Buyers say price tags will decline through next year
CPI News
Christopher Reilly, CPI Editor -- Purchasing, 12/17/2001 2:00:00 AM
Buyers say price tags will decline through next year With a general decline in demand for ethylene derivatives, prices for high-density polyethylene (HDPE) are sliding, and buyers close to these plastics markets see more price erosion in the next nine to 12 months. According to buyers responding to Purchasing’s monthly survey of chemicals transaction prices, HDPE has come down about 1¢-2¢/lb over the last couple of months. In the injection-molding HDPE market, prices fell 3¢/lb, from 41¢/lb in third quarter 2001 to 39¢/lb on average in the fourth. Prices fell about a penny per pound for blow-molding and film-grade HDPE materials (from 40¢to 39¢/lb and 41¢ to 40¢/lb, respectively). As demand for HDPE continues to wane through the end of this year and into the beginning of 2002, buyers believe prices will continue to erode through second quarter 2002 and stabilize in the third quarter. By this time next year, buyers expect to see HDPE prices recovering somewhat. The forecasts suggest that prices will average about 42¢/lb for blow molding, 40¢ for film, and about 38¢/lb for injection-molding grades of HDPE. “For most polyethylene grades, there’s plenty of material available in the marketplace despite the fact that producers have cut back production,” says Dennis Cote, purchasing and warehouse manager at Timi Plastics, based in Towanda, Pa. “There just isn’t enough demand right now,” Cote says, noting that many HDPE buyers that he knows have depleted their usual inventory levels. Cote expects demand for most PE grades to pick up again either late in 2002 or by the spring of 2003, which he believes is more likely. “When the market turns, everyone will need to buy and there will not be enough supply available to avoid a major price spike,” Cote says.
Buyers looking to forecast price changes in HDPE markets follow trends in ethylene feedstocks. Analysts at New York City-based Salomon Smith Barney say prospects for an ethylene price recovery have deteriorated further than expected following the recent terrorist activities and that the overall pace of North American demand growth is not likely to break 1.8%/yr between now and the end of 2002. Estimated supply growth rate for the same time period is more than 5%/yr, making the price outlook for ethylene and its derivatives quite favorable for buyers. With producers holding the average industry operating rate below 85%, most will continue to work down inventories in the year ahead, but will have trouble keeping prices from eroding. Similarly, the markets for polyethylene resins are sagging with demand down about 7% in 2001 compared to 2000 levels. Supply continues to outpace demand, and two new ethylene crackers are scheduled to come on line by the end of this year, which will add nearly four billion lb/yr of capacity to the marketplace. CORRUGATED IBCS top Input costs slide, but IBC prices may not follow suit Paper pricing has turned decidedly negative in the last year but industry experts are leaning toward a flat pricing scenario for corrugated IBCs in the coming year. According to price data from Purchasing’s monthly buyer survey, linerboard prices have fallen steadily in the last year, from a $455/ton average in fourth quarter 2000 to about $402/ton currently. Purchasing’s current forecast shows linerboard pricing continuing to erode through much of 2002—as the slowing economy continues to exact its toll on the paper industry—then beginning a rebound in fourth quarter of next year. Prices for corrugating medium have also fallen in 2001. Purchasing’s pricing data show a drop of about $64/ton from fourth quarter 2000 to the present, and buyers can expect medium to drop to around $359/ton by May 2002 with a modest recovery starting by this time next year.  Meantime, demand for corrugated IBCs is expected to increase, leading some bulk packaging experts to expect flat corrugated IBC pricing through 2002. “It’s a steady market,” says Mark Jones, commercial development manager of Scholle, a manufacturer of bulk liners for a variety of intermediate bulk shipping containers, including corrugated containers, based in Northlake, Ill. “Though feedstock prices may continue to deteriorate, corrugated IBC makers and fibre drum suppliers have tried to remove the volatility of the paper markets [from their selling prices],” he says. Buyers are usually quick to point out that IBC prices should come down when producers’ materials input costs fall. “But they have to realize that their corrugated IBC pricing remained the same when feedstock costs were high,” Jones says, adding that 2002 will be a year of continued demand growth for corrugated IBC containers and for the liners used in their “bag-in-box” designs. Low-cost solution Buyers continue to turn to corrugated IBCs, especially for the flexibility and cost reductions they provide. “In this difficult economic climate, buyers are taking a very close look at removing some cost,” says Jones. “Many have found that investment in rigid IBCs and trip-lease programs does not make sense, while corrugated one-way containers continue to fill a need in the industry and remain the low-cost solution.” Corrugated containers cannot be used with U.S. Department of Transportation (DOT)-regulated or hazardous materials, corrosive or other materials, such as toluene, that can break down the liner and corrugated container. Still, they can be perfect for specific needs, such as shipping overseas. “Buyers don’t have to track shipment of each container, and they don’t have to worry about retrieving or reconditioning their containers,” Jones says. “In addition, corrugated containers are collapsible, which cuts down on shipping and storage space.” BIOCIDEStop Market stands to gain from new environmental regs Biocides used in formulation of paints and coatings used in the marine shipping industry could see a huge demand boost from a proposal for new environmental regulations, which would phase out the use of organic tins (organotins). In anticipation, biocide makers are beefing up their investments in new product alternatives. Douglas Simpson, product director of biocides at Arch Chemicals Inc., based in Norwalk, Conn., says new regulations will have a major impact on the marine coatings market, possibly sparking double-digit demand growth for alternative products before 2003. Arch Chemicals is investing heavily in development of new biocides that can be used on commercial