Commodity resin prices began to pull back from their post-hurricane highs in December, with average per-pound selling prices down for both polyethylene and suspension PVC.
PE prices dropped an average of 4 cents per pound as demand softened late in the year. Production also improved as supplies of natural gas increased and challenges to transportation and shipping were reduced.
``A lot of the fear and speculation about product availability and high feedstock costs are getting out of the picture,'' said Mike Burns, a market analyst with Resin Technologies Inc., a resin consultancy based in Fort Worth, Texas.
The injection molding market first saw the PE price drop, with the move later spreading to blow molding and film markets, according to a number of buyers contacted recently. Buyers said the market was looking a bit soft in the first couple weeks of January as well.
``The commodity wave is breaking,'' Banc of America Securities analyst Kevin McCarthy wrote in a recent research note. McCarthy added that the trend ``is caused by natural rebalancing of global markets.''
In the wake of Hurricanes Katrina and Rita, PE prices since Aug. 1 had catapulted upward by 32 cents per pound. For dairy blow molding grades of high density PE, that worked out to a jump of about 55 percent.
In the first nine months of 2005 - counting one post-hurricane month - U.S./Canadian sales of low density PE were down almost 3 percent and sales of HDPE were down more than 2 percent, according to the American Plastics Council in Arlington, Va. Sales of linear LDPE were up almost 4 percent in that same period.
Late-year PE demand also was affected by the arrival of foreign resin that processors had ordered out of concern that North American processors would not be able to meet their needs. Once this material arrived, domestic resin demand softened.
A number of buyers said late 2005 marked the first time they had bought PE from nondomestic sources, but many said they were considering doing so again in 2006 as a safeguard against future outages. The switch occurred even though in many cases buying foreign resin entails the extra labor step of removing the resin from supersack shipping bags. Most North American resin purchases are made via rail car or other larger-than-bag amounts.
In some cases, large domestic processors shifted 10-15 percent of their total PE buy outside of North America almost overnight.
North American suppliers ``opened the door and forced [processors] to look at alternate sourcing,'' RTI's Burns said.
And while PE makers maintained that the large second-half increases were needed to cover their increased costs, a growing number of buyers said they believed producers went too far, and were unwilling to work with customers to soften the blow.
``We were pushed to the wall so much [by domestic PE makers] that a bond of trust really has been broken in the last year,'' one East Coast PE buyer said.
In PVC, prices dropped 2 cents per pound in December, also owing to soft late-year demand. Since Aug. 1, suspension PVC prices had jumped an average of 14 cents per pound, or 25 percent on pipe-grade resin.
Nine-month U.S./Canadian PVC sales were down almost 2 percent, APC said, although sales into pipe and tubing were up 5 percent.
With the dominant construction season looming, PVC processors already are in need of restocking their inventories. PVC makers are attempting to capitalize on this with increase attempts of 2 cents per pound set for Feb. 1.
``The general feeling is that there's been some reduction in cost,'' a Texas-based PVC buyer said. ``The increases were justified based on cost at the time, but the full amount isn't necessary now.''
PVC buyers also looked overseas for material in the post-hurricane environment, but seemed to do so in lesser numbers than their PE counterparts. There also was some concern that continued higher prices would lead to an increase in the amount of PVC finished goods - such as shower curtains and tablecloths - entering North America from Asia.
Prices of natural gas - a key feedstock in both PVC and PE - have drifted down in recent weeks. Futures prices for natural gas were near $14 per million Btu in late 2005 but were under $9.50 in early trading Jan. 13.