April brought with it something many resin buyers wondered if they'd ever see again: a drop in prices for polyethylene and polypropylene.
Soft demand and increased supplies of both materials factored into a 2 cent-per-pound drop for PE and a similar slide in PP, according to several buyers and industry contacts. Markets for both materials had seen nothing but steady run-ups for much of 2003 and 2004.
Since January 2003, prices for standard grades of blow molding high density PE and butene-based linear low density PE for extrusion liner film each are up about 70 percent. Prices for injection molding grades of homopolymer PP have more than doubled in that period.
With prices flat in the first quarter of 2005 and down in April, many PE and PP buyers have seen a respite that has allowed them to pass increases on to their own customers. Many processors also are working off inventories they built up by pre-buying in late 2004.
``Even if buyers reduced their pre-buying in early 2005, it would take two or three months to run through the material they had built up [in 2004], plus whatever they had added in 2005,'' an East Coast PE buyer said. ``It was a case of apparent demand vs. actual usage.''
A slowdown in resin consumption in China - linked to the Chinese New Year - also affected global markets. A number of processors added that sales of their own products were flat to slightly up vs. 2004, but were not matching the previous year's higher growth rates.
``Overall demand is looking pretty good, but if the resin companies still have excess inventory, we could see prices go down again in May,'' a Midwestern PE buyer said.
Major PE makers have scrapped increases of 5 cents and 4 cents per pound that had been kicking around the market in the first quarter, in favor of a 6 cent-per-pound jump set for June 1. A number of buyers said that the April drop - combined with flat first-quarter pricing - have added skepticism to the June 1 effort.
Industry sources do not expect to see much impact from the April 16 power outage that cost Nova Chemicals Corp. about three days of PE production in Sarnia, Ontario. Nova still is operating under force majeure for ethylene and propylene in Sarnia, but that should not much affect overall North American supply for those materials, sources said.
In PP, some buyers reported a drop of 3 cents in April, but market consensus settled at 2. Demand in several PP end markets was reported as steady in the first quarter, but U.S. export business declined, leaving more material available in the domestic market, said several market watchers.
Some PP buyers added that larger price reductions were seen in film grades, while the 2 cent moves were more common in fiber and injection molding grades.
Craig Fisher, a market analyst with Townsend Polymer Sevices in Houston, estimated that North American PE/PP demand in the first quarter of 2004 was 3-5 percent lower than in the same period last year.
``Demand was soft, and [PE/PP] producers had built inventories in the fourth quarter,'' Fisher said. ``That combination of factors pressured the spot market and contract prices headed south.''
Fisher cautioned that market softness could continue, based on the 3.1 percent rate of first-quarter gross domestic product growth - the slowest quarter in the last two years. That low number ``points to more of a fundamental problem with the economy,'' said Fisher, adding that weak sales have been reported in housewares and other injection molded products made of PE and PP.
To stop this slide, resin makers have been cutting back on their production in recent months to get inventory in line with demand. ``Eventually, processors will run out of inventory and will have to come back,'' Fisher said.