(Nov. 13, 2006) — Has trust between resin makers and buyers disappeared? Some in the industry would have you believe it never existed or was, at best, a diplomatic illusion. But has even that illusion vanished?
The topic has come up quite a few times this year in my conversations with both sides while covering resin pricing. The fuel behind the fire seems to be the major run-up in most resin prices that occurred in the wake of last fall's hurricanes. Most buyers realized that the hurricanes were, we hope, a once-in-a-lifetime event that caused markets to shoot upward almost overnight. Confusion and uncertainty drove up gas and oil prices, creating a domino effect.
But then a couple things happened that weren't as easy as cause and effect. The last wave of commodity price increases — especially a final 8 cents on polyethylene, which drove the total to an eye-popping 32 cents per pound — was seen as unwarranted by many buyers. Grumbling about gouging was heard throughout the land.
Then, prices in the first part of 2006 dropped, but still stayed above pre-hurricane levels. Buyers asked, if the hurricanes were the impetus for the increases — and core resin demand wasn't up all that much — why wasn't there more of a drop in price? Relations became even more strained when pressure on oil and natural gas drove resin prices higher once again as 2006 rolled on.
Resin sales reps continue to change their stories as to what's driving price changes, moving from feedstock costs to supply/demand ratios. But salesmen of all stripes do the same thing, whether they're selling neckties, watches or time-share condos.
What's changed is, buyers can access instantaneous market info via the Internet. Buyers can check feedstock futures and get updates on natural gas supplies without cracking open a sales report or making a call. At that point, the resin rep often wonders if he should have sent the buyer a larger fruit basket the previous holiday.
Another new element is the terrain of the North American market. Where once new capacity could be expected every few years, no new PE, polypropylene, polystyrene, ABS, nylon or polycarbonate capacity is planned. Growth also is slowing from a historical perspective. As a result, the whole “new capacity means lower prices” scenario has been thrown out the window.
(New capacity for PET and PVC either is here or is on the way, but producers are trying to recast their roles in familiar battles. They no longer blame each other — “My new capacity is needed, but that guy's is ruining the market” — but instead claim markets now almost seamlessly absorb new capacity. Time will tell.)
Has all of this made resin buying a less-pleasant experience than it was in the glorious 1970s and 1980s, when new products emerged almost weekly and North America was the world's manufacturing king? Or has it always been a slog of commodity buying, hucksterism and half-truths, whether you're buying apples or lug nuts?
That's like asking if the box of donuts brought in by the sales rep is half full or half empty. What's clear is that there's more skepticism on both sides of the buying/selling equation. But maybe that skepticism should have been there in the first place.
The only thing that's certain is that my phone will continue to ring as the “pricing guy” at Plastics News. Now let me see, where did I put those donuts? Ah, there — right behind the fruit basket.
Esposito is PN's Akron-based resin pricing reporter.