The North American polypropylene market has been hammered with another double-digit price increase, this time sending prices up an average of 15 cents per pound since April 1.
By comparison, the 6-cent increase seen in the region's polyethylene market also since April 1 seems downright modest.
The PP move was brought on by a tight market for propylene monomer feedstock. That situation was worsened recently when propylene supplier Enterprise Petrochemical Co. declared force majeure at its Texas plant. Weather-related issues also have affected feedstock availability at plants operated in Texas by British Petroleum plc and Citgo Inc.
Factoring in a 17-cent hike that hit the regional PP market in January and a 5-cent price dip in March North American PP prices now are up a net of 27 cents since Jan. 1. That's an increase of more than 25 percent, based on the Plastics News resin pricing chart.
PP prices are now at their highest-ever levels numerous buyers have said and are having a negative impact throughout the market.
There's [PP] demand destruction everywhere, a major PP buyer based in the Midwest said. Things have gotten totally out of hand.
Our customers already are looking at moving some applications out of polypropylene or out of plastic, in general. They're using other materials where they can.
Numerous buyers also have said they're considering changing their products from PP to high density PE or polystyrene materials which had lost many applications to PP in the last decade.
Increased use of low-priced natural gas as a feedstock also has hurt propylene supplies, since that material produces less propylene per unit than more-expensive crude oil does. The affordable ethylene that has been helping North American PE and PVC remain competitive on a global basis conversely has been hurting the regional PP field.
Unfortunately, the horizon doesn't hold a brighter picture for PP, as buyers and market watchers said there's a chance that another double-digit increase ranging from 10-15 cents could hit the market in May.
In the regional PE market, the 6-cent April hike took hold because of lower inventories and strong supplier resolve, according to Mike Burns, a market analyst with Resin Technology Inc. in Fort Worth, Texas.
Prices on average now are up 11 cents per pound since Feb. 1. That equates to an increase of more than 12 percent on many grades of PE. Producers now are seeking a further increase of 5 cents per pound effective May 1.
When you get an oil [price] surge, it's easier for processors to talk about price increases with their suppliers and their customers, Burns said. They see it in real life at the gas pump.
Crude oil futures have been more than $100 per barrel since late February, and were near $113 in early trading April 28. Gasoline prices also are near $4 or have exceeded that mark in many parts of the U.S. Natural gas prices also have been on the rise in recent weeks and are up almost 3 percent net since Jan. 1.
High fuel costs for both gasoline and diesel fuel also have resulted in energy surcharges being placed on shipments of resin to processors and, in turn, on shipments of finished goods from processors to their customers. These surcharges have varied depending on distance traveled and amount shipped, but they've placed an added pricing pressure in a market already straining under standard resin price increases, buyers said.
A number of market watchers also said that North American PE makers are lamenting the fact that they split a 5-cent move initially nominated for Feb. 1 into 3 cents for February and 2 cents for March. Resin makers now believe they could have won the full 5 cents in February and as a result could have moved prices even higher by now, sources said.
Strong global demand and higher prices drove a strong first-quarter financial performance for the plastics unit of Dow Chemical Co., including its massive PE operations. Global pretax profit at Dow's plastics unit climbed almost 13 percent to $809 million in the first quarter, with sales volume in pounds also up 5 percent. In an April 28 news release, officials with the Midland, Mich.-based firm said that its PP business in the quarter benefited from growing demand for automotive, consumer durable goods and packaging end markets.
Higher prices already may be taking a toll on regional resin sales. North American PP sales were down almost 10 percent in the first two months of 2011 vs. the year-ago period, according to the American Chemistry Council in Washington. In the U.S. and Canada, sales of linear low density PE fell 4 percent and sales of LDPE were down a little more than 4 percent in the same comparison.
High density PE bucked the trend in that two-month period, with U.S,/Canadian sales growing just over 2 percent.