Thursday, May 12, 2011

Polypropylene Pricing

I used to work for a company that extruded polypropylene (PP), lots of PP, as in it extruded PP and very little of anything else. Obviously, they were quite sensitive to its pricing - the CFO knew exactly how much each penny increase cost the company on a yearly basis. When prices started rising, the scythe of the layoff demon would start swinging. As I recall, it was one person for every 5 cents increase.

I can only imagine how they are handling the increases this year. When I got back from Boston last week, the Plastics News sitting in my mailbox had a lead story of a double digit increase (again) - 15 cents since April - making for a total increase of 27 cents just this year. How can anyone handle those increases in such a short time period? Some processors are simply moving away to alternative resins, such as polystyrene, the very same resin that fell out of demand as people moved to PP instead.

There's a number of reasons for the increases, including one supplier declaring force majeur, and weather-related issues affecting other suppliers in the South. Also, the increased use of methane as a feedstock doesn't help.[*]

At the same time, people are seeing opportunities here and are responding. ICIS is reporting that Dow is now looking at cracking propane and butane to make propylene. None of these changes will happen quickly so I certainly wouldn't hold my breath on prices dropping significantly anytime soon, and I would expect the layoffs to continue at the old employer of mine. I'm glad my current employer is not as beholden to PP.

[*] It helps the (poly)ethylene markets as it's easier to make ethylene from methane than it is to make propylene. And once you have ethylene, you can make vinyl chlorine monomer as well, so PVC is not affected by these changes much either.

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