Like Johnny Cash singing ``Ring of Fire,'' commodity resin prices are going down, down, down.
Pushed by plummeting feedstocks and scant demand, average North American prices for polyethylene have tumbled 11 cents per pound since Oct. 1, according to buyers contacted recently. Polypropylene prices have taken a similar 11 cent tumble, with PET bottle resin prices sliding 7 cents since Oct. 1 as well.
PVC prices also have slipped 5 cents since Oct. 1. Some PVC buyers that had expected a 3 cent drop in September instead received the 5 cent drop in October.
On the feedstock front, crude oil futures peaked at $147 in mid-July, but were near $66 in early trading Oct. 31 — a drop of 56 percent. Cash prices for natural gas — a common PE feedstock in North America — were at $13 in mid-July but had fallen near $6.46 early Oct. 31.
Concerns about global economic weakness also have kept resin buyers on the sidelines, sending prices down further.
``Demand has slowed up because of all of the bad economic news,'' said Mike Burns, a market analyst with Resin Technology Inc. in Fort Worth, Texas. ``For the last 20 months, [PE] prices either were going up or had the chance to go up. Now, processors can't afford to have resin on the track.
``It's tough to buy in this environment,'' Burns added. ``Because prices are falling so fast that today's good deal could be tomorrow's bad deal.''
``If you're asleep at the switch now, you're costing your company money,'' a PE buyer in the Midwest said.
It's the second consecutive big monthly drop for prices of PE, PP and PET bottle resin, as prices that had followed oil and gas upward for most of the year have collapsed in recent weeks. In PE, prices had climbed 20 percent through July but now are off 17 percent from the peak. In PP, a 30 percent run-up has given way to a 21 percent slide. PET bottle resin had gone up 19 percent but now is off 18 percent. In PVC, the slide has not been as extreme, with a 20 percent January-to-July climb morphing into a 6 percent dip.
The broader economic malaise has worsened normal seasonal slowdowns, such as reduced beverage demand for PET and lower construction activity for PVC. PP also has been hit by drastically reduced demand for propylene monomer feedstock, which also is used as a fuel additive during the summer driving season. The end of summer — coupled with high gasoline costs — has led to lower gas consumption, particularly in the U.S.
And many resin buyers don't think the market has reached bottom yet.
``Costs for [resin] production are way down and demand is so poor that you're eventually going to see margin erosion on resin,'' a Chicago-based buyer of PE and PP said. ``Fourth-quarter demand could be down 10 percent vs. the third quarter, and demand next year could be even softer.
``Products aren't being made in the same volume, from automotive to appliance all the way to packaging,'' he added. ``Nothing's recession-proof anymore.''
The slide in price has been so fast and furious that a Texas-based PE buyer already is concerned about a possible bounce sometime in early 2009.
``Demand is off, but I think prices might overcorrect on the down side and then will have to come back up to correct,'' he said.
And though the price declines could be a boon to North American processors — especially those that hadn't yet passed on all of the earlier increases to their customers — sudden highs and lows also can be a cause for concern.
``Precipitous rises and falls are bad for business,'' the Chicago buyer said. ``Volatility like this can't be good. You need stability or slow moves up and down. We don't need stock market gyrations.''
Wider economic losses also have clobbered the per-share stock values of several firms that make commodity plastics. Since mid-September, per-share prices at PE/PP/polystyrene maker Dow Chemical Co., PE/PVC producer Westlake Chemical Corp. and PET supplier Eastman Chemical Co. each are off 20-35 percent, as of Oct. 30. At PVC maker Georgia Gulf Corp. and PE/PS producer Nova Chemicals Corp., per-share prices have zoomed down 40-50 percent in the same comparison.