In this edition of his regular column, our resident materials expert, Mike Boswell, looks at how polymer prices might evolve over the next six months. He also reflects on what has happened to polymer prices since the beginning of 2020.
The combined issues of price and availability dominate discussions across the whole spectrum of raw materials on a global basis. This is especially true for polymers, where feedstock availability is highly dependent upon the refining of crude oil, which is an activity that has been significantly curtailed as a result of the Coronavirus pandemic and the subsequent reduction in demand for transport fuels, which are the principal outputs of oil refineries.
Before considering the possible scenarios for polymer prices in the future it may be beneficial to consider what has happened to polymer prices since the beginning of 2020. The following graphs depict price evolution over this period for 3 key polymer groups. In each case 2020 starts off in a stable mode, although by February concerns over the potential impact of the pandemic on the global economy start to impact crude oil pricing and following a March peak, feedstock and volume polymer prices started to fall away as demand uncertainties dominated the market sentiment. Come the second half of the year the situation on pricing started to stabilise as supply and demand was perceived to enter into equilibrium. However, it became apparent towards the very end of 2020 that the reduction in output was too much and that the effect of inertia from global supply chains meant that the perceived equilibrium was a misconception, which when coupled with a plethora of unforeseen events, including the winter storms in the USA, resulted in what may come to be seen as the tightest market conditions for 3 decades.
When considering the future pricing scenarios, most interested parties will observe the ‘spikey’ nature of the petrochemicals market as the following graph clearly illustrates:
The following illustration provides a range of possible scenarios for price action in the coming months:
Key points for consideration will include:
- Supply/Demand Balance
As clearly illustrated by markets in recent months, the supply demand balance for polymers has completely overridden the inflationary pressures from their respective feedstock(s).
- Lead times between different regions
In tight markets, the lead time to move product from one market to another is likely to result in some independence of pricing even if arbitrage opportunities exist.
- Global logistics costs
Historically the price of imports has been at the lower end of any market range, although the dramatic increase in global shipping costs may start to place imports at the upper end of the price range, as it will be these volumes that will satisfy ultimate market demand.
- Recovery of Supply in North America
Following the devastating impact of the winter storms on polymer production in the Gulf Coast region, the industry is gradually coming back on stream. Although very strong domestic demand is unlikely to allow for much in terms of export volumes before the end of this year.
- Impact of Coronavirus on demand in the Indian Sub-Continent
As has been witnessed in other regions of the world, rapid spread of Coronavirus can significantly impact upon demand, with the risk of significant decreases followed by strong recovery.
- Demand for Transport
The demand for transport fuels will directly impact oil refinery output rates, and with that there will be significant implications for the availability of petrochemical feedstocks. It is notable that PP is extra-sensitive to this factor given that a significant proportion is derived from the production of petrol/gasoline.
- Overestimates and Underestimates in Underlying Demand
Events leading up to the end of 2020 clearly illustrate the implications of underestimating demand, a matter for which a heavy price is now being paid.
In conclusion, the situation going forward continues to look challenging with questions such as what, if and when dominating the thoughts of most polymer raw material buyers.
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