Plastribution’s Mike Boswell looks at two possibilities for resin prices, and what they mean for suppliers and buyers.
‘Being in the Doldrums’ is an expression used to represent a period of listlessness or despondency and the expression has nautical routes which are explained as follows:
‘The Doldrums are a large-scale weather system located on and around the Equator. They are best known as an area of very light winds which can slowsailing boats to a virtual stop, but the Doldrums can often also produce violent thunderstorms and sudden fierce squalls.’
So why the despondency about polymer prices?
Following the roller-coaster price ride which started in Q2 2020, prices have been falling back since H2 of 2022, with a background of a global economicslowdown causing consumer spending to be constrained.
Whilst in some sectors, such as automotive where a shortage of semi-conductor chips continues to restrict vehicle supply, the situation for polymers is much more difficult with polymer raw material supply comfortably exceeding demand.
In fact, the situation for polymer producers could easily be described as ‘stagflation’ with input costs including raw materials (monomers), energy and labour costs increasing, but the supply demand balance of polymer supply very much in the favour of buyers resulting in poor economics for producers, who in some cases are reporting minimal profitability and in others difficulty in even covering fixed costs.
Further evidence of the supply demand imbalance was provided in February where, for some, materials polymer selling prices actually decreased despite an increase in contract monomer prices and in other cases increases were well below the respective monomer cost increase(s).
Are prices likely to ‘flatline’ for a long period of time?
Those in the industry back in the 1990s may recall a period where priced ‘bumbled along’ the bottom for a protracted period, with small increases in pricesquickly falling away. Three decades later much has changed, both in terms of the speed of information and the financial management of business. Withregards to an exit from the current market conditions the following alternatives may occur:1. A gradual recalibration of the supply/demand balance through recovery in demand, reduction in polymer production or a combination of these twofactors. Of course, it should be noted that ‘balance’ can be difficult to achieve and that significant imbalances typically lead to a more dramaticimpact on pricing. As at the end of February there was some evidence that demand was improving as polymer processors sought to replenish depleted stocks even though underlying demand may still be on the weak side.
2. Akin to ‘the Doldrums can often produce violent thunderstorms and sudden fierce squalls’ there is always the possibility of an unexpectedgeopolitical or weather-related event taking place, that typically drives demand as plastic processors seek to secure inventory, causing a more dramatic change in pricing.