Energy prices continue to put the hurt on plastics buyers

Staff -- Purchasing, 6/15/2006

In PURCHASING's most recent survey of buyers, 90% of respondents said they expect energy prices to increase in the next month. That's bad news for buyers in a lot of industries, but plastics buyers might be the ones feeling the pinch the most.

"Anything dealing with petroleum has increased this month," says a plastics buyer at an industrial supply company. Another plastics buyer in New York says, "We're seeing upward pressure on plastics as a result of natural gas and oil increases."

The vice president of purchasing at a restaurant group in California reports continued increases in the Styrofoam cups, containers and plastics bags he buys regularly.

Polyethylene spot prices are almost certain to increase by 3¢/lb soon, which is about half of the announced price hike but not enough to recover the 5¢ decline registered in April. First quarter demand improved by some 5%, according to the American Plastics Council, but buyers are fighting the 6-7¢/lb price hike proposed by producers for May and June.

Still, higher crude oil prices also are weighing onto price-boosting sentiment, according to ICISpricing.com. Part of the disrupted market pricing stems from the December/January run-up in resin pricing just as the price of ethylene, the base chemical, was dropping.

PE prices slipped back in April, which triggered at least three producers announcing 3¢ price hikes for May. That was followed by announcements from other producers that a 6-7¢ hike would take place either in May or June, depending upon existing order arrangements with big-volume buyers.

Reports in ICIS Insight suggest that market sources are confident that only the 3¢ increase will be successful—and probably not until June. Another 3¢ in July is probable. Buyers are somewhat anxious about supply because of the imminent onset of the summer hurricane season but are reluctant to accept higher pricing. Buyers at resin-conversion companies say they haven't been able to pass on higher resin prices since customers remain staunchly against higher prices for plastic packaging or parts.