Officials with Resin Technology Inc. of Fort Worth provided market updates of specific resins during the firm's Executive Forum.
The PE market, in terms of supplier actions, saw 11 cents' worth of price increases through April — 3 cents in February, 2 cents in March and 6 cents in April, said Mike Burns, PE vice president.
“Suppliers used fear [in February] of the Middle East situation to drive through [that] price increase,” he said in a May 13 presentation. Low and linear low density PE had a 6-cent increase pending for June, while high density had 8 cents pending.
HDPE, especially for injection molding, and LDPE have experienced low inventories due to production problems.
“The key to suppliers' control of this market is lack of inventory,” he said. The historical 44-day inventory has become 30 days.
2010-11 has been a seller's market, Burns said. “Don't feel you've been taken advantage of. Everybody has been taken advantage of.”
There are 20-cent margins, easily, in the PE chain and a greater chance of hikes going forward.
“We should see feedstock relief, but as long as inventories are tight, we're not going to see prices go down,” Burns said.
There are nine scheduled maintenances between May and November in PE, including four just for ethylene. But that doesn't take into account acts of nature or surprise disruptions.
What about extraordinary earnings reports that may soften suppliers' plans to get more money through increases?
“We're at a peak today and if there were no disruptions, prices would stay where they are.”
The volatility of the PP market is the new normal, said Scott Newell, RTI's client services director for PP. Looking 60 days and beyond during his presentation, he said demand could balance with supply, or there will need to be new capacity.
The move toward ethane feedstocks is the biggest issue facing propylene monomer supply.
“We're not going to get propylene out of the cracker like we used to,” he said. “We need on-purpose propylene.”
Enterprise Products Partners LP of Houston will increase capacity of polymer-grade propylene at its Mont Belvieu, Texas, facility. “We could see stretches of stability. … In the meantime, we're going to have to continue to manage our businesses and expect that there will continue to be volatility.”
In 2011 year-to-date demand growth in major market segments, only two show growth: sheet (over 10 mils) and blow molding. The two combined represent roughly 10 percent of the market. Automotive is up in PP about 8 percent, however Newell said the auto market will slow later this year because of the effects of the Japanese tsunami.
The PP market saw very low demand rates in January and February. In February, experts saw the lowest demand in roughly five years. Prices dropped about 5 cents in March, Newell said.
Processors also are switching from PP to PE. PP demand growth of two or three times gross domestic product is not there anymore. In exports, PP is on pace to have its worst year.
“Exports have not been a big factor for our region,” he said. “It does eliminate an outlet for our producers. Exports represent about 7.7 percent of total sales.”
Domestic sales represent 92.3 percent of the total.
There is some good news, however: Refineries are coming back. Officials are seeing propane make its way into the crackers, which will help supply.
Global ABS supply remains tight due to strong demand and some feedstock shortages. Prices were up 20 cents per pound and more through mid-May, including increases that were being negotiated at the time of this market analysis.
Margins have improved due to strong demand, said Greg Smith, RTI's vice president for PP, engineering resins, polystyrene and PVC.
The cost to produce ABS was increasing enough in May to more than erase the decrease from April. That cost is estimated to be up 20 cents per pound in 2011.
Watch the movement of feedstocks to get a gauge on the market, said Smith, who anticipated some decrease in benzene contract pricing in June. Acrylonitrile was up about 40 cents per pound through April, with another increase in May due to a propylene increase.
“Price drops will occur once we see propylene fall from its peak,” Smith said.
Because of tight supply and strong demand, butadiene prices have increased 35 cents per pound in 2011. The prices are expected to remain high and volatile for the rest of 2011, Smith said. Supply is short due to more ethane cracking and outages.
Volume commodity ABS prices in Asia have increased to about $1.08 per pound due to higher feedstock costs. Demand is strong — however, more attractive North American pricing is becoming more interesting to Asian ABS suppliers. Far East ABS capacity increases are planned for later in 2011 and 2012-13.
“We are seeing over a 10 percent increase in global ABS demand in 2011,” he said. In his 60- to 90-day analysis, ABS prices will be level to down slightly with feedstock costs. Continued strong demand will keep producer margins up, though.
For PC, some of the key drivers are the same as those with ABS: demand, feedstocks, operating rates and inventory, and the effect of international markets. Supply is balanced to tight, as demand has been strong globally. Due to significant benzene and propylene increases, the cost to produce PC increased roughly 6 cents per pound in May. That cost is estimated to be up 20 cents per pound in 2011.
