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Softer pricing outlook for engineering TPs.

Softer Pricing Outlook for Engineering TPs

Although the duration and degree of the economic recession and of the Persian Gulf crisis remain two crucial unknowns, suppliers of major engineering thermoplastics - ABS, PET, PBT, polycarbonate, acetal, and nylon - generally anticipate a slower year with a flat to downward pricing trend in 1991.

Nonetheless, in late December and early January, suppliers were still attempting to get in another price hike on certain engineering thermoplastics, including styrenic-based materials and polycarbonate. There could also be higher prices coming for acetal in the short term.


As reported last month (p. 97), in early December Monsanto announced Jan. 1 price increases for all its styrenic-based materials (nylon was not included), which was the company's second round of price increases since the onset of the Persian Gulf crisis. Monsanto called for an 8 [cents]/lb across-the-board increase on its ABS, ASA, SMA, and ABS alloys. It also posted a 4 [cents]/lb increase on SAN.

Before year's end, Dow Plastics and GE Plastics took similar actions. Dow announced increases as of Feb. 1 of 10 [cents]/lb on polycarbonate, 8 [cents] on ABS and Rovel AES, 9 [cents] on ABS/PC, and 4 [cents] on SAN. GE's Feb. 1 increases were 8 [cents]/lb for ABS and ASA, and 9 [cents] for PPO/PPE alloys.

These suppliers say the latest increases are directly linked to raw material cost pressure, particularly styrene monomer. Says a Monsanto source, "My feeling is that if there is a full-scale shooting war, these price increases will go through and additional cost pressure from feedstocks will result. On the other hand, if a resolution is reached soon, I would expect this new round of price increases to fall by the wayside."

However, the first round of price increases - generally in the 10% range and passed through industrywide in early Fall 1990 - will not be affected. "These increases are already built in," says the Monsanto source, who maintains, as do other suppliers, that those increases were not linked to the Mideast situation; rather, they represented an attempt on the part of suppliers to bring eroding selling prices to a level that would justify reinvestment. As one of them puts it, "It is our position that the industrywide ABS resin price increases that were issued after the Iraqi invasion of Kuwait had nothing to do with rising crude oil prices and resulting feedstock cost pressure. Instead, we thought that ABS was undervalued and this was basically a move to bring prices up to where they should be," says one source.

The same point is made for polycarbonate. But notwithstanding the latest push for an increase, PC suppliers interviewed in late December said they expected pricing to remain relatively stable, if not somewhat soft, particularly if key markets like automotive, electrical/electronic, appliances, housewares, and business machines continued to slow as they did in 1990.

ABS suppliers generally expect 1991 to be a slow year, whereas they appear to be more optimistic about some other styrenic-based "engineering" materials, such as SAN. Owing to slack durable-goods markets, demand sank beneath 1989 levels at the end of 1990. For '91 one ABS producer says, "I would say we're looking at a negative rate of 5%.

Another concedes that even though ABS suppliers are entitled to recover the increased costs already brought about by the Mideast situation, including feedstocks, fuel, freight, etc., he anticipates that unless a war launches feedstock and resin prices upward again, the pricing trend will be downward as a result of slowed demand and long supply projected for both monomer and resin.


Joining Monsanto and Dow in their effort (reported last month, p. 97) to hike tabs of engineering thermoplastics sold to the automotive sector, is Himont Advanced Materials. The company called for an 8 [cents]/lb increase on its HiFax TPOs, effective Jan. 15. Due to fixed-price model-year contracts, these suppliers had been unable to pass through the increases that they were generally able to get for nonautomotive grades of engineering materials in the fourth quarter of 1990.


Assuming a no-war scenario, PET suppliers project stable resin prices for the first quarter of 1991. As demand starts to pick up in the second quarter, and supply is projected to get tighter, be alert to the possibility of price increases.

Demand for PET is usually slow during the first quarter. One supplier says that as long as pricing of DMT and PTA feedstocks doesn't go any higher, he foresees no move to increase prices in the early part of the year. "We need to be careful not to price ourselves out of the market," he cautions, alluding to an unfavorable competitive situation relative to glass and aluminum that occurred in late '89.

Suppliers maintain that in most of the third and fourth quarters of 1990, "demand was surprisingly good, considering we increased prices by 6 [cents]/lb across-the-board since July." Another supplier's source points out that one reason demand hasn't faltered significantly, following the two 3 [cents]/lb increases in July and October, is that the same cost pressures have also affected glass and aluminum. "Everything has been going up - fuel, energy, transportation, operating costs - for all materials concerned."

Prices, meanwhile, have been holding stable, following what suppliers say was the successful pass-through of the last two increases. "There's been none of that price erosion taking place that you saw before July and good part of last year," reports one source.

