Another month, another massive polyethylene price increase. And from the sound of it, processors may be approaching a breaking point.
``The greed of the American [resin makers] is, without a doubt, hurting the plastics industry,'' a Texas-based PE buyer said. ``There's no way all of this can be justified.''
North American PE prices went up another 8 cents per pound, and now are up an average of 32 cents per pound since Aug. 1. And while the situation in polystyrene isn't quite as extreme, it's also heading up. Prices there are up 5 cents per pound since Oct. 1 and another 6 cents is on the table for Nov. 1.
Makers of PE and PS also are gunning for more price hikes Nov. 15. PE producers are trying to get 5-7 cents on that date. Dow Chemical Co. and Nova Chemicals Corp. have announced 7, but ExxonMobil Chemical Co. has announced 5. Market watchers are expecting the attempt eventually to move to the 5 cent number. PS makers have another move for 5 cents set for the same date.
In PE, the intensity of the pricing barrage - fueled by tight supply/demand balances that were magnified by outages, energy cost increases and transportation tie-ups from Hurricanes Katrina and Rita - is forcing buyers to look elsewhere for material.
Both the Texas buyer and a buyer in Ohio were buying almost no resin outside of North America before the storms hit and prices began their ascent. Today, the Texas buyer is sourcing 15 percent of his PE needs from Europe and the Middle East, while the Ohio buyer is getting 5 percent of his PE total from China.
``We're trying to buy everywhere we can because the standard [North American] guys have cut us back,'' the Ohio buyer said. ``They're just announcing these increases and saying, `Take it or leave it.' ''
``Now we don't even know what the price [of resin] is going to be until the rail car arrives, and that means we can't tell our customers what the cost of our products is going to be.''
Kevin McCarthy, a stock analyst with Banc of America Securities in New York, summarized the PE situation in a Nov. 2 report to investors. He pointed out that lost production has reduced the level of inventory days on hand at the supplier level from the mid-50s to the mid-30s, nine days below typical levels.
``In short, this is a sellers' market, as long as there is product available to sell,'' McCarthy wrote.
PE production remains down at Texas facilities operated by Chevron Phillips Chemical Co. LP, British Petroleum plc and Formosa Plastics Corp. USA. In addition, Nova's Canadian production has been reduced because of ethane supply issues and maintenance work.
North American PE operating rates for September were estimated at 76 percent by the American Plastics Council in Arlington, Va., after averaging 93 percent in July and August.
Third-quarter results from publicly held Dow, Nova and Equistar Chemicals were mixed. Sales in Midland, Mich.-based Dow's plastics unit - including PE, PS and polypropylene - were up 11 percent in the quarter and 21 percent in the first nine months of 2005, vs. the year-ago periods. Most of that gain was accomplished through higher prices, since third-quarter volumes in pounds were up only 2 percent and were down 1 percent for the nine-month period.
Dow's third-quarter pretax profit in plastics was down 2 percent, but on the year was up 58 percent to almost $1.8 billion.
At Pittsburgh-based Nova, nine-month PE and olefins sales volumes were down almost 11 percent vs. 2005, even as nine-month sales in dollars were up 16 percent, including a 7 percent jump in the third quarter. Through nine months, that unit's profit was up 17 percent to almost $200 million.
Houston-based Equistar's third-quarter sales of ethylene and derivatives - including PE - were up 23 percent, although PE sales volume in pounds fell 4 percent.
Nine-month ethylene and derivatives sales in dollars were up 36 percent to almost $9 billion, while pretax profit jumped 73 percent to almost $900 million.
In PS, prices now are up an average of 10 cents per pound since Sept. 1. Pat Duke, a market analyst with DeWitt & Co., a Houston consulting firm, said the PS market has not been under as much pricing pressure as other commodity plastics because of softening markets for benzene, a chemical feedstock used to make styrene monomer.
Benzene prices were as high as $4 per gallon earlier in the year, but recent spot prices have been around $2.30.
``Resin inventories are thin, but styrene prices aren't moving because of the situation with benzene,'' Duke said.
Through the first nine months of 2005, Nova's sales volumes for solid and expandable PS were down 15 percent. Sales in dollars during that period for Nova's styrenics business - including styrene monomer - were up about 2 percent, held back by an 18 percent drop in the third quarter.
The unit lost $59 million in the third quarter and has registered a nine-month loss of $156 million.