Facing the pain of resin prices

Meanwhile, specialist polyamides producer Rhodia reported Q1 sales up 23% to €1.2bn, turning a €91m loss for the period in 2009 to a €140m profit. And polyolefins giant Borealis saw a 38% year-on-year gain to €1.4bn.

The figures make encouraging reading as materials producers must return a profit if they are to invest in the developments that end-users and processors will depend on for the future.

However, these gains are not simply due to growing volumes. As all processors will be only too aware, the price of all plastics resins has been moving consistently upwards. And it is now beginning to hurt – hard.

A look into the historical pricing pages of the European Plastics News website shows that in May last year the upper band price of raffia grade PP was just €840 a tonne; 12 months later and the price has soared more than 60% to reach €1,380.

Since the start of the year, PP prices have risen by 26%. And while PP has seen the biggest increases it is not the only resin on an upward path. PVC pipe grade prices are ahead by 10% since January, and general purpose PS and bottle grade PET prices are up by 12%.

So what lies behind these huge increases? Are the materials companies really playing fair? Well, unfortunately for those on the buying side, they probably are.

Resin pricing has always been controlled by supply and demand. During the slowdown of the past year demand evaporated and materials producers had capacity producing resin they could not sell. Prices dropped to artificially low levels and producers closed capacity to restore the balance.

Now demand is slowly picking up. But resin producers will not begin the costly process of bringing mothballed capacity on-line again until they are sure that demand will be sustained. And that applies as much to feedstocks as it does to resin – feedstock prices have been rising over the past months with some producers finding the margins they can get outside of plastics considerably more attractive.

It is likely that resin supply is going to be finely balanced for some time to come. Throw in a few unplanned outages – such as last month’s problems at the giant Total PP plant at Feluy in Belgium – and it seems the processing sector will be suffering more pricing pain over the months ahead.