Pricing outlook for 1994.

With demand expected to remain strong, prices of polypropylene and PVC are almost certainly headed up before long. Polystyrene prices, though firm, may notmove upward until the second half of the year. Polyethylene prices look like a safe bet to stay where they are. That's the commodity thermoplastics outlook for1994; next month, we'll examine engineering thermoplastics and large-volume

thermosets.

Meanwhile, there is one current price increase developing in unsaturated polyester--details below.

PP WILL BE TIGHT IN '94

Lost export markets kept even modest PP price increases from sticking last year,but that should change. U.S. exports of PP fell 27% through September '93 after falling 39% in '92, a combined market loss of 800 million to 1 billion lb in twoyears. That overhang has now been absorbed by domestic markets, so producers saycontinued strong domestic demand will quickly take up most of the remaining slack and bring higher prices.

The theory is already proving out. December is normally the year's low point forsuppliers, characterized by "fire sales" and inventory dumping. Instead, PP sales were unexpectedly robust. Supplies tightened, and "some buyers couldn't get what they wanted. When that happens, the market tightens up quickly," one supplier notes.

Already, Himont and Shell both announced 2|cents~/lb increases for mid-January. Processors can also expect firming PP resin prices in the spring when propylene monomer tabs typically pick up.

PP sales, including exports, grew 6% last year, while domestic sales alone grew 9-10%. Producers expect '94 overall growth for PP, including exports, to be in the 6-8% range. Capacity utilization rates will run 90-95% in 1994, they say.

(The only new production coming on stream this year is Formosa's

290-million-lb/yr plant.) Industry analysts project 6-7% annual growth continuing to the end of the decade.

TABULAR DATA OMITTED

PE PRICES STABLE

Polyethylene producers say '94 will look much like '93--or worse (for them). During most of '93, producers opted to hold onto market share and give up price.That attitude is expected to continue.

Sales growth and capacity utilization are both expected to drop about a percentage point from last year. Overall demand will grow no more than 3.5% in '94, down from about 5% in '93. PE producers say the utilization rate will be about 90%, vs. 91% in '93.

Three factors depressing the PE market for the past two years are the absorptionof over 3 billion lb of new capacity, including 1.8 billion from

Phillips; increased Canadian imports; and recycling. PE comes in from

Canada at about 50 million lb/month. If Canadian PE production is taken out of the utilization formula, the domestic rate was only 87-88% for 1993 and is expected to drop to 86-87% in '94.

The full effect of Formosa's new 440-million-lb/yr plant in Texas won't be felt in '94 because the startup will be gradual. Formosa's new in-house film and

bag-making business will absorb some of the new plant's output and some will be exported to Taiwan.

Continued conversion of HDPE bottle markets to recycled resin also takes 400-500million lb/yr out of virgin resin markets. "It hurts, but that's the way it should be," one large resin producer notes.

December was ahead of expectation for sales volume, reports one producer, but nosupplier interviewed was pleased about prices. Several companies had to give back some of the 2-3|cents~/lb price hike they fought to get in May. "A lot of companies finished the year in the red," one producer says. Prices in a soft market will depend on "the degree of pain producers can tolerate," one producer notes. At least two producers are rumored to be trying to sell off their PE

businesses.

However, one producer has already announced a New Year's price increase. Apparently attempting to halt the slide, Solvay Polymers announced in late November a 3|cents~/lb increase for January 1 and then rescinded it in favor of February 1.

LDPE will be in greater demand, with higher utilization rates and prices than LLDPE, producers say. A few small, older LDPE production units have been shut down so far, but not enough to affect prices. "You need 500-600 million lb to come out of the market before prices will improve," one large producer says. Note that Westlake's new plant, which started up late last year, adds another 100 million lb/yr to the market.

