Is polyolefin price differentiation set to increase?
In his column this month, our resident polymer expert, Mike Boswell, looks back at historical polyolefin prices as he analyses what the future could hold for processors in terms of cost and availability.
To a greater or lesser extent there are typically a ranges of polyolefin prices determined by polymer type and/or application. These classifications include:
The primary basis for differential pricing is based upon cost of production where several factors are of consequence. Firstly, output. In general, higher melt flow grades have higher outputs as these grades have shorter residence times in the polymerisation phase.
Secondly, efficiency. Polymerisation plants tend to produce individual grades in succession, ascending and descending through the range of MFRs. Typically, each change in MFR will result in the production of a quantity of so-called ‘transition material’, which typically must be sold off at a discount as ‘wide-spec’ or ‘off-grade’. Therefore, the less changes of grade, the better.
Another key factor is the supply/demand balance of any given material and application. This, combined with output and efficiency tends to determine premiums discounts for the different categories listed above. Given the manufacturing factors outlined above –and the ability of polymer plants to produce a range of grades – there is the option to adjust the portfolio of products to enhance profitability. Finally, supply chain management is a factor that requires consideration and, given that less grades make for easier logistics and the increasing amount of product being imported into Europe, the availability of more niche grades may become a factor, unless the premiums justify the additional complexity.
Mapping history
To get a better insight into price differentiation, the following graph looks at the relative pricing of various PE grades over the last 20 years.
From the graph above, it is possible to observe periods where price differentiation is both minimal and more significant, and it is also notable that at the periods of price extremity, differentiation becomes less significant. It also appears that since the supply crisis in 2015, differentiation has started to increase. The following graph includes PP and, in addition to depicting the greater range in PE pricing, also shows the relative movement of PP pricing, which is a result of these C3 (Propylene) being available as PE becomes more dependent on Ethane (Gas) as a feedstock rather than Naphtha (Liquid), where C3 is a co-product.
The influence of supply/demand balance can readily be observed in the following graph; LLDPE C4 Film sold at a significant discount from mid-2000 through mid-2002. At this time, significant LLDPE C4 capacity came on stream and with favourable economics in terms of both low ethane-based feedstock costs and also a reduced rate of import duty from the Middle East, and, with supply significantly out-stripping demand there was intense competition for market share and, hence, the significant discount.
Whilst the past may not necessarily determine the future, price action for polyolefins the following scenarios are likely:
- PP is likely to get more expensive relative to PE.
- PP price differentiation is most likely to be influenced by any imports of ‘deep sea’ PPHP for extrusion applications such as film and fibre.
- PE specialities such as injection moulding grades and copolymers are likely command a premium.
- Significant over-supply within any given ‘classification’ is likely to result in discounting.
Who is ‘Polymerman’?
Mike Boswell is Managing Director of UK materials distributor, Plastribution, as well as the Chairman of the British Plastic Federation’s Polymer Compounders and Distributors Group and its ‘BREXIT Committee’. ‘Polymerman’ is the title used for announcements made via his Twitter account. This column is compiled using data from PIE (Plastics Information Europe) www.plastribution.co.uk | www.pieweb.com