A tight market for propylene monomer has sent North American polypropylene prices up an eye-popping average of 12 cents per pound since Sept. 1.
Average selling prices for suspension PVC and PET bottle resin have seen more modest increases, with each rising an average of 1 cent per pound since Sept. 1, according to buyers contacted recently by Plastics News.
The gigantic PP move is partly the result of a temporary propylene monomer outage at a steam cracker jointly operated by BASF Corp. and Total Petrochemicals USA Inc. in Port Arthur, Texas. Propylene supplies for PP use also have been constrained by demand from the gasoline market and from producers' use of natural gas-based ethane feedstock, which produces less propylene than crude oil-based naphtha feedstock. Ethane increasingly has been used because of low natural gas prices, when compared to crude oil.
Propylene monomer has been on the tight side [monomer] inventory has been down all year, said Scott Newell, a PP market analyst with Resin Technology Inc. in Fort Worth, Texas. It looked like it would improve, but the Total/BASF cracker had big impact. It was unexpected, and that's a big cracker that uses heavy feeds and produces a lot of propylene.
The Total/BASF outage made a bad situation worse, he added.
The big PP leap now means that average market prices have climbed almost 70 percent since Jan. 1. That's after prices fell almost 55 percent in the last four months of 2008.
A West Coast-based PP buyer said the 12-cent move and overall volatility in pricing will have a horrendous impact on processors. It's hard to get customers into a polypropylene structure when they look at polyethylene and see such a big difference in price, he said.
I've told all of our [PP] suppliers that they're going to price themselves out of market, the buyer added. We've already got some customers who have moved from PP to PE for some packaging products and now they're going back to corrugated cardboard because prices for that material are down.
RTI's Newell added that after the 12-cent hike PP prices are high enough that a [downward] correction could take place.
Oil prices have been fairly steady, he said. Propylene monomer is overpriced in relation to oil, and that's chasing away export demand.
Export demand has been a rare bright spot in the 2009 North American PP market, with sales up almost 73 percent through July, according to the American Chemistry Council in Arlington, Va. Domestic sales were down almost 14 percent in that period, leaving the overall market with a sales loss of almost 7 percent.
In PVC, the penny in September had prices up a total of 9 cents per pound, or 14 percent, since Jan. 1. Prices had fallen 23 percent in the last four months of 2008.
But a desultory housing market has kept PVC struggling, given the material's heavy reliance on construction applications. U.S. housing starts peaked at almost 2.1 million in 2006, but fell to 900,000 last year and are on track to be around 600,000 in 2009.
Demand is so poor, and unfortunately I'm not seeing any signs of optimism, a Texas-based PVC buyer said. We had hoped for some water, sewer and transportation work from government stimulus spending, but that really hasn't arrived yet.
As in PP, export sales have helped to alleviate U.S./Canadian PVC sales somewhat. Through July, export sales were up almost 6 percent, according to ACC, reducing a 17 percent domestic drop to 13 percent overall.
In PET, the latest penny brings the total increase since Jan. 1 to 9 cents per pound or 15 percent.
Prices fell about 35 percent in the last four months of 2008.
Compared to other commodity resins, PET has not fared badly in 2009, with North American demand expected to be up 1-3 percent, according to industry contacts. Although many beverage makers have found ways to use less PET when making their bottles, the market has seen growth in areas such as bottled teas and in non-beverage applications such as bottles for the health and beauty and personal-care markets, sources said.
Copyright 2009 Crain Communications Inc. All Rights Reserved.