Buyers see market on the upswing
By Staff -- Purchasing, 9/7/2000 2:00:00 AM
With strong demand and tightening supply, analysts and buyers are predicting higher polyethylene terpthalate (PET), resin prices in the near future.
Rising raw material costs have prompted producers to nominate incremental price increases since the fourth quarter of last year. And according to one analyst, market conditions have been good enough for producers to get increases totaling about 8¢/lb.
In July, most producers of PET called for price hikes of 5¢/lb. At the same time, Dow Chemical Co., Midland, Mich., announced that it would increase PET pricing by 8¢/lb. And while producers aren't getting the full amount on their proposed increases (the most recent settled at about 3¢/lb), no one can refute that prices are on the way up.
"Clearly, rising raw materials costs have been behind the PET price increases," says Robert Bauman, polymers analyst with IBM ChemSystems, based in Tarrytown, N.Y. "And because of the increasing demand, we're seeing producer inventory levels decreasing, which is tightening the market and causing further upward price movement," he says
Most analysts estimate PET demand growth at an annual rate of about 7% through 2003. In terms of supply, Dave Witte, a polyester and terephthalates analyst at Chemical Market Associates, Inc. (cmai), an industrial market analysis firm based in Houston, Texas, says that PET resin supply should tighten very quickly in 2000 and 2001. "In 2001, PET operating rates will pass 90%, and by 2002, more than one million tons of new, yet unannounced, capacity will be required to meet demand forecasts," he says.
Purchasing FORECAST: Buyers should be prepared for some upward PET pricing of a couple¢/lb in the coming months.
According to Purchasing survey data, PET spot pricing currently averages about 59¢/lb. Prices have risen steadily since this time last year, when PET spot prices averaged about 51¢/lb. Since the third quarter 1999, PET prices have risen an average of 8¢/lb, say buyers.
And buyers expect prices to continue upward. Look for PET pricing to climb another 2¢/lb from current levels by the end of the year. From there, buyers predict pricing to cool and settle at around 60¢/lb. Though some price erosion may occur, especially during the second quarter of next year, buyers don't see prices falling more than a penny/lb in the foreseeable future.
According to data from the U.S. Department of Commerce Bureau of Labor Statistics' Producer Price Index (PPI), the U.S. market for plastic bottles has seen a marginal upward pricing trend in recent years. According to the PPI, prices in the second quarter 2000, are represented by 110.2 index points, which is the highest on the index in several years.
Annual averages on the PPI show a steady increase in plastic bottle pricing, from 105.7 in 1998 to 106.1 in 1999. The higher marks during the first and second quarters of this year and the expectation of PET price hikes in the coming months support cmai's forecast for a recovering market in the year ahead.
Packaging applications account for about 85% of PET resin demand. Other uses, including audio-visual media, magnetic tape, injection molded motor vehicle components, and electrical and electronic components, make up less than 15% of the total market.
In supply news, KoSa, a producer of PET based in Houston, Texas, has announced that it will add 800 million lb/yr of capacity by 2002. Currently, KoSa has PET expansions slated for its plant in Offenbach, Germany, where it will add 130 million lb/yr; and at two other existing sites that have not yet been announced-one in Europe and one in North America.
According to a company spokesperson, the new material will be scheduled to come online incrementally by 2002 to limit the potential for oversupply.
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