Prices for several major commodity and engineering resins appear to have peaked and could be headed down as 2010 rolls on, according to market analysts with Resin Technology Inc.
Average North American market prices for polyethylene and polypropylene could decline a bit more before stabilizing later this year.
“The market should get 12 cents back from the 18 cents in increases [this year],” said RTI PE market analyst Mike Burns, at his firm's Executive Forum, June 8-10 in Fort Worth. “But it's hard to tell how long that's going to take.
“Feedstocks are continuing to fall. Processors are buying as needed and there's no extra inventory.”
North American PE prices are expected to fall for June after falling 4-6 cents per pound for May. Lower prices could revive export markets, which have lagged in recent months because of early-year price hikes.
The market has seen a lot of volatility in just the past nine months, Burns said. December saw record exports, accounting for 36 percent of total North American PE sales. Processors built inventory as resin makers owned by public shareholders or private equity firms didn't want inventory of their own. But by February and March, low ethylene availability had reduced PE operating rates and led to higher prices.
“The lack of [resin] supply made pricing take it or leave it, and that's what happened,” Burns explained. “Lack of inventory is what drove it, not ethylene pricing.” Moving forward, Burns said he believes PE suppliers will try to keep their inventories low in order to better manage pricing.
On the PP side, recent market demand activity has been “pretty encouraging,” according to RTI's PP market analyst, Scott Newell. North American market prices fell 12 cents per pound in May and could be down as much as 8 cents in June and down a bit further in July, Newell said. Prior to the May drop, regional PP prices had climbed 22 cents since Jan. 1.
“Feedstocks have been the largest factor causing supply issues, because of planned and unplanned [propylene monomer] and lighter feeds making less propylene,” he added.
Regional propylene supplies could be improved by the start of an on-purpose propylene production site in the Houston area by pipeline operator PetroLogistics LLC. The firm's start of a site previously operated by ExxonMobil Corp. could add 1.2 billion pounds of annual capacity, some of which would be used for polymer production.
The PetroLogistics project “is going to help, but it won't solve all the problems” in the propylene/PP market, Newell said.
After closing almost 3 billion pounds of capacity in 2008-09, the North American PP market “has excess capacity but isn't oversupplied,” added Newell, who estimates regional market demand at 16.6 billion pounds on annual capacity of about 20 billion.
“That's just enough to support demand,” he said. PP makers “have kept days of supply between 30 and 35, which is a good indication of the discipline they've taken.”
Through April, domestic demand for PP was up in almost every end market, but a big drop in export sales has left the overall market in slightly negative territory. Still, Newell said he's encouraged by what he's hearing from processors: “Everyone I talk to [in PP] is pretty happy. They say they're a little ahead of forecast so far this year.”
Ongoing struggles in markets for PVC and polystyrene could drive North American prices down for June and July. That's according to RTI's Mark Kallman and Stacy Shelly.
“Domestic PVC demand is still a problem because of a weak construction industry,” Kallman said. “But PVC operating rates should continue to be in the upper 80s because of better ethylene availability.”
Early-year price increases gave way to price drops in May, with more expected for June. Prices for July and August could be flat to slightly down. In 2010, North American PVC makers have seen “significant margin gain” via higher prices created by strong exports and tight ethylene supplies, he said.
And even though the North American market has lost about 400 million pounds of annual capacity since 2008, new capacity from Shintech Inc. and Formosa Plastics Corp. USA should fill that void, Kallman added.
In PS, Shelly said North American processors “really need to look at the international market as an option,” since consolidation has left the region with three main suppliers.
Regional PS prices were flat in May but are expected to drop for June and July, widely following trends in styrene monomer feedstock.
“All three [North American PS] suppliers have been very disciplined in the last year, but in general the economy hasn't been good and [PS] demand hasn't been good,” Shelly said. “A lot of capacity has been taken out of the market. Polystyrene is never going to go away, but it's been on the ropes and struggling for quite a while.”
Demand for expanded PS also is down, as smaller parts made with less resin require less EPS packaging in shipping. But with 350 million pounds of annual capacity leaving North America in 2009, recent operating rates actually have climbed from 70 percent to about 85 percent, he said.
Price increases have hit North American engineering resins this year, but prices appear to have peaked, said Kallman and RTI's Greg Smith.
Average selling prices for nylon 6 and 6/6 increased along with benzene, propylene and butadiene feedstocks earlier in the year. And although supplies remain somewhat tight, the more severe price increases seem to be over.
“Benzene is going down and supplies of butadiene are improving,” Kallman said. “But some production volume controls have limited customer purchases to historic levels.”
“North American suppliers produce at high rates but the market's still snug,” he added, pointing out that North America “is more focused on 6/6 than the rest of the world.”
Pricing and availability also might cause some nylon applications to transfer from 6/6 to 6 if temperature is not an issue.
“Anything that's not under-the-hood is fair game,” Kallman said of potential switches.
In ABS, producer margins that were very poor in 2009 “have improved significantly” so far in 2010, Smith said.
“Margins in ABS are very attractive now. Prices for acrylonitrile and butadiene are way up and that made its way through the chain,” he said.
Globally, ABS demand is set to grow at least 10 percent and by as much as 15 percent this year. New capacity is set to arrive in Asia in 2010-12 to meet this need. Global ABS utilization rates are climbing from 70 percent to close to 80 percent as a result.
“Markets are tight, but costs to produce are going down, so prices may have peaked,” Smith said.
He also outlined market activity in polycarbonate, where North American prices have jumped by as much as 20 cents per pound in 2010 as a result of supply issues and feedstock cost increases.
Global PC utilization rates have continued to climb after bottoming out in recent years and now are approaching 80 percent, Smith said. Global PC demand is set to grow more than 10 percent this year. By 2012, Saudi Kayan Petrochemical Co. will open a massive — by PC standards — 600 million-pound-capacity plant in Saudi Arabia.
“Utilization rates are up significantly, and that's given producers pricing power. The need to restore margins has come into play,” he said. In the short-term, PC price decreases are possible in “competitive environments.”
Many engineering resins are impacted by pricing of benzene feedstock, which fell 16 percent to $2.95 per gallon between May and June. The price may not stay under $3 for long, Smith said. Prices have bounced between $2.70 and $3.70 per gallon since mid-2009. By comparison, per-gallon benzene prices were between $1 and $1.50 from late 2008 to early 2009 in the depths of the market.
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