Says an Eastman Chemical source, "January and February are slow months, but I project continued growth for PET in 1991, fueled considerably by our efforts toward total recyclability. I see plant utilization rates in the 90th percentile for next year." With no major new capacity coming on-stream in 1991, suppliers project a snug demand/supply situation, growing particularly tight during the strong months of June, July and August. One source notes that demand starts to build up as early as late April, and thus resin price increases would likely be issued in the second quarter. "While we have incurred higher feedstock costs, the economic situation is such that we have not reached - in terms of profit margins - the reinvestment level. And, unless we increase prices, supply will get even tighter as there will be no reinvestment," he says.


With leading economic indicators pointing downward, projections for PBT demand growth for 1991, according to sources at suppliers, range from flat to potentially negative. "There's no doubt that with automotive forecasted to slow even further, thermoplastic polyester will be tremendously impacted," says one supplier.

Nonetheless, suppliers indicate that there's real upward pressure on pricing. "While PBT prices were increased industrywide in the early fourth quarter, we have not been totally successful in pushing through the increases," says one source, noting that "less than 5-6%" of the 10% increases issued has actually stuck. As a result, they don't foresee any downward pricing movement. "I would say there will be an effort to keep prices stable, or possibly attempt to move them up, as we have been incurring higher costs throughout the fourth quarter and have only seen partial relief," says one supplier. Another ventures that PBT prices could remain flat through most of the year, with suppliers attempting to increase tabs toward year's end, particularly in the automotive market. There were industry rumors of an impending PBT price increase from a leading supplier at press time in mid-January, but these could not be confirmed.


Suppliers don't expect demand for acetals to grow during the first and second quarters, but they don't foresee much weakness in prices either. "While the supply/demand factor would point to downward pricing," says one supplier, "we have the factor of increased costs for raw materials, energy, etc. that everyone has been experiencing. I believe these two will offset each other. As a result, I would expect you'd generally see flat pricing through the first half of the year."

Another major supplier agrees that acetal prices will generally remain flat for most of the year, but surprisingly also indicates that a new round of price increases could take shape early in this first quarter. Suppliers claim to have been mostly successful in pushing through industrywide increases in the fourth quarter, generally about 4% for black, colored and specialty grades. However, natural and unmodified grades were not affected by those increases. As a result, some sources say there is a need to issue another price increase. "When you consider that the bulk of material sold is made up of natural and unmodified grades," explains one producer, "and at the same time we have continued to incur higher costs, you can see that some move to pass those costs on to those grades is likely to be made at some point."


Demand for nylon 6 and 66 is forecast to stay flat, if not decline, through this year, owing largely to the slowdown in key markets, primarily automotive. Pricing, as a result, is projected to remain stable, at best, or softer as the year progresses. Barring the outbreak of a war, no price increases appear to be in the offing, with suppliers maintaining that they will instead focus on fully implementing their first round of price increases, issued in the early fourth quarter.

Says one, "We are still trying to implement our increases which became effective in October. Thus far, we have been able to get less than 50% of what we asked for. The downturn in automotive has had considerable effect. Meanwhile, we have had to incur considerable cost increases: In addition to raw material costs, we have had tremendous expenditures that have resulted from health, safety and environmental issues. These are costs that we must pass along at some point."

Another supplier has a contrasting view: "If there is no war, I think prices will stay stable. We've gotten most of the 6% increase from non-automotive customers - better than 50%. I believe there has been a lot of compromising on the part of suppliers with automotive customers, mainly through delaying the increases. I think most have aimed at delaying them to January 1 or February 1, rather than waiting for the end of the model year, which is in May."

Concedes yet another supplier, "When we raised market prices in October, there had been a huge gap between list and market prices: list was almost a joke. We did not link our actions with the situation in the Persian Gulf. Our intention since then has been simply to fully implement that 6% increase - particularly in automotive where there's been contract protection. We haven't had the kind of profit that would justify very much needed reinvestment - for both new product development and new processing technologies. While we increased nylon tabs by 6%, we have been paying much higher prices (about 25%) for key raw materials like cyclohexane and caprolactum."

But if war does break out in the Gulf, suppliers say prices will go up. Says one, "Rather than have a series of price hikes, I envision a surcharge type situation; one that would allow us to pass on the costs we would be incurring, but would also imply that as soon as the situation was resolved, prices would return to original levels." [Tabular Data Omitted]
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Title Annotation:thermoplastics
Author:Sherman, Lilli Manolis
Publication:Plastics Technology
Date:Feb 1, 1991
Previous Article:All the news from Tokyo - part II.
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