Prices for resin, feedstocks, oil and gasoline all are down from their mid-2014 peaks. But these drops haven't been enough to quicken the pulses of materials executives that Plastics News talked with at NPE 2015 in Orlando, Fla.
None of them seemed all that riled up by oil prices dropping more than 50 percent. Maybe that's how you have to be while living in a commodity market. While prices for feedstocks are down — and consumers might have more disposable income resulting from cheap gas — the prices materials firms can charge for their own products also have been affected.
So you're not going to see a sales rep on late-night TV selling resins, compounds or concentrates while wearing a plaid sports coat and shouting “We must be crazy to sell material at these prices!” That's just not their style.
The most colorful comments came from executives at resin makers Dow Chemical Co. and BASF SE. “Oil is a distraction,” said Dow packaging and specialty plastics business president Diego Donoso. “It hasn't created good visibility to the value chain. Supply and demand should dictate what polyethylene prices are.”
BASF performance materials senior vice president Juan Carlos Ordonez added that establishing prices for his firm's own products “is strategic, but you have to guess where oil is going. And when things are bumpy like they are now, there's a good chance to be wrong.
“We follow the market closely and try to buy at the best price,” he said at a press event hosted by Ludwigshafen, Germany-based BASF. “But in turbulent times, I've learned it's best to shut your mouth.”
On the consumer side, Dow's Greg Jozwiak said that lower gasoline prices might spur consumer activity and consumption of PE-based products.
“There's a segment of the population that hasn't seen wage appreciation, so having another $15 or $20 in their pockets means a lot,” said Jozwiak, who serves as commercial vice president of North American packaging and specialty plastics for Midland, Mich.-based Dow.
North American compounding leader PolyOne Corp. of Avon Lake, Ohio, also could benefit from lower oil prices as its own energy costs decline and as consumers spend less on gasoline to fuel up their vehicles, according to CEO Robert Patterson.
“Lower gas prices can provide much-needed consumer stimulus,” he said.
And at ExxonMobil Chemical, Americas PE market development manager Dave Dunaway said that shale-based natural gas and oil projects in North America might not be affected as much as some might expect.
“The wells that have been committed to and already built will continue to come on,” he said.
Part of what's happening here is that increases and decreases in price often are covered by escalating and de-escalating clauses written into supply contracts. This has taken some of the sting out of negotiating steep price movements. If these contracts are written well, materials firms might feel a bit of pain when prices go up, but they also can hold onto higher prices a little longer when prices start to slide.
This mixed bag of oil and gas impacts has been experienced by compounding/concentrates executives John Deignan and John Manuck.
“We've seen some of it, but not significant dollars,” said Deignan, who's president of Americhem Inc. in Cuyahoga Falls, Ohio. “In some ways, it's increasing customer expectations [of lower prices], but overall it's good for the industry.”
Manuck, chairman and CEO of Techmer PM LLC in Clinton, Tenn., added that falling resin prices sometimes work against materials firms, causing customers to delay orders because they don't want overpriced inventory.
Experienced market watchers know that resin supplies are only one fire or accident away from tightening. That was shown late last month, when a small fire at an ExxonMobil propylene unit in Beaumont, Texas, led some to immediately ask how the polypropylene resin market might be affected.
Longtime materials execs have seen this show before. They might be watching it unfold on laptops or cellphones now, but the plot of the oil-gas-resin-compounds narrative remains awfully familiar.