shipping hulls to guard against scale formation and microbial accumulation, which break down coatings and can result in increased maintenance. The regulations are part of an international agreement to eliminate completely the use of tributyl tin (TBT) in marine antifouling coatings by 2008. The agreement, sponsored by the United Nations International Maritime Organization (IMO), has already been signed by 68 UN member countries. According to an IMO press release, TBT biocide paints represent about $50 million, of the $650 million annual global antifouling paint market and have been used actively in the marine shipping industry for more than 25 years. The biocides used in these products control growth of barnacles, slime, and algae which contribute to drag. Drag causes increased fuel consumption, reduces ship speed and limits maneuverability. Concerns about the persistence of TBTin marine environments, along with the fact that it has been labeled an endocrine disruptor have led to the ban. The IMO agreement will be effective one year after it has been ratified by 25 countries, representing more than 25% of global annual shipping tonnage. Arch offers zinc and copper based antifouling biocides under the Omadine label. According to Simpson, the Omadine products are designed to offer the same antifouling properties as organotin TBT-based products, but without the negative environmental impact. Besides marine coatings, Arch Chemicals makes biocides for a variety of other markets, including molded plastics, architectural paints and coatings, PVC pipe and other construction applications. For more information, check out Arch Chemical’s Omadine biocides at http://www.archchemicals.com. MARKET REVIEW top MDI pricing will erode over the short term Despite decent demand for thermoset resins in 2001, data from buyers and commentary from major suppliers suggests that prices for methyl diphenyl di-isocyanate (MDI) will soon begin to slide. Looking six months out, the price trend remains uncertain and depends largely on the state of the U.S. economy. According to data from Purchasing’s monthly chemicals and plastics transaction price surveys, MDI sales prices have remained flat at about $1.10/lb through most of 2001. The flat price trend is confirmed by Lawrence Berkowski, director of basf Corp.’s North American urethane chemicals business. However, he says, “Prices have come under downward pressure in the second half of 2001 as demand has decreased and supply of basic products has remained strong,” he says. MDI buyers report some price softening in the last few months, which could continue through end 2002. Look for transaction prices to average about $1.05-$1.06/lb by year end. Pricing in 2002 will depend largely on the strength of the economy. According to BASF’s Berkowski, “Pricing for MDI relies heavily on the construction market, but if consumer confidence improves early next year, and residual demand for furniture is released, demand for TDI will strengthen dramatically by the end of second quarter,” he says. “In addition, the market will be affected by some scheduled maintenance interruptions, which will tighten supply in 2002 and place added upward pressure on pricing.” Demand for polyurethane resins is expected to grow at a rate of about 4.4%/yr to about 7.6 million metric tons by the year 2004, according to data from Cleveland, Ohio based The Freedonia Group, a chemical and industrial market analysis firm. Demand for polyurethane resins has improved in the last couple of years according to the Freedonia study, as financial volatility in the Pacific Rim stifled demand in primary markets for most thermoset resins, including coatings, adhesives, construction equipment and automotive products. According to Freedonia, growth in demand for polyurethane resins will be directly related to production of transportation equipment and consumer durables, as well as construction markets, in which polyurethane foam is used in coatings and for carpet underlay materials. Polyurethanes are formed by the chemical reaction of isocyanates and polyols in the presence of a variety of modifiers and other materials. Many types of polyurethanes can be produced—-from soft thermoplastic elastomers to rigid foams—-by varying the starting materials used. Most are based on methyl diphenyl di-isocyanate (MDI), or toluene di-isocyanate (TDI). TDI is usually preferred for use in foams used in cushions and mattresses, while MDI is generally used in rigid and molded flexible foams used to make furniture. Both may be used in coatings, adhesives, sealants, and other products. In supply news, basf added a 140,000 metric ton/yr MDI plant in Geismar, La. this year, and plans another 160,000 metric ton/yr plant in 2002. basf has also made significant investment in polyols production, specifically, its propylene oxide joint venture with Shell in the Netherlands. Another propylene oxide joint venture with Shell is planned for 2002 in Singapore, Malaysia. CPIBUSINESS DATA top Little change from last month Business has been slow for chemical buyers. And judging by the consensus of comments Purchasing received from buyers in response to the monthly business conditions survey, October was “the worst month of 2001, so far.” Buyers continue to deal with slow demand for their end products, and with buying activity at a snail’s pace, continue to work their material inventories down. When conditions will improve is “the $64 million question”. Few buyers and producers are holding out much hope that demand and buying will pick up significantly in the near term. Most forecasts call for low, flat conditions to continue into 2002. For many chemical products and raw materials, producer inventories are at a low point for the year, which, according to some buyers, is beginning to have an impact on delivery and production schedules. “We’re finding that producers and distributors are not meeting their delivery dates due to their low material inventories,” agrees Rosemary Conklin, purchasing manager at Clifton Adhesive in Wayne, N.J. Due to the current demand and economic situation, few chemical items are in short supply. According to survey data, nearly two-thirds of buyers (61%) responding to our survey saw flat prices this month, while a modest 12% of respondents saw prices increase. And according to one buyer based on Ohio, “Pricing for most products remains unchanged, though some products, such as process oils and related feedstocks pricing is down slightly.”  top |
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