Because of sharply lower oil prices, vertically integrated producers now get a double hit instead of a protective cushion of profits from the oil business. In December, oil prices dropped from about $18/barrel to about $14. That may also lower the price of ethylene, which could help relieve PE producers' pain. PVC PRICES FIRMER

PVC resin suppliers project continued growth in demand and fairly firm pricing through at least the first half of the year. Throughout 1993, suppliers succeeded in boosting PVC resin tabs by 3-5|cents~/lb, 0.5-1|cents~ of that in the fourth quarter. And all major players had further increases--generally of 2|cents~/lb--set to take effect January 1. That move is attributed to continued strong demand, dwindling inventories, and continued upwards pricing

pressure    from chlorine feedstock. Some suppliers indicate that more price
hikes of       similar magnitude can be expected in the first and second

quarters. "Demand is strong and chlorine prices are up. This requires us to keep profit margins at reasonable levels," notes one major supplier. "Demand in everything, no matter the business segment--appliances, business equipment, construction |siding, window profiles, pipe~ as well as automotive, was up. In fact, fourth-quarter 1993 was much stronger than it has been for the last three consecutive years," says a leading producer. Suppliers were projecting that by year's end, PVC poundage sales growth would be 4-6%. They sayeffective capacity utilization rates for 1993 were about 96% for the industry overall. Says one supplier, "This signifies that supply/demand balance is tight.We were running very low inventories in the fourth quarter and we expect that tobe the case during the first part of 1994, with utilization rates remaining somewhere in the mid-90s."

Most PVC suppliers agree with this view, projecting demand to grow about 5% in 1994. But note that forecasting beyond the first half is chancier. One factor isthat some new capacity is scheduled to come on stream from Georgia Gulf, although it is not expected to be felt until the latter half of the year.

While pipe and siding demand grew handily last year, one supplier says, "We saw negative growth in 1993 in the PVC bottle sector, which is struggling to hold

its own, owing to competition from other materials--principally PET. We project flat to negative growth for 1994 in this market. In wire and cable, demand was flat overall. Although the first half of 1993 was rather strong, there was a real slowdown in the second half. It's difficult to forecast what will happen, as a lot depends on the copper market."

PS PRICES FIRM

PS prices held relatively firm through the end of 1993, though attempts of some suppliers to push through increases in the third and fourth quarters did not

gain industrywide support. Whether price hikes are immediately in the offing is hard to assess. While some suppliers say downward pricing of styrene 

monomer    will not support an increase, others indicate that price hikes can
indeed be    expected.

Says one supplier, "Unless monomer prices firm up, we don't expect support for any price increase, as the market is very competitive. Actually, the polymer-to-monomer price spread right now is relatively healthy. One exception, however, is ignition-resistant PS, where we could badly use a

margin            improvement." A price hike affecting these materials can be
foreseen for the    first half of the year, projects this supplier.

Most suppliers project PS prices will increase 3-5|cents~/lb in 1994. Says one, "I don't see this taking place until the second half of the year, and when it

does, it will be independent of monomer prices, driven instead by supply/demand balance." Yet another major player maintains that a price increase could surfacein the first half of the year--possibly early in the

second quarter--when       supply/demand is usually in close balance, adding
that PS prices have           traditionally gone up in April, July, and

October. Demand for PS, which is traditionally strong in third quarter, was particularly healthy in the last half of 1993. Suppliers were projecting overall PS growth of4-4.5% for '93. Their growth projections for 1994 are generally in the 3-5% range, although one leading player anticipates his company will see an increase in sales of 7-8%.

Suppliers expect to see continuing replacement of ABS with PS, particularly in consumer electronics and appliances, due both to more favorable pricing and to continued performance improvements in PS.

With strong demand and no big new capacity, effective utilization in 1993 averaged from the high-80% range to 93%. This varied considerably from supplier to supplier. "Some are operating at 75-80% while others are as high as 96-97%," says one. For 1994, average utilization rates are expected to continue at levelsbetween high 80s and low 90s. Although some new capacity is scheduled to come onstream from BASF Corp. and Huntsman Chemical, suppliers say it represents only about 1% of industry nameplate capacity and will easily be absorbed. UNSATURATED POLYESTERS GOING UP

Reichhold Chemicals Inc. this month will raise prices 3-5|cents~/lb on various grades of its unsaturated polyester resins, a move expected to be copied by mostother suppliers. In a letter to customers, Reichhold said it had

previously     absorbed higher costs for raw materials, environmental
compliance, packaging,   energy, and taxes, but was now forced to pass along
some of these costs to      customers.

Cook Composites & Polymers was the first to acknowledge it was following suit. On Jan. 22, Cook will increase unsaturated polyester resin prices by 3-8 |cents~/lb. Next month, Cook also will boost its polyester gelcoats by 5-10|cents~/lb.