Sticker shock continues for resin buyers, but analyst warns of possible economic slowdown
By Karen Hanna
Roughly six weeks since Russia launched a full-scale invasion of Ukraine, sending oil prices soaring, market analyst Jeremy Pafford has good and bad news for resin buyers hoping for some price relief.
“Unfortunately, probably the only way that they’ll truly normalize will be through decreased economic activity, and increasingly, economists are worried that that will come in the form of recession,” said Pafford, the head of market development for North America for oil-watching firm ICIS, which has recently seen indicators that a slowdown might be looming.
On April 7, Pafford provided a breakdown of his projections for PE, PP and PET prices. With logistics issues stemming from the COVID-19 pandemic exacerbated by the war in Eastern Europe, he believes resin buyers — of all types of materials — need to balance price advantages against the need for predictability.
If he were buying resin, Pafford said he would try to lock in prices for next year that would be indexed quarterly, based on the average price of each preceding quarter.
“If I know it’s going to be a high price, at least I can plan on that. When I don’t know if it’s going to be high or low, and I’ve got no way of providing myself any kind of reliability, I am flirting with disaster because there’s a whole lot of risk involved within that. I’m trying to mitigate that as much as possible. That’s why I think the sweet spot is … for your prices to change four times a year, so you’re able to take advantage of any market movements that are an advantage to you while also mitigating your risk to the upside.”
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Prices for all types of resins are up, Pafford said, but not all resins have experienced the same levels of increases.
“Broadly speaking, globally, crude oil prices are the leading indicator of where material prices want to go,” he said.
For buyers, generous PE supply has created incomplete protection against price inflation. But PP and PET supply is not as high.
“Polyethylene, [the] biggest commodity resin in North America, in the U.S., is very well-supplied,” Pafford said. “But even its prices are rising because … it can’t ignore the pull of crude oil and pricing across the world; it just can’t. Polyethylene prices in other regions are rising because of supply issues and the crude and feedstock price issues. That is pulling U.S. prices higher, as well, because the U.S. is a major exporter of polyethylene."
Because of strong demand for packaging and bottles — which Pafford expects will continue to grow over the summer — sourcing for PP and PET is a bit tougher.
But rising prices are only a problem depending on one’s perspective, as Pafford pointed out.
“If you are a resin producer, you’re making pretty good money, and you’re going to see some wonderful results for a lot of the resin producers out there, and consumer demand still seems to be pretty good, so converters are able to take that resin, convert it into things and have been OK, have been able to pass on the price increase,” Pafford said.
How long consumers can absorb the costs could determine what happens next. According to Pafford, an ICIS economist recently raised the odds for a recession within the next 12 months from about 20 percent to 36 percent.
“There are,” Pafford said, “gathering headwinds that would affect the plastics, demand for plastics, in the long run.”
Karen Hanna, senior staff reporter
Contact:
ICIS, Houston, 713-525-2613, www.icis.com
