Buyers battle price increase
By Staff -- Purchasing, 3/12/1998
Through most of the first quarter, domestic buyers of linear low-density polyethylene (lldpe) have been fighting off a price increase. Some producers attempted to boost tags 3cents/lb in January and 5cents/lb in February, according to The Pace Consultants, Houston, Texas.There are mixed views on how the attempt will shake out. Producers, of course, want the full increase, but buyers aren't willing to give up a penny. In fact, lldpe buyers responding to Purchasing's monthly chemical transaction price survey say that lldpe tags will continue to decline through the end of the second quarter, falling 5cents/lb to an average of 35cents/lb for contracts and 3cents/lb to 34cents/lb on the spot market.
Analysts at Pace, meanwhile, are taking a middle-road position that slightly favors buyers. Pace analysts predict that lldpe tags will rise 2cents/lb, but the increase won't take affect on most contracts until March, due to price-protection clauses.
Supply/demand conditions continue to haunt lldpe prices. Demand for this resin remains strong, growing 7%-9%/yr, but capacity has been rising. The U.S. operating rate for lldpe plants averaged 79% in 1997, according to data from Pace.
Polyethylene producers worldwide are expanding capacity. The Freedonia Group, a market research firm in Cleveland, Ohio, estimates that more than 10 million tonnes/yr of new capacity is scheduled to come on stream by 2001. Among those building in North America, Nova will construct a 770 million lb/yr plant at Joffre, Alberta, Canada. Equistar Chemicals will increase lldpe capacity at its Morris, Ill., plant by 50 million lb/yr. The plant's capacity is currently at 650 million lb/yr. Dow Chemical will expand its Fort Saskatchewan, Alberta, Canada, plant by 250,000 tons/yr by mid-1999.
Throughout 1997, lldpe zigzagged with supply/demand conditions. The average U.S. bulk contract for general-purpose resin rose from an average of 45cents/lb in the first quarter to a high of 47cents/lb in the second quarter. After that, contracts dropped sharply, falling to an average of 41cents/lb in the third quarter. Prices increased slightly to 42cents/lb in the fourth quarter, then dropped to an average of 40cents/lb in January.
Spot market tags remained somewhat more stable last year. These prices averaged 40cents/lb in the first quarter, before rising to 42cents/lb in the second quarter. In the second half of the year, spot lldpe tags slipped, declining to an average of 39cents/lb in the fourth quarter. Spot tags continued to decline in January, falling to 37cents/lb.
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