Officials of businesses that are dependent on engineering resins may feel like “The Gambler.” You've got to know when to hold, when to fold, or walk away. As a business owner tied to an engineering resin, it's likely you can't run, even if you want to.
But savvy companies are learning to pay attention to the multiple moving parts that affect pricing, according to officials at Resin Technology Inc. of Fort Worth. And those multiple moving parts have their own moving parts, for example, resin feedstocks.
Do you know the direct feedstocks for the resins you buy? Feedstocks have markets of their own.
“We can control how we are positioned in our own resin business,” said Greg Smith, vice president of polypropylene, engineering resins, polystyrene and PVC at RTI. “We cannot control market trends or events.” Market changes have been plentiful for engineering resins from 2010-11. There has been a post-recession make-to-order resin strategy among producers, and a significant recovery continues in many plastics markets. Those two changes alone have caused global demand growth to rise for most resins. In addition:
* The automotive-demand rebound has tightened engineering resin supply.
* The earthquake shutdowns in Japan have slowed demand temporarily.
* The ongoing incentive to crack light feeds is driving up propylene prices.
* Resin producers are exhibiting more and more price discipline.
* Crude oil prices have increased to levels no one forecasted.
“I would challenge any organization that says they have the ability to forecast crude oil prices,” Smith said.
“What we want to focus on [are] the things we can control and get ourselves positioned to buy as well as we can.”
Knowing in real time the actual selling price for all resin types globally is the smartest approach.
“In the case of engineering resins, it's a range; it's just not one price. The bottom line is that resin markets are not fair. They're just not,” Smith said.
In part, price depends on who a company can buy from and where it is positioned in its markets. Europe, Asia and North America have always had the largest range in PC pricing, for example.
North American processors should keep their eyes on international markets and the effect of imports and exports. The three U.S. PC producers, for example, export on average 50 percent of what they make.
“That's huge and it's been a consistent outlet for them because of significant growth in Asia,” Smith said. “When there are changes in export opportunity, it really changes the market. In 2009, [there was a] pretty big dip in their ability to export. Your prices should have gone low in 2009.”
Demand for PC has been on the decline for the past two years, said Mark Kallman, client services director for engineering resins, PS and PVC.
Optical-media demand had peaked. Much electrical/electronic parts production had moved overseas. Also, there was lower-volume use in smaller cars.
“We are now seeing increasing use, as efforts to increase fuel efficiency are accelerated,” Kallman said.
The import/ export picture is different for ABS, with imports greater than exports. ABS buyers in North America have included Asian ABS manufacturers in their supply base.
Though PS is considered a commodity resin, high-impact PS is at a significant premium because of butadiene pricing.
Volatility is the word in PS, which has experienced 20 changes in 28 months: seven increases in 2009 and three decreases; five increases and two decreases in 2010; and so far in 2011, two increases and one decrease.
“Every time market price moves, there is a discussion, or there should be, between you and your supplier as to what your price should be,” Smith said.
Not all processors accept increases at the same time. Some lag by months, some split the increase over two months and others take an immediate increase. And increase amounts are not always the same.
A moderator asked participants how long it had been since a supplier volunteered a price decrease in engineering resins. One participant answered that it was last summer, to which the moderator responded, “Do you think that is the only time it has decreased?”