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issue: January 2009 APPLIANCE Magazine

Materials Forecast
Materials Forecast: Plastics

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David Simpson

Plastics, Chemicals, and Oil

Plastics and chemicals took a heavy hit from increased oil prices. Since oil is used as a feedstock, the mid-2008 oil price jump had a knock-on effect. While the subsequent plummeting oil prices are bound to also have an effect in plastics and chemicals prices, it’s unclear when, where, and how much. Some companies, including DuPont Engineering Polymers (Geneva, Switzerland; www.dupont.com) were still announcing price increases as recently as October. It attributed these to “the continued escalation of raw materials, transportation and logistics costs.”

At the same time, some companies are responding to a weak market with production cuts. Citing a “massive decline in demand,” for its materials, in late November BASF SE (Ludwigshafen, Germany; www.basf.com) announced plans to temporarily close 80 plants worldwide and cut output as much as 25%. Besides plastics, the $75 billion company manufactures dyes and thousands of other chemicals. Among output affected are ammonia, styrene, and polyamide, which can be used for engineering plastics and coatings.

For U.S. expanded polystyrene, Gary B. McLaughlin, president, Huntington Foam LLC  (Coraopolis, PA, U.S.; www.huntingtonfoam.com) comments, “We saw a significant run-up in EPS pricing earlier this year driven primarily by high benzene and ethylene pricing tied to historically high crude pricing. Asian pricing, while lower in the early part of the year, began to surpass domestic pricing due to very high feedstock pricing in Asia and the increased demand from the Asian earthquake, Olympic Games, and European demand. Asian feedstocks started to decline in late August and really crashed in October. U.S. feedstocks only began to fall dramatically in November. This was mainly due to hurricane activity in September.

“Benzene has now moved to a new low in relation to crude pricing due to a lack of demand brought on by the global slowdown in economic activity," McLaughlin says. "Most analysts believe it hit bottom and has actually begun to move slightly up in price in early November. There is plenty of global supply for styrene monomer and EPS. The main driver for EPS pricing will be what oil influenced feedstock costs are in 2009. OPEC continues to call for more supply cuts in crude, which should eventually have an upward impact on pricing for EPS feedstocks ethylene and benzene."

McLaughlin says 2009 pricing will go where oil pricing goes. "Based on where crude and feedstocks are now, it will be lower than where it was in 2008," he says. "I don’t see any issues that should impact EPS supply at this point, and demand will be flat to downward based on a slowdown in economic activity. Some Asian producers will be impacted by the availability of credit and some have closed due to a lack of financing and the impact of a crash in pricing.”

Bruno Barbet, polyurethane global market leader appliance for Dow Europe GmbH (Horgen, Switzerland; www.dow.com) points out that supplies of one of polyurethane’s key components, polyol (propylene oxide), have been tight for some competitors in 2008. By the end of the year he viewed the supply as fairly balanced. Barbet counsels looking beyond the short-term spike and drop in oil prices for guidance on derivatives and polyurethane pricing. “The 2008 crude spike is corrected down today to basically U.S. dollar prices from the beginning of 2007. The strengthening of the dollar is limiting the effective raw material decrease for a number of currencies including the Euro.

“While there is a connection, PU pricing has not and is not going to increase or decrease at the same rate as oil," Barbet adds. "PU suppliers like us were severely squeezed by the oil price spike. If prices get too low, there will need to be corrections in which major derivatives and PU plants shut down.

“For the first half of 2009 we expect to see low demand from appliance manufacturers. But my perception is that appliance demand will begin to recover by the end of the second quarter, and the second half will be stronger.”

“Unfortunately, going into 2009 the key word is uncertainty,” declares Gavin Jewell, market development leader, BASF Engineering Plastics (Wyandotte, MI, U.S.; www.basf.com) “No one predicted the size of the gyrations this summer and fall. Even though some plastic raw materials have come down somewhat from their record highs, they are still at historically very high levels. Also, many feed stocks are used in other chemical products besides plastics. Things we never used to worry about like ammonia have gone up in price tremendously due to increased demand for fertilizer.”


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