Years from now, when North American processors look back on the summer of 2008, it won't be with kindness. And if they happen to discuss it, they'll ask their grandchildren to leave the room first.
Already reeling from oil- and feedstock-induced price hikes earlier in the year, processors have had to cough up the following in recent weeks:
* 7 cents per pound on all grades of polyethylene since July 1.
* 7 cents on PET bottle resin since July 1.
* 9 cents on solid polystyrene since June 1.
* 4 cents on suspension PVC since May 1.
* And the whammy of all whammies, 11 cents on all grades of polypropylene since July 1.
Record oil prices peaking above $147 on July 11 and tight domestic inventories sparked the run-up, which occurred even as North American demand weakened in a recessionary market. The price of oil affects plastic feedstocks such as ethylene, propylene and benzene.
``The market isn't moving by pennies anymore,'' said Scott Newell, a PP market analyst with Resin Technology Inc. consulting firm in Fort Worth, Texas. ``The old methodologies used by processors to pass on increases don't work anymore.''
``We're getting what we've ordered, but supplies are tight,'' a Texas-based PE buyer said. ``Resin producers have done a terrific job of leveraging the export market.''
With the latest round of increases and more still on the table average per-pound selling prices for high, low and linear low PE, along with PET bottle resin and solid PS, each are up about 20 percent since Jan. 1, according to the Plastics News resin pricing chart. Suspension PVC prices are up about 15 percent in that period, while PP has catapulted about 30 percent.
The increases are even more dramatic if they're taken back to January 2007. The 19-month period since then has seen PP surge 80 percent, PE up 75 percent, PET bottle resin and solid PS each up 50 percent and suspension PVC up 40 percent, according to the PN chart. Those unprecedented run-ups have made life extremely difficult for North American processors, who rarely can raise prices for their own products at the same rate that their resin costs rise.
But even with soft U.S./Canadian demand, resin inventories at the producer level have dropped to points not seen since Hurricanes Katrina and Rita hit in 2005.
``Feedstock trends affect the psyche of the market, but the inventory situation means that there's not any extra resin out there,'' said Mike Burns, a PE market analyst with RTI. ``Brokers and [resin] suppliers aren't being offered additional opportunities, and that's something we'd usually see before a break in pricing.''
The PVC increases coupled with the collapse of the North American housing market have caused some makers of PVC pipe and other products to reduce their production schedules, in some cases going from seven days a week to just five, sources said.
With local demand on the wane, resin makers have been shipping every pound they can't sell at home to foreign shores. First-quarter PVC exports ballooned 70 percent and outgoing HDPE increased more than 30 percent, according to the American Chemistry Council in Arlington, Va. Exports of LLDPE and PS each also were up more than 10 percent in the quarter.
And although PP exports slipped by 6 percent after notching record volumes in 2007 they still represented about 10 percent of total regional production.
The higher-price environment took its toll at resin makers such as Dow Chemical Co. The Midland, Mich.-based firm saw second-quarter pretax profit in basic plastics, including PE and PP, drop 27 percent to $388 million, even as the unit's quarterly sales jumped 19 percent to $3.8 billion vs. the year-ago period.
The only resin maker enjoying the summer apparently is the olefins/polyofeins unit of Nova Chemicals Corp. The unit which sources lower-priced natural gas feedstock from western Canada saw its second-quarter pretax profit grow 12 percent to $258 million, as sales mushroomed 43 percent to $1.6 billion.
But the recent pullback on crude oil prices has created a bit of hope among the resin-buying community. Since the July 11 peak, per-barrel prices have fallen about 15 percent and were at $124 in late trading July 24.
That's led some resin buyers to discredit additional price increases on the table for August, as well as unresolved ones from July. One Illinois-based buyer of PE, PP and PET is especially hopeful that the ride may have reached its peak.
Resin makers ``had put so much stock in leveraging energy prices to get their own prices up, and that's not there anymore,'' the buyer said. ``Demand is soft, so they'll have to take a squeeze, and we may actually see prices go down before they go up again.''