2003 than PE. Through the first 11 months, U.S./Canadian PP sales were up more than 1 percent, making it the only major commodity resin to post a sales gain in that time period.
Sales into the export market and into injection molded housewares offset losses in other end segments. Export sales climbed almost 9 percent, resulting in 225 million additional pounds of PP sales, while sales into injection molded housewares jumped more than 3 percent, helping to move an additional 50 million pounds of resin.
According to Dewitt's Duke, U.S./Canadian PP is in short supply right now because of increased demand and because profitability in the refinery system is leading oil producers to keep propylene monomer in their own product streams rather than sell it off as a feedstock. That practice is limiting the availability of propylene monomer at a time when PP operating rates are in the low 90 percent range, Duke said.
A number of PP buyers also reported pre-buying as a means of circumventing future increases.
The PP price increase is ``a combination of supply and demand and the need to improve reinvestment economics,'' according to Craig Blizzard, marketing manager for market leader Basell Polyolefins of Elkton, Md.
``We're not conveying that this is a feedstock-only issue,'' Blizzard said. ``There's been no capacity added [in North America] for quite some time and demand is catching up with supply.''
Blizzard added that the ``long-term trend'' of PP replacing other resins continued in January, particularly in markets for housewares, bottles and packaging. Basell also did not experience any late-year price erosion in PP, according to Blizzard.
Although Blizzard confirmed some PP pre-buying in January, he said it wasn't excessive.
``There's always going to be some pre-buying,'' he said. ``Pre-buying actually reinforces and supports that there will be a [price] increase. If not, buyers will just say they'll buy next month at the same price.''
At least in the early going, the issue of price protection seems to be muddled in 2004.
In early 2003, major resin manufacturers had been talking about eliminating the process, which had evolved to where many large buyers were allowed to wait 60 or 90 days before paying higher prices.
Some buyers contacted recently said that terms indeed had changed and that their resin suppliers were expecting more-prompt payment of increases, but a majority indicated that they were operating under previous terms and conditions.