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Polymer price hikes are unsettling manufacturers

04 January 2011

Stuart Lovett analyses the current turmoil in the polymer supply industry, which is seeing unprecedented increases in prices across the board

The last eighteen months have seen unprecedented increases in polymer prices across the full range of materials. This is in spite of a global recession, and with the recovery has come a further acceleration in prices. In the past there have been big increases in the short term followed by small falls and periods of stability. This time around the increases have been on an almost monthly basis and have continued. When coupled with lengthening lead times, processors are finding it difficult to meet demand and benefit from the recovery. To illustrate the problem it is best to look at a few of the polymer groups in turn.

Polypropylene – Copolymer is now over £1,200 per tonne compared with less than £900 per tonne in the summer of 2009. Truckloads of homopolymer are in excess of £1,000 per tonne compared with £660 per tonne as recently as January 2009. One polypropylene producer said earlier in the year: “We won’t be satisfied with just covering the monomer increase for April, whatever that will be, we will be looking to improve margins as well.”

Supply problems have added to the difficulties faced by processors and distributors. At the beginning of 2010 TotalFina in France were on strike.  Exxonmobil workers showed their support by also walking out of their French plants. Sabic’s Galeen plant, LyondBasell’s Carrington plant and Ineos’ Grangemouth plant have all declared force majeure at different times during the year, with TotalFina declaring force majeure for the second time in June. It has also been suggested that some plants are operating at only 65% capacity in order to restrict supply.

ABS – One of the major problems is the limited number of European producers and their relatively small size. Seven million tonnes per annum are produced in the Far East and just 720,000 tonnes in Europe. Until relatively recently, there have been regular supplies of ABS from the Far East but as demand in China has grown, so supplies of ABS from the Far East have dwindled. On average there has been an almost 60% increase in ABS prices since August 2009.

Engineering Polymers – Engineering materials have also risen considerably in price. Nylon 6.6 is another material to have suffered a series of force majeure with BASF at the beginning of March, and Rhodia as well. Lead times for Ticona engineering materials range from four weeks to 20 weeks depending on the material; this is against normal lead times for ex-stock of four to six weeks.

There appears to be a combination of factors contributing to the current polymer supply and pricing situation. For commodity polymers (polypropylene and styrenes/ABS) there has undoubtedly been an increase in demand.  However, the word from the distributors is that this increase is relatively modest. The number of force majeure declared by manufacturers, particularly for polypropylene, is unprecedented, and the strikes in France have only exacerbated the situation. Added to this is restocking all along the supply chain and now some panic buying added in as well.

For engineering polymers the situation is more mystifying. Although there have been some production issues, there seems to have been a big increase in demand that cannot be attributed just to restocking or economic growth. There is now some panic buying taking place adding to the problems.

The Brussels based European Plastics Converters Association (EuPC), has urged ‘distressed’ plastics convertors to challenge their raw material suppliers in court. EuPC’s managing director, Alexandre Dangis, said: “The frequency of force majeure we have recently experienced is unprecedented in our working life-time. Several raw material suppliers have sailed very close to the wind legally and if the tests of ‘unpredictability’ and ‘irresistibility’ are applied many of these force majeure declarations are highly questionable. These really need to be put to the test as only the courts can form a view.” Realistically, what convertor can afford to take on a polymer major?

The problem for processors is that many OEMs and retailers are not prepared to accept price increases and in some cases are still looking for cost reductions. For the last 12 months the polymer manufacturers have been trumpeting their huge profit growths quarter on quarter ranging from the ‘modest’ 25% to more than doubling or even tripling in one case.

This short term endless pursuit of ever higher profits is risking serious damage to manufacturing industry in the UK and Europe with even more processors likely to go out of business as a result. This will force end users to look further afield for their supplies and the polymer manufacturers ultimately losing some of their market. The relative profitability, or lack of it, at the various stages of the supply chain suggest that it is not a free and open market and that some sectors are able to exercise more power than others.

Stuart Lovett is with Rutland Plastics, whose company recently hosted a visit by 16 first year design students from de Montfort University undertaking visits to a variety of companies in order to develop their understanding of manufacturing. As well as helping them to understand plastic injection moulding, Mr Lovett hopes that their visit will also help them to remember Rutland Plastics when they enter the workplace! Rutland’s website provides a wide range of useful advice for product developers, including polymer information and design guides.

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