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February 12, 2021 09:57 AM

Price hikes bring resin buyers a less than happy new year in January

Frank Esposito
Plastics News Staff
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    The resin price hikes that complicated the end of 2020 kept on rolling right into the first month of 2021.

    North American polypropylene prices absorbed the heaviest blow, surging an average of 13 cents per pound in January, after jumping 14 cents in December. That two-month total of 27 cents in increases has led some processors to issue price surcharges on PP-finished products.

    And more PP price hikes could be on the way, as prices for polymer-grade propylene monomer feedstock continue to rise, recently topping 80 cents per pound. Regional PP prices now are up 46.5 cents per pound since May.

    The PP market is struggling with a chaotic combination of strong demand, high prices for propylene monomer feedstock and unplanned outages at some PP production sites. With gasoline consumption down because of the pandemic, oil refineries are running at lower rates, meaning they're making less propylene monomer as a byproduct.

    Increased use of natural gas as a plastics feedstock also has tightened propylene supplies, since processing natural gas produces less propylene than crude oil does.

    In a Jan. 28 statement, Braskem America CEO Mark Nikolich said that fourth-quarter 2020 PP domestic demand was up over 15 percent from 2019. He added that domestic PP demand was at record fourth-quarter levels because of strong demand in packaging and hygiene, as well as pent-up durables demand.

    "This strong downstream demand has created significant tightness in the propylene and polypropylene markets," Nikolich said. "To meet market needs, we continue to prioritize our clients in the domestic market while leveraging our new world-scale PP line in La Porte, Texas."

    Scott Newell, a PP market analyst with Resin Technology Inc. in Fort Worth, Texas, said in a phone interview that "there's strong [PP resin] demand, but the bigger problem is polymer-grade propylene constricting supply." He added that high PP prices already are leading buyers to look to imported material and to use more recycled or reprocessed PP if possible.

    PP demand from rigid packaging, food packaging and consumer products remains high. One major U.S. PP buyer told Plastics News that his firm isn't yet looking at potential alternate materials because he doesn't think current high prices will have "a lasting effect" on the market.

    Market veteran Phil Karig, managing director of Mathelin Bay Associates in St. Louis, agreed that PP users aren't ready to switch resins.

    "Every time PP has gone through one of its sharp price run-ups in the last few years, whether caused by monomer or polymer shortfalls or crude oil/propylene spikes, there's a lot of talk of finding alternative resins to avoid price risks in the future," he said in an email. "There has been, however, little in the way of substantial resin substitutions."

    The cost of switching materials and relatively high prices for competing materials such as high density PE also could convince processors to stick with PP, according to market veteran Esteban Sagel, principal of Chemical & Polymer Market Consultants in Houston.

    "At current and expected prices, converters won't want to buy PP unless strictly necessary," he said. "I believe converters are going to look for relief in other ways, such as imports."

    In PP production, a plant operated by Total Petrochemicals in La Porte, Texas, remains down after a Dec. 15 fire. Market sources said lines operated by Formosa Plastics Corp. USA and LyondellBasell Industries also remain down at Texas sites.

    Regional polyethylene prices moved up an average of 5 cents per pound in January after also moving up by 5 in December. The surprising hikes were caused by strong demand — especially in products sold to grocery stores — and unplanned outages at some production sites, according to RTI PE market analyst Mike Burns.

    "The market isn't out of the woods yet," he said. "A lot of people are still looking for material. Any bump in the road can have a big effect."

    A major PE plant operated by Braskem Idesa also is operating at less than 20 percent of capacity after a dispute with the Mexican government over supplies of natural gas feedstock. Sources said that Formosa and LyondellBasell also are having PE production issues at sites in Texas and elsewhere.

    Fourth-quarter sales in Dow Inc.'s Packaging & Specialty Plastics unit — including a major PE resin business — were up 6 percent to $5.13 billion for the quarter vs. the same quarter in 2019. But even with the positive quarter, full-year sales in Packaging & Specialty Plastics were down more than 9 percent to $18.3 billion, as a result of the global COVID-19 pandemic.

    In a recent phone interview, Dow President and Chief Financial Officer Howard Ungerleider said that Packaging & Specialty Plastics was "one of our strongest-performing businesses" in 2020.

    "There was tight industry balance, but we saw continued, sustained, strong demand," he said. "We expected demand to go down [during the pandemic], but it went up. There was fundamental demand strength."

    The PE market now is seeing some unplanned outages, as a result of reduced maintenance and capital expense spending, according to Ungerleider. Looking ahead in 2021, he said that the strength that Dow saw in the fourth quarter of 2020 "is expected to continue," adding that the firm's customer base has responded well to the pandemic.

    "The whole value chain reacted pretty quickly," Ungerleider said. "Demand proved to be resilient in health and hygiene, home care and other end markets. … We should see economic growth in 2021 as vaccines get distributed and we return to pre-COVID levels of activity."

    Major PE makers now are seeking a 7-cent price increase effective Feb. 1. North American PE prices are up a net of 25 cents since January 2020.

    After being flat in December, regional prices for suspension PVC increased by 4 cents per pound in January. Demand is up, as processors that sell products into the building and construction markets look to build inventories.

    "We have never seen orders as strong as they were in December and January," a PVC producer told PN. "Many of our customers are out about eight to 16 weeks. By the time they catch up, it will be time to build for the spring."

    North American PVC prices now are up a net of 19.5 cents per pound since January 2020, with producers seeking another 3 cents effective Feb. 1. Construction-related uses, including plastic pipe, account for around 60 percent of annual PVC sales in the U.S. and Canada.

    U.S. housing starts in December reached an annualized rate of almost 1.7 million, up 5 percent vs. the same month in 2019, according to the Census Bureau. Almost 1.3 million housing units were completed in 2020, up almost 3 percent vs. 2019.

    In solid PS, prices moved up 5 cents per pound, after increasing 6 cents in December and 2 in November. The January move again was tied to higher prices for benzene feedstock, which is used to make styrene monomer. Benzene prices jumped 39 cents to $2.43 per gallon for January, an increase of 19 percent vs. the prior month.

    PS prices since January 2020 now are up a net of 17 cents. Markets for the material were affected in the second half of 2020 by the temporary shutdown of almost 600 million pounds of styrene capacity operated by Westlake Chemicals Corp. in Lake Charles, La.

    Regional prices for PET bottle resin moved up an average of 3 cents per pound in January after rising 1 cent in December. Beverage suppliers are building inventories of the material in advance of higher consumption during warmer summer months.

    Regional PET prices showed a net decline of 1.5 cents per pound for full-year 2020. Bottled water has been the largest beverage market in the U.S. since 2016, when it surpassed carbonated soft drinks, according to the Beverage Marketing Corp.

    In feedstocks, prices for West Texas Intermediate oil began January at $48.50 per barrel but had surged up to $52.20 by the end of the month for a jump of almost 8 percent.

    Prices for natural gas, used as a feedstock in North American PE and PVC, began January at $2.54 per million British thermal units and had ticked up to $2.56 by the end of the month for an increase of almost 1 percent.

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