The market for plastics and resins continues to be somewhat confusing, operating under very different market conditions as compared to other raw material commodities. Though resin producers have learned the value of managing capacity to stabilize (and potentially to increase margins), the way they’ve been building up inventories is puzzling, even in the face of steady and increasing demand. The fact that producers were pushing for price increases as of August indicates that they anticipate increasing demand, decreasing capacity, or a combination of both, and have some confidence of realizing higher prices for their products. After Hurricane Harvey, demands for increased pricing have only strengthened as stockpiles are drawn down and infrastructure restarts are slower than hoped for.
What can you do to keep up with these continually changing trends?
Be responsible for your own defense.
The best defense for a small manufacturer is to have multiple sources of resin pre-validated in your manufacturing process and pre-approved by your customers. This allows you to seamlessly shift from one supplier to another if faced with an unpalatable pricing demand. Be prepared to play suppliers 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.
Watch pricing demands and industry stockpiles.
Overall, pricing seems to be steadily trending upward. If demand continues to strengthen, and/or if producers take capacity off line for any reason, expect upward pricing pressure to strengthen, regardless of significantly increased inventories. Keep watch on the status of producer capacity in the Gulf region, as refineries work to bring plants back online and get approvals, especially in the wake of the Arkema chemical plant fire caused by Harvey. Given the reality that Gulf production and transportation infrastructure is coming online slower than anticipated, expect upward pricing pressure to continue.
In the short term, avoid spot buys if possible, particularly east of the Mississippi.
As an important aside, anticipate true spot purchase pricing to increase faster, as buyers may be required to make more truckload-sized or smaller spot purchases in response to rail transport woes east of the Mississippi. Those problems are largely the result of shareholder activist demands for operational changes at CSX, and are likely to continue for several months. This will serve as another factor pushing resin prices upward, particularly in the Midwest and on the Eastern Seaboard. Additionally, given the reality that recent natural disasters have profoundly impacted pipeline operations, refining, LNG, and resin feedstock production originating in the Gulf, expect that to be leveraged as even further justification for resin price increase attempts, especially for spot buys.
Industrial commodity pricing for plastic resins is in a state of flux, with producers both seeking price increases while building historic stockpile
Hurricane Harvey solidified moves to increase monomer and polymer resin pricing, and set the stage for a tight market in the near term
Price pressures will be sustained as producers work to bring capacity back online and transportation infrastructure coming out of the Gulf remains challenged
Prepare now to contain cost pressures from suppliers and to seek price increases from customers
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