Global Plastics Summit puts PE prices in the spotlight

CHICAGO — Product manufacturers may start to shift away from polyethylene because of high prices, according to two major plastics processors.

The impact of high PE resin prices took center stage at the 2014 Global Plastics Summit in Chicago.

First-day sessions at the two-day event featured executives from leading North American PE maker Nova Chemicals Corp., as well as from major processors Bemis Co. Inc. and BWay Corp.

Bemis and BWay both buy PE from Nova as well as from other suppliers.

North American prices for PE — the world's most widely used commodity resin — have increased roughly 25 percent since early 2013. The North American market has seen six consecutive price increases during that span, according to the Plastics News resin pricing chart.

Mike Noel, executive vice president of sales and marketing for Oak Brook, Ill.-based BWay, said his firm is seeing makers of products ranging from kitty litter to paint to milk switching from PE back to metal or paper because of high prices. That list includes Canada's two largest dairy companies.

“We'd like our resin-based packaging growth to continue, but economics in the resin market is stunting our growth,” Noel said at the event, hosted by consulting firm IHS Inc. and the Society of the Plastics Industry Inc. He added that BWay “is working hard to maintain that business vs. alternative packaging.”

Jeff Lammers — vice president of global procurement for packaging giant Bemis in Neenah, Wis. —pointed out that prices for other resins such as polypropylene and polystyrene, as well as for materials such as paper, tin and glass, are up only 3-9 percent during PE's 25 percent run-up.

That difference “makes our customers wonder if they want to make the shift, or admit to making a mistake because they don't know where pricing is going,” he said.

“North American [PE] makers continue to push increases despite record margins,” Lammers added. “And there's a lack of credibility in pricing actions. They're never-ending and there's never any rational discussion.”

Bemis and BWay both carry some clout in the market. Bemis ranks as North America's largest film and sheet maker, according to a Plastics News ranking, with annual North American film and sheet sales estimated at almost $3.4 billion. BWay ranks as the region's eight-largest injection molder, according to another PN ranking, with annual related sales estimated at almost $600 million.

Nova's Chris Bezaire bravely ventured into this gauntlet of concerned customers. Calgary, Alberta-based Nova not only is one of the region's largest PE suppliers, but the firm is adding capacity for the material at plants in Ontario and Alberta because of advantages provided by low-priced, shale-based natural gas.

“Nova is very concerned about demand destruction,” said Bezaire, who serves as the firm's senior vice president of PE. “We were not supportive of the 3-cent [PE] increase in September because we saw that threat.”

The increase eventually took hold, with Nova as what Bezaire described as “a reluctant follower.”

“If the market goes up, and we don't go up, we're effectively cutting the price,” he said. “We don't know what the maximum [PE price] is, but we clearly recognize that in North America we're probably approaching that point.”

Bezaire added that large amounts of new PE capacity coming from Nova and other suppliers in the region — which are being driven by shale gas discoveries and which could add up to a 45 percent increase on existing supply — won't necessarily lead to a large reduction in North American PE prices. That's because global PE prices remain pegged to the higher cost of oil rather than the low price of natural gas. Oil still is used as a PE feedstock in most of the world, although more-plentiful natural gas is used in North America and the Middle East.

“We'd much rather keep the [PE] product at home, but it will be an economic decision,” Bezaire said. “I don't think the [PE] price will fall very far, because we can export to higher-cost production regions.”

Both Lammers and Noel said they agreed with Bezaire's expectation of a minimal PE price decrease resulting from new capacity. But Noel added that “there's a lack of total recognition [from PE makers] on what pricing does all the way to the consumer.”

“I'm also concerned about opportunity destruction,” Lammers said. “We could be destroying opportunities before the demand is even there.”