(June 9, 2008) — Although I have no formal training in psychiatry or counseling, I was tempted to hang a sign outside the Plastics News office last week advertising both services.
What spurred this sudden interest was the announcement from Dow Chemical Co. that it would raise prices as much as 20 percent on all of its plastic and chemical products effective June 1. Some processors took this to mean that their polyethylene prices were going up the full 20 percent at 12:01 a.m. on that date, and that their Dow sales rep would be at the door with an angry pit bull on a leash, demanding payment in full.
Some processors blamed Dow. Some blamed the government. Some blamed foreign competition.
After a few deep breaths were taken, callers and I would work out the details of their imagined downfall. No, PE — the market's largest commodity resin — wasn't going up that much on that date. There was a 5 cent move for June 1 and a subsequent 7 cent one for July 1. That, on average, is an increase of no more than 15 percent spread over two months. North American PE prices already have increased about 30 percent in the past year, but have climbed less than 10 percent in calendar 2008.
Other companies have gotten into the act since Dow officials descended the mountain with their stone tablets. Huntsman Corp. issued a similar increase, which will affect buyers of polyurethane and plastic additive titanium dioxide. Ticona and Honeywell Specialty Materials put out increases on engineering resins, but those moves may have been in motion before the Dow action. Even compounders such as PolyOne Corp. and Americhem Inc. have announced recent pricing moves to keep step with what they're paying for resin and additives.
What's happening here is a final awareness of the inability of plastic and chemical makers to function as a shock absorber for customers when energy and fuel prices spike. There's simply not enough margin left. You can see this reality written on the locked gates of the numerous polypropylene and polystyrene plants that have closed their doors in North America in the past five years.
It's going to take awhile for this reality to set in. Companies with inflexible pricing operations — ones that are unable to readjust contracts based on raw-material costs — are facing hard times, and some of them won't make it through.
But it's important to remember that there's still a strong underlying demand for plastic products made in North America. In many cases, North American processors are exporting products to parts of the world — primarily Asia — where they never thought they'd go. Part of this is tied to the weak U.S. dollar and part to the growing power of Asian consumers. In the long run, a market may exist for several years where previously there was no market at all.
In the meantime, I'll sharpen up my counseling skills just in case Dow and its competitors decide to send out another big pricing letter. I, too, am facing a big decision — do I charge by the hour or by the phone call?
Plastics News senior reporter Frank Esposito is based in Akron, Ohio.