Resin pricing volatility ruled 2008 like a Mongol warlord, sweeping over the craggy terrain of Central Asia.
Prices for crude oil and natural gas feedstocks soared in the first half of the year before crashing to earth in the second. North American resin demand hung in there for most of the first half before giving up the ghost as summer receded from view.
All of this made life difficult for resin buyers like Bill Bartlett, Jerry Esposito and Chris Hatzenbuhler. The three executives shared war stories on a panel moderated by consultant Sam Beasley at the 2009 Plastics News Executive Forum, held March 1-4 in Summerlin.
“We track pricing to the fourth decimal place, but in 2008 we got clobbered on polypropylene based on the hurricanes [in late 2007] and clobbered on polycarbonate because of the price of crude oil and benzene,” said Esposito, general manager of sourcing for Technicolor Business Group, a major producer of DVDs and CDs in Camarillo, Calif.
“If I don't feel we have the best price in the market, we lose our competitive edge, so we can't reduce our price to our customer and we lose sales,” he added.
Hatzenbuhler, chief financial officer of Conwed Global Netting Solutions in Minneapolis, agreed that efficient resin buying “can make a poor year OK and a good year great.”
“We may not always buy at the lowest price, but it's the lowest to get the quality we need,” said Hatzenbuhler, whose firm is a major producer of plastic netting for landscape, building and construction, filtration and other markets.
Bartlett — president of First American Plastic Molding Enterprise, a custom injection molder based in Southwood, Ill., and with another plant in Ocean Springs, Miss. — pointed out that 40-45 percent of his firm's sales dollars are in the resin business “whether we recognize it or not.”
Each firm on the panel has made major changes to its resin-buying practices in recent years, reflecting the impact of purchasing on their bottom lines.
“We had no planning and no execution of strategy,” Hatzenbuhler said. “We used to buy virgin [resin] and pay a premium. Now, we're buying 20 percent wide-spec and saving 4-12 cents per pound.”
“Our process engineers are working with our purchasing manager to try to incorporate cost savings into the program. We've also had to educate our customers in order to raise prices.”
Technicolor, part of French conglomerate Thomson Group, traditionally had bought PC on a quarterly basis, but began buying more frequently during the fourth quarter of 2008 because of price volatility.
“Just when prices were going down, we had Paramount, Disney and Universal telling us our prices were too high,” said Esposito, who buys more than 30 million pounds of PC and 60 million pounds of PP each year. “We're buying hand to mouth, month to month, looking at spot vs. regular, and we believe the market [price] is still going down.”
Technicolor also has responded to lower DVD sales by moving some production to lower-cost sites in Mexico and Poland, Esposito added.
At First American, Bartlett's staff reviews resin pricing three or four times a week to make sure the firm is getting the best prices on PP, PC and polystyrene.
“All of our employees understand how important resin is to our daily survival, said Bartlett, whose firm has annual sales of between $15 million and $20 million to customers such as Pepsi and McDonald's.
These kinds of steps can help buyers avoid common resin-buying pitfalls, according to Beasley, PE business development director with Resin Technology Inc. in Fort Worth, Texas.
“Typically, purchasing is isolated, and the buyer is multitasking and buying everything for the firm,” he said. “There also can be buyer-maker conflict over who's calling the shots, and a lot of processors don't have a long-range strategic buying plan.”
Beasley added that price volatility hit an extreme level in December, when demand sank to a point where it was almost impossible to establish a market price for PE.
“PE makers in December were asking processors what they'd pay for resin,” he said. “There was no way you could embarrass yourself by making an offer on PE in December.”
Conwed may have taken the biggest recent buying risk, as Hatzenbuhler purchased 75 percent of the firm's expected PP needs for all of 2009 in December, when prices were down 70 cents from their 2008 peak.
A similar strategy paid off in 2005, when Hatzenbuhler bought 12 million pounds of PP for Conwed in four days, anticipating higher prices in the wake of Hurricane Katrina. When prices rose, Conwed pocketed savings of $2 million.
“You have to take advantage of the opportunity when it occurs,” Hatzenbuhler said.