Naples, Fla. — High prices throughout the economy could leave plastics processors feeling low.
That was the message from market veteran Howard Rappaport, who spoke at the 2022 Plastics News Executive Forum in Naples, Fla. Rappaport is a senior adviser with StoneX Group Inc., a global financial services firm based in New York.
A combination of inflation, supply chain issues, COVID-19 impacts and the Ukraine crisis have sent material and energy prices higher in the last two years. Rappaport said these conditions might be around for a while.
"Material prices are impacted by feedstocks, energy, operating rates and other factors, and driven by economic growth, energy prices and market fundamentals," he explained. "High prices indicate above average resin volatility. And higher margins result in elevated operating rates."
Strong growth has driven prices higher, but the recent surge in oil prices could lead to lower overall economic growth. In general, Rappaport said, oil price increases of $10-15 per barrel can knock half a percent off of GDP growth.
StoneX offers price hedging as a means for processors to reduce volatility. "The [consumer price index] is up 7-9 percent," Rappaport said. "Inflation could be here to stay. Producer prices are soaring."
He added that material producers have more leverage in the U.S. market because the region has a limited amount of competition. And though oil production has increased from its pandemic low, U.S. rig counts remain below pre-COVID levels. As a result, the price of oil has doubled since the first quarter of 2021.
Rappaport also cited other supply chain issues causing delays and disruptions, such as shortages of shipping containers, labor and materials.