Due to tight supply and strong demand, refiner-grade propylene prices have increased about 35 cents per pound so far in 2011. Propylene prices are expected to remain high and volatile for the rest of 2011. However, officials were seeing a short-term reduction in PC demand due to automotive shutdowns in Japan.
Saudi Kayan Petrochemical Co.'s plant in Jubail, Saudi Arabia, began operating in May. As its product hits the market, the capacity increases will reduce the export opportunity for stateside PC producers during the second half of 2011, Smith said.
For nylon 6/6, benzene pricing was higher in May, but not as high as in April. The feedstock is up more than 10 percent due to higher-priced oil, as demand has returned with lower operating rates persisting, said Mark Kallman, director of client services for engineering resins, PS and PVC.
Butadiene supplies remain tight globally and higher priced due to oil. Demand is strong globally from automotive tires and natural-rubber pricing. Increases of nearly 20 percent were forecasted for May. Propylene is very tight and was forecasted up 37 cents per pound year-to-date through May. In addition to persistently low refinery rates, propylene, benzene and butadiene supplies are constricted to cheap natural gas-based feeds to the olefins crackers.
Cheap natural gas feeds and refinery operating rates are expected to keep the market structurally tight and volatile for the medium term as long as current demand growth rates persist, particularly in automotive, Kallman said. Capacity expansion plans overseas are increasing with additions to compounding capacity in the U.S. from several companies. In nylon 6, a lot of capacity additions are planned in the Asian region over the next two years, which will substantially lessen the need for exports from the U.S.
In nylon 6/6, the momentum of automotive growth has been carrying demand, but is expected to see some pull-back as earthquake-damaged supply chains reduce production through July.
Caprolactam/nylon 6 supplies were struggling under the force majeure issued by Honeywell International Inc. because of tight phenol supplies.
Nylon 6 producers were trying to keep up with a tight, high-priced global caprolactam market by disconnecting pricing from benzene cost, Kallman said.
In his 60- to 90-day outlook, Kallman said demand is expected to relax due to quake-related supply disruptions into the third quarter, easing the supply-demand balance for nylon 6/6. Improvement in nylon 6 balance will come later in the year as natural-fiber use reasserts itself.
“With the potential for moderate demand reductions, we see the market flattening through this period if feedstocks do not continue off the rails because of production outages, higher oil or stronger demand growth,” he said.
The PVC market has been interesting over the past year because there has been a struggle with domestic demand, said Kallman. Domestic demand rose 26 percent in March as the start of a less-than-stellar construction season was supplemented by pre-buying. Domestic production saw that March increase as scheduled maintenance was completed and producers ramped up to meet export demand.
“The housing supply still is very, very good and that is going to inhibit domestic growth this year,” he said.
April saw price increases of 3 cents per pound as spot ethylene has continued to increase along with global demand and supply restrictions stateside and in Japan. In May, there was pressure from an ongoing force majeure and two planned outages. Japan had roughly one-quarter of its PVC capacity off-line, but officials are starting to see that return.
U.S. exports were meeting resistance at the May price levels, so production in the Asian region was increasing. Europe's market is tight due to a force majeure in the region and strong demand.
In the next 60-90 days, Kallman said, PVC processors should expect supply relief from restarted Japan capacity along with improved production from Georgia Gulf Corp. and Formosa Plastics Corp. USA. Export demand is expected to moderate at current price levels.
Prices were expected to flatten out by June with opportunities for reduction in the third quarter. Ethylene production reliability will be key domestically, as will the strength of the construction season.
Expect tight sliding for a little while in PS, predicted Stacy Shelly, business development director. Ineos Group basically had two styrene plants down. Styrene was trading at nearly 70 cents per pound. Exports are very limited because of prices. Butadiene prices continue to skyrocket.
Suppliers have announced increases of 5 cents on general-purpose PS and 10 cents on high-impact PS. The delta between HIPS and general-purpose PS is now greater than 10 cents per pound from a number of producers.
“It's been a pretty unbelievable spring,” Shelly said. “We're going to see a lot of price volatility as we move into summer.”
Don't anticipate any new capacity for PS, he said, as there is plenty right now just hindered by availability of feedstocks.
In his 60- to 90-day outlook, Shelly said continued strong feedstock demand will keep prices flat to up. HIPS prices will stay at a premium. Out 90 days, “high prices are sometimes the best medicine for high prices,” he said. “At some point, prices have to come down because volumes are going to fall off and producers realize it. Decreased demand should lead to lower prices in the late third quarter and fourth quarter.