Polymers dip, but the trend may not last long
Staff -- Purchasing, 7/17/2003 2:00:00 AM
June price slippage in polymers markets reflects a slowdown in demand that became apparent in the second quarter. Polystyrene pricetags, for example, came down 2¢/lb because of soft demand. PURCHASING's Plastic Resins Price Index slipped to 143.5 in June from the 145.3 recorded in May. But, the continuation of high natural gas prices is eroding margins for producers of polymers, so market prices may start heading up again in coming weeks—especially if demand perks up at a time when producer inventories are low.
Spot-market prices for natural gas have been surging because the fuel is in short supply and high demand. This has boosted production costs for any number of products and inflated spot-market prices for numerous industrial chemicals and resins. What's more, according to the chief executive of the continent's biggest independent gas producer, North America likely faces four more years of tight natural gas supplies and high prices, even as some industrial buyers reduce demand by switching to other fuels. It could be that long before new liquefied natural gas supply makes a major contribution to the market and even longer before reserves in frontier regions like the Arctic and East Coast start to make a large impact, says Gwyn Morgan of Calgary-based EnCana Corp. 'In the meantime, there's going to be some significant displacement if gas prices stay high.'
For industrial customers, delivered natural gas averaged just over $7 per million British thermal units (Btus) in June. That's 80% more expensive than the $3.89 of June 2002. So chemicals have been affected by the rising cost of the key energy commodity. PURCHASING's Chemical Price Index came in at 140.6 in June, just barely off May's 141.0. The index reading hasn't been this high since the middle months of 1985. 'We're already seeing the methanol plants shut down in North America pretty much, fertilizer plants are moving offshore, and there are some real concerns on the part of feedstock industries,' Morgan says, discussing the impact of the high natural gas costs.
**This story is based on data collected monthly from buyers by Purchasing magazine. The data (leadtimes, business strategies, pricing) is available for sale in the product catalogues at www.purchasingdata.com.
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