If Chemical Market Associates Inc.'s recent processor conference needed a slogan, it could have used something like: Don't Blame Us, Don't Blame the Resins - Blame the Feedstocks.
That was the message from Houston-based CMAI, whose consultants addressed markets for PVC, polystyrene, PET and polycarbonate at the June 30 event in Chicago. Sky-high energy costs likewise have affected ethylene, benzene, styrene and other plastics feedstocks, which in turn have pushed resin prices higher and higher.
``The PVC market in North America has changed forever,'' CMAI PVC analyst Rick Smith said. ``VCM is tight and getting tighter and prices and margins are going to be higher.''
PVC makers have struggled with little or no margin in their businesses since 1996, while cash costs for raw materials such as chlorine are on track to average $276 per ton in the 2000-08 time period - a jump of more than 40 percent over the 1990-99 average, Smith said.
As a result, producers have backed away from adding new capacity, Smith explained. That lack of investment will lead them to cut back on their export business to meet domestic demand in the years ahead. Supplies of VCM - already about 4.4 billion pounds short of meeting global demand - could be almost 9 billion pounds short by 2007. The resulting tightness should keep PVC prices high.
``If you're waiting for prices in the 30 cent range, you'll be waiting for a long time,'' Smith said.
Smith also presented PVC processors with a checklist that asked several questions, including if they are low-cost in their respective markets and if they are able to raise prices for their products. Processors who cannot might want to consider exiting the market, he said.
High PS prices can be summed up in one word - benzene - according to CMAI PS analyst Alex Lidback.
With benzene prices exceeding the $3 per-gallon mark this year, PS prices have rocketed upward, further tightening a market that already was short by about 1.5 billion gallons, Lidback said.
``If we don't get back to $1 benzene, there will be a step change in polystyrene production costs and prices,'' he said. ``The industry will have to learn to work with higher prices.''
Lidback said North America has more than enough capacity right now as a result of overbuilding in the 1990s.
The PET environment is a little sunnier, according to CMAI PET analyst Chase Willett.
``Growth has never been a problem for PET,'' Willett said. ``There are still tremendous growth applications in bottle and sheet applications.''
Global PET growth should average 9 percent from 2003-08, off slightly from its 111/2 percent pace from 1998-2003. The carbonated soft drink market will see its PET growth remain in the low single digits, but opportunities exist in replacing cans.
``Consumers still prefer packaging that's see-through and resealable,'' Willett said.
``Phenomenal growth'' also is likely in the bottled water market. But those and other growth opportunities in PET are tempered somewhat by global overcapacity that is expected to push operating rates below 70 percent in 2006. Asia alone has almost 7 billion pounds of surplus PET capacity - enough to supply the entire North American market.
North America also is well set on capacity, since a declining apparel market has freed up more than 3 billion pounds of staple fiber capacity that can be converted to resin if needed.
Pricing for PET should peak in 2005 before declining, Willett said.
Like a monarch butterfly, polycarbonate continues to go through a period of metamorphosis. Margins for the material are declining as it becomes ``a pseudo-commodity,'' according to CMAI PC analyst Ben Smith.
Here, optical media is the culprit, as pricing and demand for material used in compact discs and DVDs have declined since peaking in 2000. Other end uses such as computer monitors, cell phones and hand-held computers are getting smaller, using less PC.
The major shift of manufacturing a good deal of PC finished parts - especially televisions and computer monitors - away from the United States and Western Europe also was not expected by PC makers, according to Smith.
A potential boost could come from the auto window glazing market, where production could begin in Europe later this year. On the pricing front, PC should peak in 2005 before tailing off, Smith said.