Driving a fast car, blindfolded and without a map.
That about sums up the mind frames of numerous top plastics and chemical executives at K 2004. They were coming to the end of a year in which prices for the feedstocks used to make their products soared, as a result of higher prices for the crude oil and natural gas from which those feedstocks are extracted. Plastic resin makers, as a result, had to turn around and pass those increases on to the molders, extruders and myriad other processors they sell to.
It wasn't easy, and many executives interviewed by Plastics News still were trying to figure out which route to take in the days ahead.
``To some extent, we're in uncharted levels on pricing, but growth continues to be good and the outlook is relatively positive,'' said Randy Woelfel, president of the North American business unit of polypropylene giant Basell Polyolefins of Hoofddorp, the Netherlands. ``It's a question of if we'll be able to supply that growth. We've found ways to debottleneck and keep it manageable.''
Irwin Levowitz, global polyethylene sales director of ExxonMobil Chemical Co. in Houston, pointed to larger issues in the energy market as indicators.
``Supply and demand is tightening, and feedstocks are at record highs around the world,'' he said. ``If you look at those facts, that's what's driving prices.
``Now there's a lot more demand for natural gas for electricity generation and home heating,'' he added. ``Combine that with limits on exploration in areas like the McKenzie Delta and the Arctic, and ultimately there will be parity in feedstocks around the world.''
``The question is, where is the oil situation going to lead?'' asked Romeo Kreinberg, senior vice president of plastics for Dow Chemical Co. in Midland, Mich. ``And if there's no feedstock advantage, why would you invest in petrochemicals? We've been telling the politicians in North America that if there's no break in natural gas prices, investment is not going to happen in the U.S.''
The ability of customers to handle those price increases - and the pace at which they can do so - is another challenge that needs to be met.
``When you have costs expanding this rapidly, you sometimes have problems with cash flow,'' said Lyndon Cole, president of engineering resins maker Ticona in Frankfurt, Germany. ``Automotive pricing is done on an annual basis, but we've seen some resistance on our quarterly pricing as well, especially on our general-purpose grades.''
John Taylor sees a similar situation at polyolefins leader Borealis A/S of Lyngby, Denmark.
``We have to be very humble in forecasting oil prices, because we always get it wrong,'' said Taylor, the firm's chief executive officer. ``We have to make sure costs are passed all the way through the value chain.
``There's certainly been some resistance on the part of large end users and the automotive companies in passing them through,'' he added. ``Unfortunately, higher prices for plastics mean higher prices for us as consumers.''
A change in the general attitudes of resin makers also is needed to cope with the new realities hitting the processing world.
``We're not only selling nylon, we need to provide solutions to our customers,'' said Massimo Cattaneo, new products director for Radici Plastics in Milan, Italy.
``With high oil and benzene prices, innovation has become very important,'' added Jean-Claude Steinmetz of Rhodia SA in Lyon, France. ``We need to move away from a price-driven model to one driven by innovation.
``What we need is technology-driven productivity,'' said Steinmetz, vice president of the firm's nylon unit. ``Ultimately, we want 30 percent of our production to come from products that are less than 5 years old. We want one or two breakthroughs a year.''
That may sound all well and good, but it's altogether something different when dealing with customers that had grown accustomed to prices moving in a cyclical fashion or staying flat for extended periods.
``Prices of TPUs had been decreasing for three or four years, but this year we've had to increase prices, and we may have to do so again next year,'' said Albert Adroer, general manager of Merquinsa Mercados Qu¡micos SL in Barcelona, Spain.
``We had to push our first price increase [on Stanyl-brand nylon] in four years,'' said Anne Bergsma, Stanyl general manager for DSM NV in Sittard, the Netherlands. ``We wanted to continue with our policy of keeping prices the same, but we were hit with increases in adipic acid and benzene in the last few months.''
Dow's Kreinberg eventually chooses practical realism when discussing the subject of prices.
``I don't believe there are limits for prices of resin, just like there are no limits for prices of gasoline,'' he said. ``People are continuing to use plastic goods. They're not going to go back to paper. Even at these higher prices, resin is a fraction of the cost of the end product. The end user might pay a penny or two.''