My phone's been ringing a lot lately. That's what happens when you cover resin pricing for Plastics News and prices head straight for the moon.
With prices for crude oil feedstocks up tremendously this year — and with natural gas prices much higher than their historic levels —plastics processors have had few places to turn in 2004. Multiple price increases have hit polyethylene, polypropylene and almost every other commodity and engineering resin.
So what happens is that people — and by this I mean everyone from resin buyers to retail purchasing agents to financial analysts — call me up looking for answers. The basic question from all of these calls can be summarized like this: “The resin guys are saying prices are going up again and we think they're crazy. What do you think?”
I handle these calls as best as I can, telling callers that, yes, unfortunately, prices are going up, and no, your resin supplier probably doesn't hate you personally. Then I try to reflect these upswings and gyrations on PN's resin pricing chart.
Speaking of which, it's time to take a look at the resin pricing tutorial I wrote in 2000. (I write a column once every four years. It's kind of like the Olympics, but with a smaller TV audience.)
Let's review some of what I had to say:
“I contact officials at resin processors and producers, as well as consultants and analysts who follow the industry, to learn if prices are going up or down or staying right where they are. This method entails sorting out a lot of data and opinions from a variety of sources. Part of the challenge is that each segment of the industry has its own built-in agenda: Resin makers typically like to see prices going up; processors typically like to see prices going down.”
This is still the case, but processors also sometimes like to see prices up in order to convince their own customers of this fact.
“[One] highly sensitive tactic — and one that for some reason appears to be becoming more common — is use of the PN pricing chart as an index for structuring contracts between suppliers and processors, and even between processors and their end customers. PN always has strongly discouraged this practice — unless the PN chart is used in combination with other price indexes. Those of us who compile indexes don't all talk to the same people, and as a result our outlooks can vary, even if they're usually headed in the same direction. We also discourage the one-index method to avoid getting phone calls claiming that PN “cost” a processor hundreds of thousands of dollars by reporting a price increase was a penny less or more than what the processor had anticipated. Supplier/processor negotiations still should be the main means for determining selling prices.
This part is even more true today. A lot of calls that I get start with, “Hey, we're tied in to your chart, and…” i>PN still encourages use of other pricing sources for these same reasons.
And to address another common topic: Yes, sometimes some prices on the PN resin pricing chart are high. Buyers may negotiate prices 10-15 percent less than what we're showing without much difficulty. Part of the reason this occurs is that while price increases are issued with formal letters adorned with resin company logos, price decreases don't receive the same treatment. The first resin executive who chooses to do so will be flipping burgers somewhere by the end of the week. So if we're 1 cent off on pricing moves a couple times a year, the gap grows fairly quickly. This also is why PN — and other pricing indexes — occasionally have to correct prices in what is sometimes referred to as “nonmarket adjustments.”
Hopefully, this clears up some lingering misconceptions. As in 2000, feel free to contact me by phone at (330) 865-6156 or via e-mail at [email protected]
Frank Esposito is an Akron-based staff reporter for Plastics News. His beats includes resin suppliers, distributors and compounders, and includes pricing.