Polypropylene producers push for price increase as market begins to firm

Polypropylene producers push for price increase as market begins to firm

THE POLYPROPYLENE market is reviving, and producers are seeking a 3 cent price increase to firm margins and hedge against possible increases in oil and natural gas costs. Producers say demand is picking up and they expect the market to get steadily stronger, leading into a better year in 2004. Analysts are more guarded. They also report that pricing is strengthening and the market is likely to be stronger next year, but they say pricing and demand were lackluster in August and producers are mainly trying to recover pricing gains they were forced to abandon. Craig Blizzard, marketing director for polypropylene at Basell North America, says that "the company's demand has improved markedly since this summer and orders are very strong." He adds that Basell's pricing is firming and the company is implementing its announced price increase. Although polypropylene demand is affected by the health of the overall economy, Mr. Blizzard projects growth of around twice GDP for Basell's sales during the full year and says the company's sales should increase by roughly that range again in 2004.

Bob Beil, commercial vice president of Dow Chemical Company's polyolefins and elastomers business group, says North American demand for polypropylene has been strong this month, and inventories are low throughout the supply chain. "Polypropylene demand continues to rebound in 2003, and we anticipate growth rates to be 5 to 6 percent in 2004," he says. "Dow is implementing an August 1 price increase of 3 cents per pound at all accounts and as contracts permit. With no capacity expansions in 2004, we expect supply/ demand balances to continue to firm up over the course of the year." Craig Fisher, managing editor of Townsend's Polymer Services and Information's Plastic Market Monthly, is less optimistic on pricing. He concedes that supplies are tighter than they were earlier in the third quarter, and inventories are increasing at the converter level, but he says pricing fell a penny in August and has been flat in September.

"Producers have a lot of work ahead of them to push through the 3 cent increase," he says. "They were forced to give back 5 cents of the 8 cents worth of increases they got earlier in the year." Yet he acknowledges that producers have reduced operating rates in the last few months, and the supply/demand balance may now favor a price increase. He reports that demand is improving slightly, although it is unclear whether consumption is actually rising or converters are prebuying ahead of the price increase.

Bob Dennett, senior consultant, polyolefins, at Chemical Market Associates Inc., Houston, views the current market as mixed and not as strong as expected. "If the economy improves, the market will get stronger," he says. "Current economic forecasts would indicate a fairly strong 2004." Key issues over the next few months will be whether an economic recovery occurs in petrochemicals and manufacturing industries rather than just in service sectors, and whether natural gas reserves ate rebuilt strongly enough to prevent an energy cost spike early next year.

Pat Duke, vice president, polymers, at DeWitt & Company Inc., Houston, says demand is "seasonally solid," supported by producers' efforts to raise prices. "The 3 cent increase effort is underway with progress continuing into October," he says. "The market will follow a seasonal pattern for the fourth quarter with fundamentals favoring a strong growth scenario in 2004. Short-term issues center on energy and feedstock costs pre- and post-winter and on the degree of producer resolve in managing polypropylene operating rates as export volumes and pricing lose momentum going into the fourth quarter."

Kevin Smith, project manager for polypropylene consulting at Phillip Townsend Associates Inc., Houston, and Dave Durand, the consultancy's director of global research, say the market has had a poor year in terms of growth, although demand is likely to pick up in 2004. "Polypropylene historically grows at around twice GDP, but that is valid only over the long term," Mr. Durand cautions. "Polypropylene's growth in any given quarter or year can vary widely from GDP." He adds that growth is strongest and most consistent in large developing markets such as India and China.

US GDP grew at annualized rates of 1.6 percent in the first quarter and 3.1 percent in the second quarter, according to Mr. Smith. Yet North American polypropylene demand fell 2 percent in the first half of the year and is likely to grow by only 2 percent in the second half. "In North America, polypropylene has been seeing a cycle of weak years followed by strong ones," Mr. Smith says. "Last year was relatively strong in terms of demand. This year isn't turning out to be so good, but next year should be better with growth around 5 percent."

Basell's Mr. Blizzard believes that operating rates are in the low 90s, and the market is absorbing the output of Conoco-Phillips' 775 million pound Bayway plant in Linden, N.J., for which Basell is the exclusive distributor. He adds that Basell will bring on additional capacity as the market warrants. The company previously announced plans to restart its 440 million pound-per-year D line in Bayport, Tex., next year and bring back its mothballed polyethylene unit in Lake Charles, La., as a swing plant with 440 million pounds of polypropylene capacity in 2005.

Mr. Beil says Dow continues to pursue new ways of making polypropylene resins and other propylene-based polymers. "We are experiencing growth rates in excess of 25 percent with our line of differentiated products," he says. "Different industry estimates predict overall polypropylene growth ranging from 3 to 6 percent per year. It is important to remember that because of downgauging, the usage of poly-propylene and polyethylene resins in applications like packaging is growing faster than indicated by the increase in sales volume. As the performance of polypropylene resins increases, they will be better suited to replacing higher-cost polymers in applications like flexible packaging."

Copyright 2003 Gale Group, Inc. ASAP
Copyright 2003 Schnell Publishing Company, Inc.
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