US benzene spurs PC, ABS resin hikes

Major price increases have hit North American markets for polycarbonate and ABS resin since late July, mainly as a result of higher costs for benzene.

PC prices have jumped 23 cents per pound, while ABS prices have soared 14 cents per pound as a result of price increases from GE Advanced Materials, Bayer Corp., Lanxess Corp. and Dow Chemical Co., the four firms that dominate North American markets for those products.

“It’s fair to say we continue to experience dramatic increases in energy, raw material and transportation costs,” GEAM spokes-man Terry Dunn said. “Benzene is more than $3 a gallon, and we’re probably the biggest buyer of benzene in the world.”

Benzene is used in the production of styrene monomer, which is a component of ABS. For PC, the extraction chain starts with benzene and leads to phenol and then to PC feedstock bisphenol-A.

Recent per-gallon prices of above $3 — with spot prices above $4 at times — are miles above benzene’s five-year average of $1.35 and 10-year average of $1.15, according to Dunn.

“[GEAM officials] are very smart purchasers of raw materials, and we use all the tools to try to manage costs as best we can, but sometimes we have no choice but to pass these costs through,” he added. Dunn also described pricing moves made by Pittsfield, Mass.-based GE as “surcharges on engineering resins.”

At Pittsburgh-based Bayer, the PC price increases are the result of “tight markets, skyrocketing raw material costs and margins that are below reinvestment levels,” according to spokesman Bryan Iams.

One New England-based PC buyer said his suppliers now want him to submit his purchase orders with lead times of eight to 10 weeks, instead of the standard three to four weeks because of tight raw material supplies.

“Benzene is the driver — it starts the whole deal,” the buyer said. “This is a scary situation.” Neither GE nor Bayer would provide details of their PC pricing moves, but industry sources said GE’s 23 cent move was matched by Bayer. On ABS, Lanxess officials confirmed a 14 cent move for July 20, matching a similar move attributed to GE.

Both GE and Bayer now have 12 cent hikes for PC set for Sept. 1, sources said. Bayer spokesman Iams also confirmed his company has an additional “price surcharge” for PC set to take effect Sept. 15. GE has a 7 cent increase for ABS slated for Sept. 1, while Lanxess Corp. — the recent Bayer spinoff that includes ABS — will try a 7 cent move Sept. 20.

“I’ve been associated with styrenics for 17 years and I’ve never seen anything like this,” said Lanxess styrenics sales manager David Gingras. “And it’s hard to tell if things will change. We’ve incorporated these elevated monomer [price] levels into our 2005 budget.”

Industry consultant Austin Peppin pointed out that profit margins for makers of PC, ABS and other engineering resins are not strong enough to allow producers to absorb 10-20 cents per pound in raw material cost increases. “The supply of benzene is a complete disaster right now,” said Peppin, president of Peppin & Associates in Chesterfield, Mo. “A majority of what [engineering resin makers] are doing is just recouping raw materials costs.”

Peppin added that he believed engineering resin demand would remain strong in spite of the price increases, but that applications in the bottom 10-15 percent of the market might look to less expensive materials such as acrylic. However, Peppin pointed out that costs for potential replacement materials have climbed as well.

Several industry sources said the effect of price moves would be softened to a degree by price drops seen in PC, ABS and similar materials since late 2000. Since then, average selling prices for injection-grade PC are down about 15 percent, while prices for optical-media-grade PC have plummeted 45 percent, according to Plastics News’ resin pricing chart.

Prior to price increases put through earlier this year, average selling prices for injection-grade and extrusion-grade ABS had dropped 8-10 percent since late 2000. But now — with early-year 2004 price increases taken into account — prices for sheet-grade ABS are up an average of 24 cents per pound since January, while PC prices for injection molding grade are up an average of 27 cents per pound. In ABS, that’s a jump of about 29 percent, while in PC, the increase factors out to more than 18 percent.

The increases come at a time when North American sales of ABS are rebounding after a dismal 2003. In the first half of 2004, North American ABS sales were up almost 7 percent, according to the American Plastics Council in Arlington, Va.

Sales of ABS, styrene acrylonitrile and other styrenics for domestic use were up almost 11 percent, led by a surge of about 40 percent in the building and construction segment. At Lanxess, Gingras cited construction, heavy trucks and buses and major appliances as areas of solid sales growth in 2004.

At GE, Dunn said the firm has seen “very strong demand” for “newer, more highly technical” grades of its Lexan-brand PC and Ultem-brand polyetherimide.