Bullish outlook for plastics resins

Staff -- Purchasing, 3/3/2005

Wall Street analysts and plastics industry insiders are bullish on the coming year and see a further strengthening of operating rates, transaction prices and profit margins. Their consensus: Despite fears that political unrest in the Middle East may boost oil prices to new record highs, the plastics industry appears poised for a substantial run-up in earnings and profitability in 2005—barring such unforeseen economic shocks as a recession in China or a major war.

The upward cycle for petrochemicals should continue at least through the first half of 2005, agrees Frantz Price at Global Insight. However, he does expect that companies will have to maintain a tight lid on costs in order to sustain profitability. Supplies of ethylene and propylene are projected to be tight, but analysts expect polymer producers to obtain sufficient feedstocks. Tight monomer supplies should further reinforce polymer producers' efforts to raise prices.

In addition, expect 2005 to be an extremely strong earnings year for the commodity plastics industry, Frank Mitsch of Fulcrum Global Partners, tells sister publication Chemical Market Reporter. A combination of rising demand and a lack of new capacity should strengthen margins from levels that are already high.

Although energy costs remain a concern, "the key metric is operating rates," he says. So, he projects potential profitability for the plastics industry to be better than the last peak (1995) and to more likely look like the previous peak (1988-1989). "Operating rates have generally surpassed 90% for most major polymers," notes analyst Kevin McCarthy for Banc of America Securities. He projects higher operating rates and better pricing for most major polymers throughout 2005, although US Gross Domestic Product growth should ease from 4.4% in 2004 to 3.4% in 2005, and industrial production should slow to 3.5% growth.