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issue: January 2005 APPLIANCE Magazine

Materials Forecast 2005
Plastics Suppliers' Double Trouble


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by David Simpson, Contributing Editor

This vacuum cleaner canister is made with ZYLAR, clear, tough copolymers from NOVA Chemicals Inc. (Moon Township, PA, U.S.). As with other plastics, increasing raw material costs have affected pricing.

Plastics suppliers have been facing a double whammy. First, they rely heavily on high-priced oil and natural gas for their resin constituents. Second, some of these resin components have been in short supply. Throw in high energy and transportation costs, along with generally strong worldwide plastics demand, and you have an unappetizing menu for plastics providers and their customers.

BASF Corporation (Wyandotte, MI, U.S.) is one of a multitude of companies passing on higher costs. “The biggest issue facing us in 2004 has been a tremendous increase in the price of raw materials we use to produce products for the appliance industry,” observes Rick Van Genderen, director of consumer appliances. “While we try to cushion our customers from these costs, the magnitude of the increases has forced us to pass along increases. Of particular note has been the increase in benzene, which impacts polystyrene, ABS, expandable polystyrene (EPS), polyurethane, and others.”

On a more positive note, he has seen generally enough product available to meet demand. “However,” Mr. Van Genderen adds, “due to rapid raw material cost escalation, the inventory held in the entire supply chain has been reduced, and longer lead times are required to fill orders.”

He predicts that availability should be sufficient in 2005, with the possible exception of polyurethane, which is in tight supply globally. “Pricing is almost entirely driven by increasing raw material costs, such as benzene, ethylene, and natural gas. Availability is based on the viability of reinvestment to expand capacities. This has not been justified under pricing conditions over the past few years,” Mr. Van Genderen notes.

According to Rick Salvador, vice president, North American styrenics sales, Nova Chemicals Inc. (Moon Township, NJ, U.S.), polystyrene and copolymers of styrene used in the appliance industry have been adequately supplied through 2004. “The prices for these products have gone up considerably because of increasing feedstock costs and strengthening demand,” he says. “We expect that prices will continue to increase in the early part of next year if feedstock prices do not go down. Product availability will continue to tighten as the economy improves.”

Mr. Salvador adds that increasing raw material and energy costs have been the major factor affecting price. “For example, benzene, a major raw material component in the manufacture of styrene for polystyrene, has increased from nearly $1 per gallon to close to $4 per gallon in the past 2 years,” he says. “Styrene could be in short supply globally as demand for styrene derivatives grows over the next year. That could affect the availability of polymers produced from this monomer.”

Doris G. Hobbs, business manager, Durables and Medical, Eastman Specialty Plastics, Eastman Chemical Company (Kingsport, TN, U.S.), observes that materials in general are in tight supply, along with most basic raw materials for plastic resins. “The unprecedented raw materials, energy, and transportation cost increases have led to price increase announcements for Eastar copolyester and DuraStar polymer sold into the appliance industry,” she says. “Our expectations are that availability will remain tight throughout 2005. We cannot commit on price stability either for 2005, as there seems to be no relief on the basic elements of our costs.”

The Dow Chemical Company (Houston, TX, U.S.), which claims to be the largest manufacturer of basic plastics, is seeing very strong demand for key appliance resins, such as polypropylene, ABS, polycarbonate, and polystyrene. Growth rates are exceeding 5 percent.

For ABS, Dow has seen strong demand in North America. And, as demand increased throughout 2004, the cost of raw materials, including benzene and styrene, rose sharply, thus decreasing overall company margins.

For polystyrene, the tight supply/demand balance for benzene, combined with strong global styrene demand, have continued to drive polystyrene cost to what the company calls “extraordinary levels.” Benzene has established new record highs for consecutive months, and the company sees no relief in sight.

Dow has also seen very strong demand for polypropylene (PP). Export opportunities from North America have significantly increased. The company is running its plants at maximum output, while PP resin supply remains tight. As with ABS, the cost of raw materials has continued to increase, compressing margins.

“Given current, as well as projected levels for operating rates coupled with a lack of expansion announcements, we believe the peak is almost here,” notes Kim McPhillips, Dow’s North American Marketing Manager for Durables and Appliances. “When it hits, we anticipate operating at ‘peak-like’ levels for at least as long as we have been operating in the extended trough of the previous 3 years.”

