Mild '92 forecast for PE and PVC prices.
HDPE PRICES MAY SAG
Demand for HDPE is forecast to grow at a moderate rate of 3-5%, with generally stable pricing. Following the last 4 [cents] /lb industrywide price-hike attempt, which emerged in late October, resin prices were stable through November and December, with no further price erosion such as had been seen in the third quarter. Suppliers generally were unable to push through the latest increases, and said they would aim for implementation in January. This price initiative was linked to badly eroded profit margins as well as cost pressure from feedstocks.
For 1992, however, the influence of feedstocks may be in a downward direction. One major supplier says, "We see no reason for prices of ethylene to go up. There's considerable new capacity coming on stream in 1992 [both Formosa Plastics and Phillips 66 are scheduled to bring up new units]. And what was causing ethylene prices to go up before - higher ethane and propane costs - is not expected to be a factor. By December, prices of those raw materials had already started to come down."
Another source agrees that industry price projections for ethylene are downward through 1992, particularly toward year's end. "With that, we expect to have downward pricing pressure on PE resins in general. However, we have reached minimal profit levels, and we can't go down much further."
Looking at the brighter side, this source adds, "The way prices have been declining in the last couple of years could very possibly result in new application developments spurring demand." Among the most promising areas for HDPE growth are pipe and large blow molded containers - drums and gas tanks. Others are half-gallon milk and juice jugs; trash bags and grocery sacks, where suppliers expect HMW-HDPE to take business away from LLDPE, due largely to the ability to downgauge; pails for such applications as pet food; and sheet for geomembranes.
At the same time, several sources also say they expect virgin resin use to decline as recycled material cuts into its market, particularly in bottles for household/industrial chemicals and motor oil.
LLDPE OUTLOOK MIXED
Suppliers expect relative price stability for LLDPE through most of the first quarter, and a downward trend likely to start in the second quarter if ethylene prices drop. "I think it will be penny for penny," notes one observer, "until it gets to a point at which it slashes so much into cost margins that suppliers will need to put a stop to it."
Meanwhile, relatively good growth in demand is expected for LLDPE resins in 1992, with some suppliers projecting higher growth rates than for HDPE and LDPE resins. Supplier projections range from 3-5% growth at the low end to 6-8% on the high end. Still, long supplier inventories from fourth-quarter 1991 are expected to continue through the new year. That, coupled with projections of soft ethylene prices, point to downward pricing for LLDPE as the year progresses - in spite of success in implementing almost the entire 4 [cents] /lb increase issued in the last quarter.
Suppliers foresee particularly good LLDPE growth in molding markets, stretch film, and food packaging films.
LDPE GOES ITS OWN WAY
The supply situation for conventional LDPE resins, characterized as tight through the past year, will continue to be snug throughout 1992 as no new capacity will arrive. A small growth in demand - under 2% - is expected.
One supplier cautions that LDPE suppliers are operating at essentially full capacity: "You have to take into consideration that we are all dealing with aged equipment, and everyone at some point experiences problems - that is, outages - which cut into capacity utilization."
Sources do differ, however, on how they expect this tight supply/demand balance to influence pricing. Says one leading supplier, "LDPE resin prices will certainly be firm, if not pressured upwards." He and some other suppliers maintain that 1992 may be the year during which a long-predicted "separation" may take place between LDPE pricing and that of other PE polymers, which are in oversupply. One source says, "My thinking is that for some LDPE materials - film and liner grades - this is never likely to happen because they must remain competitive with LLDPE film and liner materials. This |separation' could more likely take place, however, in niche LDPE areas, such as special molding grades, clarity film, and possibly stretch film."
The big question is whether the depressing effect of sagging ethylene prices will balance or outweigh the supply/demand factor. Some say not; others are less optimistic. Meanwhile, suppliers say they were successful in implementing at least a good portion of their 4 [cents] /lb increases in the late fourth quarter, and would aim to push further for those increases in January with customers who had been previously price-protected.
One supplier offers this view of the demand picture: "While there will be continued pressure on some LDPE areas by LLDPE, we feel that the switch from LDPE to LLDPE is largely a completed exercise. The areas for which we expect growth are those that involve upgrading - both in process control and additives technology - of LDPE materials. These include extrusion coatings (including EVA types), blending of LDPE into heavy-duty bags, and several clarity-grade applications."
UPWARD PRESSURE ON PVC
Relatively stable, if not upwards, pricing is projected for the first half of the year. In late December, BFGoodrich issued a 5 [cents] /lb increase on all of its suspension-grade and mass homopolymer PVC resins, effective January 1. BFG said the move was necessary in order to improve badly eroded profit margins. Says a company spokesman, "We see upwards pricing for first quarter, as prices have been eroding and we have incurred higher feedstock costs. If there's no upward movement this quarter, due to lack of industry support, there will be upward pricing pressure throughout the entire year." At press time, no other major PVC supplier had officially confirmed taking action in support of the BFG move.
Suppliers report that they were partially successful in pushing through incremental price increases in September and October, but generally with great difficulty. Says one industry observer, "Despite the fact that these price increases were issued industry-wide, several special deals and continued price cutting have been taking place." Pipe-grade material was selling as low as 24-25 [cents] /lb by year's end, which suppliers say was at August 1991 levels.
Suppliers' expectations for 1992 range from 4-6% demand growth over '91 to an upper range of 5-10%. But after a 5-10% decline in 1991 vs. '90, even the more optimistic prediction leaves '92 at about 1990 levels. Key among the leading economic indicators for PVC is the building and construction industry, accounting for close to 60% of PVC resin sales. Sources at two leading suppliers forecast a strong first quarter for PVC. They say many buyers are down to "rock-bottom inventories." Less optimistic predictions see most of the improvement in the second half.
However, suppliers see considerable growth for PVC specialty materials, particularly molding compounds. Says one source, "We're positioning these PVC materials with other engineering resins. We have seen double-digit growth in specialty molding compounds in 1991, and expect similar results in 1992. Specialty extrusion compounds are also expected to do well."
Demand for exports is also expected to grow, but marginally. Says one source, "We saw tremendous growth in exports in 1991. While we anticipate export demand to grow 3% more this year, we expect considerable downward pressure on prices as a result of significant capacity expansions in the Far East and India."
[Tabular Data Omitted]
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|Title Annotation:||pricing update|
|Author:||Sherman, Lilli Manolis|
|Date:||Feb 1, 1992|
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