The economic challenges of low polymer prices
Mike Boswell, MD, Plastribution (aka Polymerman) looks at the latest price changesin what remains a volatile market.
The polymer price rollercoaster ride is never ending, and given that prices never stay at the top or bottom for more than a few weeks, typically one of the following conditions apply:
1. Prices rising quickly.
2. Prices rising slowly.
3. Prices falling quickly.
4. Prices falling slowly.
It is easy to comprehend that the preferences of polymer suppliers and polymer converters are diametrically opposed, with sellers preferring prices rising quickly, as this maximises gains on unsold inventory, and converters preferring prices falling slowly as this reduces input costs on existing orders with a lower risk of either being undercut by competitors or from end customers pressing for dramatic price cuts based upon their knowledge of crashing polymer prices.
As depicted in the graph the past 39 months have provided a significant amount of price volatility, with a substantial drop as the Covid-19 pandemic hit the Western World, followed by price hikes as demand for plastics soared and availability of petrochemical feedstocks was limited by low oil refinery output rates and after a period of slowly increasing prices came the Russian invasion of Ukraine, which caused a rapid an unexpected peak in pricing; subsequently prices started to fall away as concerns relating to severe energy cost inflation caused fear of a significant global economic slowdown.
The implications of polymer price volatility on polymer producers are one of profitability and whilst key input costs such as Naphtha, which closely tracks crude oil, the moderation of these costs, has been less significant than the recent fall in polymer prices.
Polymer production is energy intensive and as with other manufacturing sectors this has also impacted production costs. The current reality is that many polymer producers are loss making and this situation will styme future investment and will likely result in reduced output rates; the inevitable outcome will be a shortage of supply and the consequence of increasing prices again.
Another serious effect of low polymer pricing is on the viability of recycling, where the contrasting cost model of mechanical recycling becomes increasingly challenged due to the relatively high variable costs involved in this activity. Furthermore, low virgin polymer prices and more specifically low off- grade or wide-specification polymer raw materials tend to lead to substitution of recycled products as producers factor higher performance and increased productivity into cost calculations.
For now, at least, the direction of travel remains towards prices softening, albeit that the rate of pricereduction is much more moderate and on this basis prices are likely to start moving upwards before too long.