Regarding your article “PE, PP prices up with crude oil” [Nov. 19, Page 3], there is a famous Hans Christian Andersen story called “The Emperor's New Clothes,” in which a vain emperor is always thinking about his clothes and how he looks in them.
A pair of swindlers get the emperor to give them gold and silk thread if they will make clothes visible only to the competent and not to the stupid. The swindlers go through the motions of measuring, cutting and sewing, but make nothing at all, and take all the gold and silk threads for themselves. All the court ministers tell the emperor how wonderful he will look, lest they be thought stupid and incompetent. Finally, the emperor, in his imagined resplendency, parades through the city so “dressed.” The people do what the ministers did, and oooh and aaah as he parades through the streets naked (or merely in underwear?) until a little boy calls out, “But he hasn't got anything on.”
Those of us who tell the story from memory usually end there. I am fond of asking, “What happened to the little boy?” But Andersen's original story has a little more to it: The emperor, who can't see anything either, of course, begins to think that maybe he is stupid and incompetent, as all his ministers and the people in the streets are saying “wonderful, beautiful.” So the emperor, believing them in his vanity, goes on with the parade with head held high.
Why do I bring this up? Because we are in such a situation with regard to the effect of oil prices on plastics prices. We see the prices on the spot market for Texas Sweet Crude go up and up, but we are blind to these important facts:
* Most of the oil we turn into gasoline (and plastics) is not Texas Sweet, but rather Venezuela or Saudi Sour, or something else that does not cost $90 per barrel.
* Much of the oil we refine is not bought at all, but produced by the oil companies that refine it, so all the pricing is internal accounting.
* Even $90 per barrel isn't very much if we know that a barrel of oil weighs around 300 pounds, so if we assigned the same cost per pound of everything (which isn't necessary nor true) we get only 30 cents per pound.
* The cost of refining, conversion to feedstocks and polymers, etc., hasn't risen in such capricious leaps.
Why don't we want to face these truths? Why do we all believe the myth that our pricing must rise or fall when OPEC burps? I'm not sure myself, but until we look at this myth squarely in the eyes, we are the stupid and incompetent ones.