It's time once again to pull back the curtain and reveal the mysteries of how Plastics News generates the prices on its resin pricing chart.
This will be an update of a column I've written twice since joining PN in 1997, but it remains a topic that I'm asked about fairly often. So, here we go:
Contrary to popular belief, assembling the Plastics News resin pricing chart does not involve dice, board-game spinners, Ouija boards or tarot cards.
Instead, it involves numerous phone calls every week, as I contact officials at resin processors and producers, as well as consultants and analysts who follow the industry, to learn if prices are going up or down or staying right where they are.
This method entails sorting out a lot of data and opinions from a variety of sources. Part of the challenge is that each segment of the industry has its own built-in agenda: Resin makers typically like to see prices going up; processors typically like to see prices going down.
These agendas prompt some less-scrupulous industry operatives to try to push and pull the pricing chart in the direction they want it to go. Experience allows us to separate the exaggerators from the honest.
Another highly sensitive tactic is use of the PN pricing chart as an index for structuring contracts between suppliers and processors, and — increasingly — between processors and their end customers.
PN always has strongly discouraged this practice — unless the PN chart is used in combination with other price indexes, such as those compiled by Chemical Data Inc., Chemical Market Associates Inc., DeWitt & Co. Inc., and/or Townsend Solutions. All of these consulting groups are based in the Houston area.
The reason we suggest combining indexes is not because we lack confidence in the accuracy of our numbers. But using three indexes allows for three times as much industry knowledge and a much broader polling base. Those of us who compile indexes don't all talk to the same people, and as a result our outlooks can vary, even if they're usually headed in the same direction.
We also discourage the one-index method to avoid getting phone calls claiming that PN “cost” a processor hundreds of thousands of dollars by reporting a price increase was a penny less or more than what the processor had anticipated. Supplier-processor negotiations still should be the main means for determining selling prices. An index can provide a useful guide, but it can't capture buying, selling or production practices that are unique to any given business.
Timing also plays a role in the pricing process. If polyethylene makers announce an increase attempt for Nov. 1, PN starts to call buyers toward the end of the month to see if the increase took hold. History also has taught us that it's not a good idea to try and
lead the market.
As a result, we apply a “P” for a pending change on the affected grades in the chart and do not change our published prices until we've determined that the amounts being paid actually have changed. We typically update our current pricing charts online each Thursday afternoon, with the same data appearing in the following Monday's newspaper.
Each price on the chart also is not changed each week. The main commodity resins — PE, polypropylene, PVC, polystyrene and PET — are updated monthly. These materials are sold in billions of pounds annually, and markets can and do surge higher and lower throughout the year. Other engineering and specialty resins are updated three to four times a year, on average, because there tends to be less volatility in these lower-volume markets.
And one final note: PN acknowledges that our prices for most materials tend to be on the high side — closer to list prices than to spot numbers. Buyers and sellers tend to guard their actual transaction price like the combination to the safe. And, over the years, those same buyers and sellers have told PN that they believe it's more important for our resin pricing chart to track fluctuations in price rather than establish an exact spot number.
PN always welcomes additional help in compiling its pricing data. Feel free to contact me by phone at (330) 865-6156 or via e-mail at [email protected]
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