Summertime guzzling of soft drinks, bottled water and sports drinks have helped lift PET bottle resin prices an average of 8 cents per pound since June 1.
Higher raw material prices also played a role. Supplies of PET feedstock paraxylene were short, as a strong summer driving season diverted paraxylene feedstocks into gasoline production rather than into plastics use.
Major PET makers were seeking 11 cents in increases. Although some buyers reported seeing the higher amount, the 8 cent average was cited by most buyers contacted by Plastics News.
North American PET demand growth was hard to peg in the first half of 2006, according to a number of market watchers. The year began with expectations of a 6 percent growth clip, but first-half growth was lower than that in the massive carbonated soft drink sector and much higher in the emerging areas of bottled water and sports drinks such as Gatorade and Powerade, sources said.
But at the same time, market leader Eastman Chemical Co. reported that first-half volume growth in its performance polymers unit - consisting mainly of PET - was flat in the U.S., although up almost 30 percent in Latin America. Wellman Inc. also reported a first-half sales drop of 2 percent in its packaging products group, which includes PET.
The North American PET market stands on the brink of a wave of new capacity that will add a net 1.5 billion pounds annually to the region by mid-2007, increasing overall capacity by about 20 percent. Kingsport, Tenn.-based Eastman leads the pack with a 770 million-pound-capacity plant set to debut in Columbia, S.C., by the end of the year. Shrewsbury, N.J.-based Wellman already has completed a smaller project, while Charlotte, N.C.-based DAK Americas Inc. has one in the works.
Some market watchers believe the new capacity will drive prices down unless demand accelerates rapidly, but others contend that high raw material prices will keep PET prices relatively high throughout 2007 even as the new capacity arrives.
Kevin McCarthy, a market analyst with Banc of America Securities LLC in New York, anticipates challenging times ahead for Eastman and other PET makers. In a recent note to investors, McCarthy said pressure from Asian imports and prospective capacity additions in North America in 2007 ``could lead to PET operating losses in 2007-09, as was the case in 1997-99.''
McCarthy believes that if those conditions occur, Eastman may consider selling or closing its PET operations in Spain, Argentina, Mexico and the United Kingdom.
The PET pricing roller coaster has witnessed prices shoot up an average of 19 cents per pound after hurricanes hit the Gulf Coast last fall, only to have prices drop an average of 25 cents per pound between October 2005 and the end of January.
Prices then crept up an average of 5 cents per pound total in February to March before this most recent increase.