Crude oil prices don't look to be going down any time soon - and they're taking North American prices for polyethylene and polypropylene resin right up with them.
Since Nov. 1, average selling prices for high, low and linear low density PE in the region are up an average of 5 cents per pound, according to buyers contacted recently.
For PP, most buyers reported paying an additional 6 cents per pound, although a number of buyers saw a 7 cent increase.
The main culprit identified in the hikes is the crude oil market, where futures prices were just under $93 per barrel in late trading Nov. 15. The market reached an all-time high of $98.62 on Nov. 7 before receding a bit. But prices remain up about 35 percent since late August, when futures were priced just above $68.
Oil prices affect the price of propylene monomer feedstock. Also, prices for ethane feedstock - even though it is derived from natural gas - have tracked oil prices for more than a year. Global oil prices have been elevated by increasing consumption in China, India and other developing nations, as well as by ongoing political tension in the oil-rich Middle East.
Average selling prices for all grades of PE are up 23 cents per pound so far in 2007. On blow molding grades of HDPE for dairy products, that works out to an increase of 35 percent. For the year, PP prices now have soared an average of 23 cents per pound. On injection molding grades of homopolymer PP, that's meant a surge of 33 percent.
PE makers now are seeking additional increases of 6 cents on Nov. 15 and 5 cents on Dec. 15. Several buyers said the Nov. 15 move might be postponed until Dec. 1. PP makers had been seeking 8-9 cents on Nov. 1 and now have an additional 5 cents on the table for Dec. 1.
``If oil stays close to $100, we'll probably see at least some of these additional [PE] increases,'' said Mike Burns, a market analyst with Resin Technology Inc. in Fort Worth, Texas. ``Demand in the U.S. is weak, and exports have slowed down, but they're still ahead of where they were last year.''
The price hikes ``are being 100 percent driven by feedstocks,'' a Chicago-area buyer of both PE and PP said. ``We've got no problem getting material.''
At Midland, Mich.-based Dow Chemical Co., global sales for its Basic Plastics unit - including PE and PP - were up 6 percent to $9.4 billion in the first nine months of 2007. The unit's pretax profit also was up almost 3 percent to $1.6 billion. Pittsburgh-based Nova Chemicals Corp. did not fare quite as well, with nine-month PE sales down 3 percent to $1.4 billion and pretax profit down 11 percent to $132 million.
Over at Lyondell Chemical Co. - the Houston-based plastics and chemicals maker that's being acquired by PP leader Basell Holdings NV - nine-month sales of ethylene and derivatives (including PE) were flat at about $1.1 billion, but operating income plunged 61 percent to $255 million.