Michael Workman is the business development director with Resin Technology Inc., a consulting firm in Fort Worth, Texas. Prior to joining RTI in 2022, he was at Avient Corp., formerly PolyOne, in several management and sales roles for more than 10 years.
RTI works with buyers of plastic resins as well as paper and corrugate to provide intelligence and negotiating power to help processors save money on the resin that is essential to the products they make. Officials added that over the past 20 years, RTI has saved clients more than $1 billion on commodity and specialty plastics resins, color concentrates and performance additives.
Q: Are we seeing good demand for commodity resins such as polyethylene and polypropylene in North America this year? Which end markets are doing well?
Workman: Although our team of resin experts at RTI prides itself as being glass-is-half-full by nature, some of our clients have joked that we've been rather gloomy lately, with the intel we've been sharing. Unfortunately, outside of a few niche areas, most markets have been flat to down for the last four to six months or longer and are not reported to have a typical historical spring surge of order patterns in 2024. This observation has especially been evident with our clients in consumer discretionary goods, consumer durable goods and packaging.
Nevertheless, there was some hope that the spring surge in orders would be delayed and could still arrive, even if at a lower magnitude than in prior years. However, given the core personal consumption expenditures price index increased 0.3 percent in March and 2.8 percent from this time a year ago, inflation remains a real problem. The inflationary trend will likely prevent the Fed from lowering interest rates until later this year, if at all, which could further limit spring/early summer order ramp for processors and their clients. Both PE and PP are both running about 10 percent below normal demand and operating rates.
For PE specifically, demand has been flat to down across multiple industries in North America. Although infrastructure projects requiring PE piping saw demand pull forward due to uncharacteristically warm winter in most parts of North America, we've already seen that demand start to taper off in Q2. If the PE producers were not exporting more than 45 percent given the arbitrage, they would be in even worse shape.
The PP market has certainly been on another roller-coaster ride this year with respect to pricing, but much of this has been due to [polymer-grade propylene] availability due to plant turnarounds, both planned and unplanned. Demand fundamentals continue to be very weak, and PP inventories continue to be at or near record levels. This is anticipated to be the case in PP until when and if there is hurricane activity in the Gulf Coast.
Q: What about engineering resins such as polycarbonate and nylon? Similar conditions?
Workman: Again, demand has been mostly down to flat, with pockets of slight increases with improved demand slow to come but anticipated to pick up pace in [the second half]. Both of these resins are used heavily in automotive and building and construction. Auto demand has been hampered by slowed EV sales. [Construction] is improving for single-family homes year over year, but again subject to cost challenges due to high interest rates.
Supplies [of engineering resins] are ample as some global producers are consolidating capacity in Europe due to costs and import competition from capacity growth in China. Feedstocks were elevated in Q1 2024 from turnarounds starting mid-January with supplies improving in Q2 2024 even as demand for some feedstock streams to gasoline components is increasing for the summer driving season.
Q: How has interest in sustainability affected North American resin markets in recent years?
Workman: Most of our clients have, in some form or fashion, been challenged to improve their sustainability stories. Many clients have focused on long-hanging fruit such as green energy operations investments, operational waste reduction initiatives, as well as investigating or introducing post-consumer and post-industrial recycled materials into their products.
With that said, added costs to final products have presented significant headwinds for many companies. Quite simply, introducing higher-cost sustainable products risk negative [profit and loss] impact or raised costs that the consumer will not accept — and have put many sustainable programs on hold, or worse. As an example, FDA PCR for food packaging pricing is higher than PCR pricing which is higher than virgin resin pricing in today's current market, using PE as an example.
Given the weak demand and lack of local or federal regulation in most industries, these programs are still more the exception than the rule. Additionally, processors are dealing with roadblocks such as finding quality products that can be certified and that have consistent, forecastable supply volumes.
As far as influencing the wider resin market, product that goes into sustainability-driven markets doesn't have too much impact on the wider commodity market because the products don't seem to directly compete and the scale is much lower. Products that go into the sustainable applications are higher priced because of the additional costs associated with the collection, cleanup and processing costs.
The price of the resins that go into the sustainable applications carries a premium and does not have the same type of price volatility of the commodity resins, in particular PE and PP.
Q: What's the outlook for the rest of 2024 and into 2025? Good growth?
Workman: The markets look to have a flat to slow growth mode for the immediate future. Usually, an election year will result in some growth in most industries, but elevated interest rates are still an issue as mentioned earlier, and until the economy picks up and the consumer has more confidence and disposable income, growth will be flat to slow.
Unfortunately, as stated before, interest rates are likely to stay elevated through at least the early part of [the second half of] 2024, if not longer. Our team sees a bearish market until Q2 2025, when the expectation of inflation moderation coupled with lowered interest rates and stabilized domestic political situation leads to economic growth.