Average selling prices for polyethylene and polypropylene trended downward again in June, but market watchers said the slide might be coming to an end.
Buyers continued to work off inventories built in late 2004, while makers of PE and PP dealt with overproduction in the first half of 2005. As a result, per-pound PE prices for June dropped an average of 4 cents per pound, while PP prices slipped an average of 5 cents, according to buyers contacted recently. The changes are reflected on this week's Plastics News resin pricing chart.
For the year, prices for PE now are down an average of 10 cents per pound, while PP is down 5. Early 2005 price increases for PP had been neutralized by price drops in April and May.
U.S. and Canadian demand through April was soft, setting the stage for the subsequent price declines. Demand for linear low density PE in the region was flat, while LDPE demand was off almost 6 percent and high density PE demand slumped 3 percent, according to the American Plastics Council in Arlington, Va. Regional PP demand was down more than 1 percent.
But the general market impression is that processors have used up most available inventory and will have to begin buying once again this month. Higher prices for crude oil - used to make 30 percent of the region's PE - and natural gas also are prompting resin makers such as Dow Chemical Co. and ExxonMobil Chemical Co. to seek price increases.
July 1 increases of 6 cents per pound for PE and 4 cents per pound for PP are on the table from most major producers. Additional hikes of 6 cents for PE and 5 cents for PP have been announced for Aug. 1. Buyers expressed skepticism about the July moves, but said the August hikes have a good chance of being at least partially successful.
``We've been carrying two weeks of extra inventory for most of the year, but now it looks like things are getting back to normal,'' a Midwestern PE/PP buyer said. ``The economy is still growing and consumers are still consuming.''
``July could be a bang-up month, with everyone buying ahead of the new increases,'' said Pat Duke, a market analyst with DeWitt & Co. consulting firm in Houston.
``U.S. buyers had destocked and we now could be looking at another run.''
The planned PE hikes also could be affected by outages for ethylene feedstock that have hit PE makers Dow, Nova Chemicals Corp. and Chevron Phillips Chemical Co. LLC.
Storm damage to natural gas units in Alberta has dropped Nova's ethylene production rate to 40 percent since June 21. Dow's ethylene unit in Freeport, Texas, suffered a mechanical problem in late June and is expected to be out of commission until early August.
In Sweeny, Texas, Chevron Phillips lost a day of ethylene production in late June because of a cracked gas compressor, but industry sources said the unit is operating again.
Extreme summer heat now hitting the Texas coast also could affect ethylene production, further tightening supply at a moment when PE demand is expected to rise, sources added.
As a half year of downward pricing looks to give way to increases - as occurred almost nonstop in 2003-04 - Duke observed that the North American resin market ``has turned to a trader mentality.''
``People will look at what China is doing and that will be compounded with crude oil being volatile,'' he said. ``Then the economy will look good one day and bad the next. There's both real action and psychological pressure. Buyers will see something and jump, and that's leading to shorter, more violent cycles.''
