Factors Affecting Product Cost
Staff -- Purchasing, 6/2/2005
- Crude oil prices have become erratic lately, but will remain high at an average $55 per barrel this year and $61 in 2006, according to Jeff Rubin, chief economist at CIBC World Markets. The Canadian-American investment bank believes global crude oil supplies are expected to increase by only 1% next year, which will push oil prices higher. "The expected rise in oil prices to $61 per barrel next year will likely be a prelude to an even tighter supply picture emerging over the balance of the decade," Rubin said in a recent news report.
- Growing global demand weakness for ethylene has been pegged to decelerating global economic growth and an inventory buildup of polyethylene, placing downward pressure on pricing, says analyst Jeffrey Zekauskas at J.P. Morgan Securities. He also sees weakening fundamental demand—and a lower pricing outlook—for propylene.
- Polyvinyl chloride (PVC) prices could decline 5¢ to 10¢ per pound or more during the rest of 2005, projects analyst David Silver at J.P. Morgan Securities. With no clear pickup in either export demand or spot-market prices, PVC contract prices could begin to decline as soon as spring construction demand begins to seasonally ebb, which is expected no later than July according to Silver. Broader market fundamentals may not bottom until late 2005 as inventories are reduced.
- FedEx Freight is leading an industry-wide general rate increase of 5.6%. The increase by the firm's less-than-truckload unit is higher than the 3.9% hike expected by analysts at the Morgan Stanley brokerage. The FedEx Freight hike applies to interstate and intrastate traffic, and selected shipments between the U.S., Mexico and Canada.
- Constar International, a maker of plastic containers, is running into a common problem: The Philadelphia firm is having trouble increasing prices enough to offset higher resin costs. The company tells analysts that competition has continued to put pressure on selling prices and it had to reduce prices for certain customers to extend key long-term contracts.
- Nickel prices are near 15-year highs but could tumble in the second half. Reason: World stainless-steel mills now are having trouble getting customers to accept record-high prices for summer deliveries because of a growing supply glut. Stainless-steel mills are the largest users of nickel. International Stainless Steel Forum has cut its production forecast for 2005 to 25.8 million metric tons of stainless steel, just a 5% increase over 2004.
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