Buyers of polyethylene and polypropylene better fasten their seatbelts, since after six months of prices going down, they're headed back up again.
For PE, prices for all grades of high, low and linear low density material are up an average of 6 cents per pound since July 1, according to several sources contacted recently. In PP, prices have climbed an average of 4 cents per pound in the period. The Plastics News resin pricing chart shows the full PE increase, but only 2 cents of the PP move, in order to reflect 2 cents of additional price erosion that occurred in May and June.
Prior to the increases, average selling prices for PE had slipped 10 cents per pound since Jan. 1, while PP had shed an average of 7 cents per pound.
Buyers and other market watchers credited makers of PE and PP with ridding themselves of excess material and ratcheting down production in the past three months, after recognizing first-half demand was down and that their plants were overproducing. That reaction led to PE and PP markets tightening up in July after being soft only 30 days earlier.
``Beyond question, there was too much material made in the first quarter,'' said Jeff Taylor, PE vice president for Westlake Chemical Corp. in Houston. ``But producers realized this and adjusted production in the second quarter.
``Then demand came back and [producers] remained under continuous cost pressure from raw materials like crude oil and natural gas,'' Taylor added.
``This [increase] is all supply-driven,'' a Texas-based PE buyer said. Resin makers ``did a good job of managing supply and of getting changes in their operations.''
Resin suppliers ``had too much resin, so they went out and blew it all out,'' an Ohio-based PE/PP buyer said. ``The [first-half] drop was inevitable, but instead of staying at high inventories for a long time, they cut production.''
Buyers also credited resin makers with hammering the increase through early on to secondary channels such as distributors and resellers, leaving many processors with no choice but to take the increase.
A strong sales month for PE in June also helped the increase take hold, according to Craig Fisher, a resin market analyst with Townsend Polymer Services & Information in Houston.
``June was the first month [in 2005] where [PE] demand outstripped production,'' Fisher said. ``Pre-buying was a large component of that, but there was also real demand.''
``Right now, [PE] supply looks adequate, but it's trending to tight,'' he added.
Major suppliers have announced additional increases for Aug. 1. PE makers are seeking another 6 cents per pound, while PP producers are aiming for 5 cents.
Prices also are up for natural gas, which is used in the production of 70 percent of North American PE. In late May, cash prices for natural gas were around $6.25 per million Btu, but that number had run up to $8.36 in late trading Aug. 4.
Outages of PE feedstock ethylene suffered in Canada by PE makers Dow Chemical Co. and Nova Chemicals Corp. also played a role in the increase, even though their impact may have been more psychological than physical, buyers said.
The plastics unit of Midland, Mich.-based Dow - including PE, PP and polystyrene - posted a 26 percent global sales gain in the first half of 2005, hitting the $5.8 billion mark. The unit's pretax profit almost doubled to $1.38 billion.
Plastics volume in pounds was down 2 percent in the first half vs. the year-ago period, but prices were up 29 percent, largely due to increases won in the second half of 2004.
At Pittsburgh-based Nova, first-half olefins/polyolefins sales - including HDPE, LDPE and LLDPE - were up 21 percent to $1.8 billion. Profit in the segment jumped 74 percent to $157 million, but sales volume in pounds was down 8 percent to about 1.5 billion pounds.
It was a similar story at Westlake Chemical Corp. of Houston, where first-half olefin sales - including PE - were up 31 percent to $694 million and profit from the segment rocketed 36 percent to $94 million.
However, second-quarter volume for the segment was down 4 percent vs. the same quarter in 2004.
In a recent market report, Banc of America Securities stock analyst Kevin McCarthy said the polymer industry ``appears well-positioned for a recovery in volume and price in the second half of 2005.''
``Polymer pricing appears to have bottomed, energy prices have ticked back up and industry inventories are moderate,'' he said.
Through May, U.S./Canadian sales of LDPE were down 5 percent, according to the American Plastics Council in Arlington, Va., while HDPE sales were down 3 percent and LLDPE sales climbed 1 percent. Sales of PP in the region were down almost 2 percent.
Sales of LDPE into nonpackaging film through May were down more than 8 percent, according to APC, while sales of HDPE into blow molding were off almost 4 percent. In PP, sales into injection molding were down almost 5 percent. LLDPE sales managed their slight gain because of a jump of almost 25 percent in export sales. On the domestic front, LLDPE sales were down almost 3 percent.
PP exports also were up 13 percent through May, according to APC, but LDPE exports dropped almost 10 percent and HDPE exports tumbled more than 16 percent.