The conflict facing plastics processors in the U.S. often boils down to this difficult question: Should I stay or should I go?
The Clash, a British rock band, asked the same question in a hit song in 1983. Of course, the Clash never had to buy polyethylene in a competitive global market.
To help answer that question, industry consultant Bob Dennett came up with designs for a linear low density PE carryout bag and for a polypropylene housewares bowl. Dennett - who's North American PP director for Houston-based consulting firm Chemical Market Associates Inc. - shared the results of a cost comparison of the two products at CMAI's 2007 Plastics Processors Conference East.
For both products, Dennett said he used rough estimates instead of exact costs. Because of the variable nature of the cost estimates, processors may not obtain results similar to his illustrations, he added.
The LLDPE carryout bag designed by Dennett measured 15 inches by 20 inches with a thickness of 0.86 mil. He projected production at a rate of 65,000 bags per hour on a line staffed by two operators.
Under current market conditions, low-priced LLDPE resin would allow this type of bag to be made most economically in the United States, where the price would be less than 2 cents per bag. The bag would have the highest cost if imported from the Middle East, with China not far behind. Prices in all three regions were less than 2.5 cents per bag.
The U.S. bag market appears to agree with Dennett's conclusion. In the second quarter of 2006, the U.S. imported more than 60 billion PE bags, but by the first quarter of 2007, that total had dropped to less than 20 billion as domestic PE prices fell relative to the rest of the world. China's share of PE bag imports into the U.S. also fell, from more than 50 percent to just over 40 percent in the same periods.
Dennett pointed out that differences in resin pricing would have made the same bag more affordable to make and import from China in 2004.
For the PP bowl, Dennett designed a product that was less than 6 inches in diameter and weighed 13/4 ounces. The bowl - of clarified random copolymer PP - would be made at a rate of 4,300 units per hour with two operators on a line.
In 2007, the bowl could be made and imported from China for 11 cents per part, making it the most affordable of the three regions studied by Dennett. But prices in the Middle East and U.S. weren't far behind at 11.25 cents and 11.4 cents per piece, respectively.
``U.S. fabricators now have to look at quality, costs, logistics and competition,'' added Dennett, who identified a part's labor intensity, stackability and polymer price as cost factors affecting commodity plastic products.
Dennett also commented on the viability of importing PE and PP from Saudi Arabia, where unit costs for natural gas feedstock are roughly one-tenth of what they are in the U.S. He explained that imported resin can offer advantages in the form of potentially lower prices, and in availability if U.S. supplies are constrained.
However, imported resin also might be delivered in bags - instead of rail cars - and could face supply issues because of sea transport. Processors also might face difficulties in qualifying imported resins, Dennett added.
On the price side, Dennett said that PE imported from Saudi Arabia currently has a 30 percent price advantage vs. U.S. resin, even after factoring in logistic costs and duties. U.S.-made PP is more competitive with Saudi material, which has only a 10 percent advantage.
But Dennett said that U.S. buyers should be cautious in what they expect when buying imported resin.
``I don't want to mislead you - Saudi Arabia isn't going to give you that [30 percent] cost advantage [on PE],'' he said. ``They're out to make money so they're going to take the existing price as much as they can.
``The U.S. isn't No. 1 in [Saudi Arabia's] marketplace - China and Western Europe are. But there's so much capacity coming into the marketplace that they'll have to look elsewhere.''