In the plastic markets, two big things seem afoot. The first is that the U.S. will have a stronger international trade presence in polyethylene than expected as a result of our unexpectedly good natural gas position. The second is that this advantage will not be shared with polypropylene.

For blow molding, this means that U.S. resin manufacturers will continue to be able to offset soft domestic demand with exports as they have done this year. At some point the new global capacity, in the Middle East in particular, should disturb this comparative advantage, but the data is more confused than it was. This year, our HDPE makers seem to have been able to hold upper 80% and even low 90% operating rates because of exports (American Chemistry Council Data via PlasticsExchange.com). Their overseas competitors using oil as the base material have experienced much higher costs making the U.S. natural gas-based PE significantly competitive. The ability to export to offset weak domestic demand has supported higher prices than would normally be possible given our domestic economic conditions. There is some inventory buildup going on that may soften prices after the first of the year briefly.

Meanwhile PP is experiencing significant cost-push pressures as less gasoline refining from lower driving and a trend towards lighter feedstocks results in less propylene for making polypropylene. Rising propylene is driving up PP prices even though PP demand is soft and PP capacity utilization is at a relatively neutral level around 85% (American Chemistry Council Data via PlasticsExchange.com). Plastics Exchange reports contract prices “deep into the $.60’s” and my own estimating method has crossed into the $.70’s for PP. It is necessary to note as well an unusually wide spread between global PP prices as seen on the London Metals exchange and those seen in Plastics News. This gap was 10-15% for 2006 through the middle of 2008. It then began to rise, crossing into the 20% range early in 2009 and for the latest data set the price difference is 45%. Plastics News PP is now 45% higher than LME — maybe not a wonder we’re not exporting much. Given PP’s mediocre capacity utilization rate and lack luster export activity, the fact that it is up so strongly is making a significant statement about the effect of lower gasoline production producing less propylene relative to propylene demand and a shift towards lighter feedstocks than normal that also produce less propylene.

PET continues to be relatively weak while showing some minor strengthening in response to rising energy costs although PET has changed nothing like HDPE and PP in 2009. Weak water bottle demand, lightweighting, etc. have kept this market on the soft side with the result that PET is now noticeably less expensive on a per pound basis than PP and is only slightly more expensive than PP on a cost per cubic inch basis that takes their density differences into account. PET is a bargain if you can use it.

Resin Prices

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