Since June 1, North American polypropylene makers have learned that what goes up must also come down, with prices tumbling an average of 15 cents per pound.
Regional makers of PET bottle resin have learned the same lesson since May 1, but on a lesser scale, with prices sliding by an average of 4 cents per pound combined in May and June.
The PP slide comes only a month after prices had jumped 10 cents per pound — the third double-digit one-month price hike to hit the market in 2011. Even with the June decline, average PP selling prices for the region are up an average of 22 cents per pound since Jan. 1.
And although the 15-cent reduction was welcome news to the region's PP buyers, the market's overall volatility has taken its toll in 2011.
“It's absolutely terrible,” a Midwest PP buyer said of the ups and downs. “It affects your buying and inventory and then it affects your customers' order patterns. [PP] suppliers want a three- to four-month forecast, but there's no way we can give it to them.”
“And even if the increases are staggered on both ends, it can take you a quarter to sort things out. I think some customers are shopping around for new [finished product] suppliers just so they can start fresh without all of this pricing history to work through.”
A second Midwestern PP buyer said that the flurry of increases — followed now by a sharp decrease — have left him feeling like his company is “always behind the eight ball.” He added that regional PP makers “really overdrove” price increases earlier in the year.
“The [June] decrease is welcome relief, but it's fair to say that [PP] demand is down in a lot of areas because of the high price,” the second PP buyer said. “It had always been going up [this year], and in this market people are watching every dollar they spend.”
North American PP sales totals for the first quarter of 2011 would seem to bear out this belief. Regional PP sales fell 4 percent during the quarter, with a 5 percent domestic drop softened by a surprising 18 percent rise in exports, according to the American Chemistry Council in Washington.
Several market watchers said they would not be surprised if another, smaller increase hit the region's PP resin prices in July.
In PET, the 4-cent, two-month drop comes after prices had shot up an average of 13 cents per pound in February and March combined.
The drop is a bit surprising, according to market analyst John Maddox, because although prices for raw materials such as paraxylene have come down, purified terephthalic acid feedstock has been in tight supply, causing some large bottlers to have less PET resin than they need.
“The real issue here is what's happening to the market price,” said Maddox, who's with SBA-CCI Inc. in Jacksonville, Fla. “There's no motive for any resin maker to meet any competitive situation, since some of them can't get enough PTA to run their plants.”
Moving ahead, the North American PET market will be affected by DAK Americas LLC's recent purchase of the PET resin business of Wellman Inc. That $185 million deal consists mostly of a 950 million-pound-capacity PET plant in Bay St. Louis, Miss.
More important to PET resin buyers, the deal gives Charlotte, N.C.-based DAK a market share of about 40 percent of the region's capacity, and concentrates about 90 percent of capacity in the hands of only three players — DAK, Indorama Public Ventures Co. Ltd. and M&G Group.
Maddox said it will be interesting to see what steps DAK will take to supply the Wellman plant with the PTA that it needs to be a successful PET site.
“Anyone who wants to be in the PET business long term knows that the real key to profitability is gaining value in manufacturing PTA,” he said.