ExxonMobil Chemical’s (Houston, TX, U.S.) view is that demand for polypropylene is increasing at about a 6- to 7-percent annual rate worldwide. Current appliance industry applications include use in laundry machines and dishwashers due to the material’s ability to withstand long-term, repeated exposure to heat and detergents. Supplies of propylene feedstock and PP resins are said to be tightening. New plant investment is tending to follow rising PP demand into high-growth developing countries.

Adds Stephen Magaziner, marketing manager, modified acrylic products, CYRO Industries (Rockaway, NJ, U.S.), “Our modified acrylic-based products are readily available but have required additional price surcharges to overcome escalating raw material cost increases. In 2005, these materials will continue to be available, but pricing is an open question given the price instability of major raw material feed stocks.”

Following a decline in polyphenylene sulfide (PPS) demand from 2000 to 2001, Jay G. Blackburn, Ryton business development manager at Chevron Phillips Chemical Company (The Woodlands, TX, U.S.), says the material has resumed its historical double-digit growth rates worldwide. “The increased demand for PPS over the past 2 years, with little capacity expansions, has raised operating rates to the point where several de-bottlenecking announcements were made in the industry in 2004,” he says. “Price increase announcements were made in 2004 due to increased raw material and energy costs.”

Mr. Blackburn adds that because worldwide economic growth is expected to continue, PPS demand will also continue to grow. “The minimal de-bottlenecked capacity will result in continued high operating rates for current PPS capacity in 2005,” he explains. “However, we’ve announced a new 22 million lb per year PPS plant to come on stream in 2007. The higher-than-historical raw material and energy costs are expected to continue in 2005.”

Prevailing economic conditions have affected the cost of many constituents that make up Bulk Molding Compound (BMC, or fiber-reinforced polyester thermoset), says Len Nunnery, director of Sales and Marketing at Bulk Molding Compounds, Inc. (West Chicago, IL, U.S.). “Petroleum-based ingredients (polyester resin and thermoplastic shrink control additives) and fiberglass have been impacted most significantly. Although our supply has not been limited, the cost of our composites has increased,” he says. “Unlike thermoplastic and metal materials, however, our sales prices have climbed only approximately 4 percent as of late 2004. The unique chemical make-up of BMC employs a large percentage of relatively cost-stable mineral filler. The resin content of our products is usually less than one third of the material by weight.”

These rubber extruded dryer door seals are made of Santoprene™. This engineered thermoplastic (TPE), made by Advanced Elastomer Systems, is said to offer excellent sealability, heat resistance, and elastic recovery.

Packaging in Plastic

Gary McLaughlin, vice president of Sales and Marketing at Huntington Foam Corporation (DuBois, PA, U.S.), says there is increased interest in Clear-View packaging, in which an expanded polystyrene EPS skeleton is engineered around a product, with shrink or stretch film wrapped around it. This replaces corrugated materials and saves on direct material costs. In addition, he reports EPS is becoming more of a player in components, replacing some hard injection molded parts because of weight and cost, yet having comparable function.

“Because of factors such as the worst hurricane season in years and increasing demand for EPS, there has been some short supply in monomers,” says Mr. McLaughlin. “But things are getting better. We are now starting to see some softening in oil prices, which should help to stabilize and reduce costs in the first quarter of 2005.”

Also affected by rising oil and gas prices are such products as tapes and adhesives. Ron Miaskiewicz, market manager, Industrial at tesa tape, inc. (Charlotte, NC, U.S.), observes that it takes about 6 months for rising oil prices to affect his company’s product costs. “It’s been a challenge keeping costs stable in this environment, with petroleum-based raw materials highly impacted by rising costs,” he says. “We consistently explore new methods in manufacturing to increase efficiencies and explore ways to work with customers to optimize our capacities to try and offset some of the raw material increases.

“As far as availability, we are not seeing any interruption in service and supply, and constantly monitor availability to develop safeguards to keep our supply chain full. In any event, we view the appliance industry as a key focus for our company, and provide service and support that reflects this,” Mr. Miaskiewicz says.

Sean McGrath, appliance market segment manager of adhesives supplier Henkel Loctite Corporation (Rocky Hill, CT, U.S.) says he is seeing price increases for bonding applications now and in the future, with silicone recently becoming more unstable. “Even so, we expect to see continued growth in the appliance industry as appliance producers look to replace mechanical fastening with more adhesives, and with more automated dispensing and curing,” he notes.

Materials Forecast 2005

 

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