Much has changed in the resins market since we last considered it in early October. The market for plastics and resins has stabilized, with the disruptions to supply caused by Hurricane Harvey dissipating as capacity has or will very shortly come back on line. Additionally, reactive buying in the face of uncertainty of supply has been replaced by more proactive supply chain behaviors. Largely, buying behavior was bullish and aggressive in in the immediate wake of the storm, studied and reflective near the peak, and is now becoming more bearish. Given we are entering the second half of the 4th quarter, a period which usually brings tight inventory management, this bearishness is entirely rational. Buyers are balancing both “traditional” year-end pressures to keep working capital tied up in inventory to a manageable minimum with the potential for additional supplies the 3 new major resin plants starting to come to market. Domestic processors will likely work to limit their purchases while they wait for prices to fall back below pre-hurricane levels.
Given these changing dynamics in the supply-demand balance, carefully consider large contracts in excess of immediate demand, as prices are likely to continue their softening trend, although with higher energy prices not likely to fall entirely to the lows seen earlier this year.
Keep informed about the state of the market. Be more knowledgeable than the salesman across the table.
The reality is that resins operate in a very different market than do other commodities. Some, like steel, remain strongly fragmented along continental and national lines. Others, like copper and aluminum, are true commodities in every sense of the word, with underlying value driven by global financial markets and commodities exchanges. Resins are different. Resins are a global commodity, but one influenced by financial commodity feedstocks such as oil and natural gas, and are significantly influenced by the actions of a handful of large-scale producers that are very effective in maximizing returns market-by-market, and who are very effective in resisting attempts by large scale buyers at transacting business on a true “global best pricing” basis. Given most buyers do not have the scale to even attempt such globally competitive negotiations, and are often working through regional distributors as opposed to directly with manufacturers, the onus lies even more strongly with buyers to remain up to date and informed about market dynamics and appropriate “should cost” pricing in their particular market.
You are responsible for your own defense
The best defense for a small manufacturer is to have multiple sources of resin pre-validated in your manufacturing processes, and pre-approved, as needed, by your customers. That way you can seamlessly (in theory) shift from one supplier to another if faced with an unpalatable pricing demand or supply chain situation. Be prepared to play pre-qualified suppliers off against each other, to ensure they remain in a reasonable margin band as market conditions vary, and don’t seek to take advantage of any hurdles you face in changing suppliers.
Keep watch on pricing demands and industry stockpiles
Overall, pricing seems to be beginning to soften. Gulf Coast capacity has largely come back online, and new capacity is on the horizon, although market pricing is likely to remain resin specific. For example, even as overall resin capacity improves, polypropylene supply is anticipated to remain tight, as capacity to produce it domestically remains closely matched to demand.
In the short term, carefully balance inventory carried with production, carrying enough but not too much excess raw material
Right now, the market has somewhat stabilized, and spot buys are not terribly overpriced. Given anticipated market trends and the looming close of the calendar year, ensure you have enough inventory to keep production humming, but take care not to lock into today’s still elevated pricing.
• Industrial commodity pricing for plastic resins is stabilizing, as Hurricane Harvey-related disruptions largely in the past.
• Hurricane Harvey solidified moves to increase monomer and polymer resin pricing, reinforced by marginally higher energy pricing.
• However, as more capacity continues to come on line, pricing pressures should moderate, although some increases are likely to stick.
• Continue to contain cost pressures from suppliers and to seek price increases from customers
• Qualify multiple suppliers now, before you are forced into a squeeze
• Follow this blog to keep informed
• Follow weekly Plastics and Resins Market Updates on PlasticsExchange (http://www.theplasticsexchange.com/Research/WeeklyReview.aspx)
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Note: This blog is not intended to serve as financial advice for manufacturers. If you are concerned with financial risks related to resin purchasing, please consult your legal team.
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The secret to closing any sale is to reduce uncertainty in the buyer and replace it with confidence in YOU, your PRODUCT/SERVICE, and your COMPANY. Step 1 – Confidence in YOU Someone buying from you wants to be able to fundamentally connect with you on a human level and feel confident that you’re an expert in what you’re selling If you’re selling paperclips, be an expert in paperclips If you’re selling design and engineering related services, be an expert in design and engineering related services Focus on addressing the problem, not the solution….MEANING you already know you have the solution, connect with the buyer by being an expert with the problem he/she is facing. Prove that you know the problem and all aspects of the problem like the back of your hand. Step 2- Confidence in the PRODUCT/SERVICE you are selling Someone buying from you needs to trust the product/service you are selling will solve their problem. It’s your responsibility to deliver a solution and the benefits associated with it. Basically you need to “Hit a Homerun” communicating this message. Tip – Use Success Stories: Share with the potential buyer examples of your product/service solving problems and delivering value for