Commodity resin prices continue to take historic plunges in North America, with prices for polyethylene, polypropylene and PET bottle resin sliding further since Nov. 1.
Average per-pound selling prices for PP have taken a breathtaking 30 cent swoon since that point. All grades of high, low and linear low density PE are down 15 cents and PET bottle resin has dropped another 12, according to buyers contacted recently by Plastics News.
For PE and PET, prices now have tumbled an average of 30 percent — 33 cents per pound for PE, 29 cents for PET — since Sept. 1, while PP prices have slipped 45 percent, an average reduction of 55 cents.
The slides are tied in to massive demand drops that have occurred as North America and the rest of the world slip into an economic recession.
Those factors have sent the prices of crude oil and natural gas feedstocks into a nose dive, which in turn is sending resin prices lower still.
Crude oil futures peaked around $147 per barrel in mid-July, but were near $54 in early trading Nov. 20 — a drop of 63 percent. Cash prices for natural gas — used as a feedstock in most North American PE — were above $13 in early July but were near $6.80 in early trading Nov. 20 — a drop of about 48 percent.
The drastic swings in price might not be a boon for processors, even after dealing with historic high prices in recent years.
``It's nice to see [resin] prices coming down, but what's happening is that a lot of [processors] have inventory, and all of a sudden they have to revalue everything down,'' said Scott Newell, a PP market analyst with Resin Technology Inc. in Fort Worth, Texas.
``Some of them have to build up [resin inventory] if they have any seasonality, then suddenly the economy drops out from underneath [them].''
Before resin prices find a bottom — and buyers expect additional, if smaller, decreases in December — more regional capacity may be taken down. In recent weeks, Flint Hills Resources LLC and Ineos Group have announced plans to remove roughly 600 million pounds of annual PP capacity and 800 million pounds of annual PE capacity at plants in Texas. PET maker Invista also cut more than 300 million pounds of capacity in Greer, S.C., last month.
Newell estimates that at North America's current PP demand rate, the market is oversupplied by 4 billion pounds per year.
``The first thing resin makers need to do is get the spot market under control,'' he said. ``They're going through a phase globally that they haven't seen in a long time. In the short-term, it's going to be ugly.''
A Midwestern PE and PP buyer echoed Newell's take on the market.
``The problem is that these are such big [price] drops that we can't re-price quickly enough,'' the buyer said. ``A customer can create a competitive situation if they're competitively priced.''
A second Midwest PE/PP buyer said that although North American resin prices had become ``too inflated,'' processors now ``are taking it on the chin with inventory.''
``There are going to be huge write-offs throughout the industry,'' he said. ``If you're a resin maker with 150 million pounds of inventory on hand and the price drops 20 cents a pound, that's a $30 million write-off right there. And that's just one company.''
Complicating the situation is the sudden switch from trying to pass on major oil-driven first-half price increases to finding the right price in a free-falling market.
``There was no lag at all — and the peak was never there,'' the second buyer said. ``These prices are quickly going to drop to cash cost. We haven't found the floor yet, but we're getting awful close.''
Stock analyst Kevin McCarthy summed up the situation in a Nov. 11 note to investors. ``Buyers remain `on strike,' given the deflationary energy backdrop,'' said McCarthy, who's with Banc of America Securities in New York. ``Inventory must now be rationalized throughout the supply chain.''