Sales of PVC and PET resins haven't set the world on fire so far in 2008, but prices for those materials are going up anyway.
Average per-pound selling prices for PVC in North America are up an average of 2 cents since March 1, according to buyers and sellers contacted recently. Regional PET prices have taken a 5 cent climb since April 1, sources said.
The PVC hike comes amid a North American construction market that's been ravaged by a decline in activity. U.S. housing starts totaled about 950,000 in March - a 12 percent decline from the previous month and a 36 percent tumble from the same month in 2007, according to the Washington-based National Association of Home Builders. The slump has had a huge impact on the PVC field - where construction-related uses accounted for about 70 percent of U.S./Canadian usage in 2007.
Regional PVC sales fell about 2 percent in the first two months of 2008. The loss would have been a lot worse if exports of PVC hadn't soared 67 percent, partly offsetting a drop of 8 percent in domestic sales. Sales into rigid pipe and tubing - the largest industry sector, with about 45 percent of January-February sales - plummeted almost 18 percent.
``Our operating rates aren't anywhere near where they need to be,'' a Midwest-based PVC buyer said. ``If we have to take another price increase, I might as well shut down my plant.''
Market supply is being affected in the short-term by Georgia Gulf Corp.'s decision to close a 500 million-pound-capacity plant in Oklahoma City and to idle a 450 million-pound-capacity plant in Sarnia, Ontario.
But those moves could be negated by Shintech Inc.'s plan to bring on a new unit with almost 700 million pounds of annual capacity in Addis, La. That plant is slated to begin operating no later than June, sources said.
The North American PVC operating-rate percentage currently is in the low 80s - its lowest level since early 1991, according to Steve Brien, an analyst with Chemical Market Associates Inc. in Houston.
Higher raw-material costs for ethylene, natural gas and crude oil could make the going tough for PVC makers for the remainder of 2008, Brien added.
``The resin companies have no margin to share with the pipe companies,'' he said. PVC makers ``are exporting a lot of material, but it's not like they're making a ton of money on it. And that profitability might not be there by the end of the year.''
Pressure on PVC makers was evident in the first-quarter report from Westlake Chemical Corp. of Houston. The firm's PVC-related business had an operating loss of $3.1 million, even as sales grew 9 percent to $254 million over the year-ago period.
In PET country, the April nickel arrived to help producers battle higher prices for feedstocks paraxylene and ethylene glycol. Feedstock increases made for a rough first quarter for PET makers such as Eastman Chemical Co., which had a PET-related operating loss of $6 million in the first three months of 2008.
``Resin demand has been fairly strong, but feedstock prices are close to record levels and show no signs of stopping,'' said Mark Adlam, PET business director for Houston-based resin maker M&G Group.
Adlam added that the price increases haven't yet affected consumer purchases of carbonated soft drinks or other bottled beverages that make up the backbone of the PET market. He estimated North American PET demand growth in the first part of 2008 at 5-6 percent.
But higher PET prices may have played a role in moves by beverage giants Coke and Pepsi to place 12-ounce single-serve bottles - instead of 20-ounce ones - in convenience stores, according to John Maddox, president of consulting firm SBA-CCI Inc. in Jacksonville, Fla.
Maddox added that PET makers and manufacturers of carbonated soft drinks are battling public perception that's leading consumers to ``want to be seen with a green tea or something healthy.''
``The growth rate for PET is slowing down, but from the capacity additions that we're seeing, producers are acting like it's not,'' he said. M&G and other producers have announced plans to add more than 4 billion pounds of resin capacity in North American by 2012.
PVC makers now are seeking increases of 4 cents per pound for May 1, while PET producers are seeking a similar increase on that same date.