The downhill road might be reaching an end for pricing on North American polyethylene, polypropylene and PVC.
Average selling prices for PE dropped 4 cents per pound in April, while average PP prices dropped 1 cent, according to several buyers contacted recently by Plastics News. In PVC, buyers said that average prices have dropped 2 cents per pound since March 1, with some seeing that full slide in March and others seeing a penny in March and another penny in April.
But tightness in ethylene - partly caused by a recent fire at a Huntsman Corp. ethylene facility in Texas - has been magnified by increased demand from plastic processors who have run down their inventories. As a result, many processors are expecting to pay higher prices for resin in May and June.
Makers of high density PE now are seeking 3 cent-per-pound increases effective May 1. Low density and linear low density PE producers are aiming to move prices up 6 cents effective that same date. PP makers are working on a 4 cent, May 1 increase, while a 2 cent PVC increase has been shifted from May 1 to June 1.
A West Coast-based PE buyer said that although PE demand at his firm has been flat so far in 2006, costs for ethylene feedstock ethane are rising and PE available in the secondary market ``is drying up,'' indicating that the May price increase is likely to stick.
PE prices now have tumbled 20 cents per pound since Dec. 1. In the post-hurricane period of market tightness, prices on those same materials had zoomed up 32 cents beginning Aug. 1.
PE makers ``want this [price erosion] to stop, and they want to get their money back,'' an Ohio-based PE buyer said.
Market analyst Kevin McCarthy of Banc of America Securities in New York is describing May as ``a month of inflection.''
``Recent [ethylene chain] outages have provided the catalytic spark needed to shift market psychology and induce buyers to replenish lean downstream inventories,'' McCarthy wrote in a recent research note.
``We believe this will result in a V-shaped recovery of prices and volumes in May.''
Midland, Mich.-based Dow Chemical Co. reported that first-quarter sales in its basic plastics unit - including PE, PP and polystyrene - were flat at $2.8 billion, compared with the same quarter in 2005. Sales volume in pounds also was flat, while the unit's pretax profit plunged 42 percent to $476 million in the same comparison.
In its first-quarter report, Dow officials said the quarter ``saw a marked downturn in North American polyethylene volume, as high post-hurricane U.S. prices created a temporary export window for producers in Asia Pacific.'' Officials added that the same window reduced export opportunities for U.S. companies before closing late in the first quarter.
The strengthening of the May PE increase attempt - as well as additional increases set for June 1 - might be the result of buyers' concerns about higher energy and gasoline prices, according to Mike Burns, a PE analyst with Resin Technology Inc., a resin-buying consultancy based in Fort Worth, Texas.
And although there was some pre-buying in the market during April, Burns said resin makers' efforts to use the approaching hurricane season to motivate higher sales might not work as expected.
``Processors aren't buying into it,'' Burns said of pre-season hurricane concerns. ``They're not buying 10 extra [rail] cars. They made it through last year when the storms hit, and nobody really ran out of resin.''
The PP market saw a penny shaved off pricing in April but could see 2-4 cents of a proposed May 1 increase take hold, according to several buyers.
North American PP prices have been on a roller-coaster ride that looks something like this: up 19 cents from August through November, down 9 cents in December through January, up 4 cents in February and now down a penny in April. It adds up to a net increase of 13 cents per pound since Aug. 1.
PP makers ``did a major sell-off to overseas export markets'' in the first quarter, a Pennsylvania-based PP buyer said.
``Demand [for resin] is flat with last year, even though [PP makers] have throttled back on production, but [propylene] monomer is going up, and that's going to affect resin,'' the buyer added.
Sunoco Inc. of Philadelphia reported that sales from its PP business dropped 14 percent to $13.2 million in the first quarter, even though the unit's sales volume in pounds climbed 5 percent to 562 million.
At PP market leader Basell Polyolefins, North American marketing manager Craig Blizzard said May demand has been strong for the Elkton, Md.-based firm. He added that he was surprised at some reports of soft early-year demand.
``Our customers in automotive are strong, with new model years coming in using more Basell [PP] material,'' Blizzard said.
``Packaging also seems pretty solid as we're moving into the heavy part of the dairy packaging season, and consumer goods look like they're coming back after being a little flat in the first part of the year.''
Over in PVC, prices tumbled 2 cents, with some buyers seeing the pair in March and others splitting a penny apiece in March and April. Buyers apparently have resisted a 2 cent move for May 1, but now are expecting to pay some or all of a similar move announced for June 1.
It was a very good first quarter of 2006 for PVC maker Georgia Gulf Corp. of Atlanta, where sales of PVC and related products jumped 10 percent to $441.6 million vs. the year-ago period. The unit's operating profit also swelled 22 percent to $75.7 million in the same comparison.
The PVC market now is being affected by the cooling off of the red-hot U.S. housing market. Construction-related uses account for more than 60 percent of North American PVC applications.
The Commerce Department reported sales of new homes dropped 10 percent in the first quarter vs. the year-ago period. The Washington-based National Association of Home Builders expects that number to be down 12 percent for full-year 2006.
``After topping out in the third quarter of last year, it is pretty clear that the housing sector is in a period of transition,'' NAHB chief economist David Sieders said in a recent report. ``Sales and starts are trending lower toward more sustainable levels.''
But Sieders added that the slowing housing market ``is not likely to derail the [economic] expansion as housing yields its position as the economy's major growth engine to other sectors.''
