AKRON, OHIO (Feb. 5, 1:55 p.m. ET) — Polypropylene makers were able to slam on the brakes in January, stopping a series of price declines and even raising prices and average of 3 cents per pound.
Makers of polyethylene are trying to do the same, but are seeing mixed results with their Jan. 1 attempts to raise prices 7 cents per pound.
Since peaking in mid-2008, North American PP prices have fallen an average of 65 cents per pound, or roughly 54 percent, according to buyers contacted by Plastics News. Prior to that, prices had shot up 30 percent between January and July 2008.
The January 3 cent turnaround was only half of what suppliers were seeking, but still was symbolic in light of recent market performance. Buyers cited recent tightness in PP supply, caused by North American shutdowns, and higher prices for propylene monomer as reasons for the increase.
Ineos Group, Flint Hills Resources LLC and Sunoco Inc. each have announced PP capacity closings in North America since mid-2008. In total, more than 2 billion pounds of North American PP capacity about 15 percent of the region's total has been removed since early 2007.
Economic recession in North American and around the world has pinched PP demand, especially in the second half of 2008. Regional PP demand fell 13 percent in the first 11 months of the year, according to the American Chemistry Council in Arlington, Va. Domestic demand fared slightly better in that time, falling only 10 percent. A 34 percent drop in export sales worsened the overall rate.
Domestically, sales of PP into the transportation market took the biggest percentage loss in the first 11 months of 2008, falling almost 22 percent. That translates into more than 100 million pounds of lost demand in that sector. On a volume basis, PP sales into consumer products and housewares lost more than 300 million pounds of demand during the period.
This downslide played a role in the U.S. operations of global PP leader LyondellBasell Industries AF SCA filing for bankruptcy in December. The firm based in Rotterdam, the Netherlands is eliminating 15 percent of its global workforce and closing or idling an unspecified number of plants. LyondellBasell employs 16,000 worldwide, including 7,800 in the United States.
Though we currently anticipate this situation to be short-term and expect customers to increase their purchasing in 2009, we made the decision to file Chapter 11 in order to provide the company with the time and resources necessary to facilitate an orderly restructuring and position the business for the long term, Chief Executive Officer Volker Trautz said in a news release.
PP makers now are split between seeking the remaining 3 cents from the Jan. 1 increase or all of a 6 cent increase that had been nominated for Feb. 1.
The North American PE market remains divided on the fate of a 7 cent increase nominated for Jan. 1. Some buyers reported seeing it, while others said they were able to delay the move. The increase is not shown on this week's Plastics News resin pricing chart, since fewer than half of the buyers contacted confirmed the increase.
PE makers have argued that buyers have started to rebuild their inventories after drastic draw-downs in the second half of 2008, creating demand that would justify the increase. Those draw-downs occurred as market prices tumbled an average of 48 cents on most grades of PE since midyear. For blow molding dairy grades of high density PE, that meant a drop of about 45 percent from the peak. Prices for that material and most other grades of PE had increased 20 percent in the first half of the year.
Eleven-month sales of HDPE were down almost 9 percent in the U.S. and Canada, according to ACC. Sales of low density PE fell 10 percent and sales of linear LDPE slipped almost 7 percent in that period.
Big percentage drops occurred in LDPE sold into non-food packaging film (down 19 percent), LLDPE sold into shipping sacks (down 17 percent) and HDPE sold into retail bags (down 28 percent).
But some PE buyers have countered that their demand has not bounced back all that much and that they're still working off resin that they bought in the final months of 2008.
One PE film extruder based in the Midwest said his firm has reduced its days of film inventory on hand from between 40 and 50 to between 20 and 30.
We're still in the trough and producing only what we need to sell, the buyer said. We're not making extra inventory yet or replenishing our [resin] stock.
Our inventory was built with high-cost resin, and we have to wait for that high-priced inventory to clear out.
Reports of some PE makers splitting the 7 into a 3 for January and a 4 for February could not be confirmed. Additional price hikes of 5 cents for Feb. 1 and 6 for March 1 have been announced by some producers.
On the feedstock front, cash prices for natural gas used in a majority of North American PE production were around $5 per million British thermal units in early trading Feb. 5. Prices for the material were between $5.50 and $6 in the first half of January.
Crude oil another major feedstock saw per-barrel prices dip under $40 in early trading Feb. 4, representing a drop of almost 73 percent from the $147 peak the market hit in mid-July.