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Low Prices at the Pump Doesn't Mean Low Resin Prices...

It is a common misconception that when the prices of oil and gas are low, the price of plastic resins will also be lower; however this is not always the case.  Polypropylene, one of the most versatile thermoplastic polymers commercially available, is a prime example of this inelasticity.  Demand plays a critical role in the price drivers and polypropylene is in high demand, as over 50 million tons of raw material is utilized each year in high-volume manufacturing applications, such as flexible packaging, rigid packaging, furniture, housewares, toys, textiles, car bumpers, electric cables, and more.   

When crude oil pricing fluctuates, it can often impact the cost of the feed stocks used to make propylene monomer, a mono molecule component of polypropylene, which we saw in November 2014, when the price of polypropylene began a significant decline.  However, that trend has recently been reversed solely due to the impact of supply constraints of propylene monomer, causing pricing to trend in the opposite direction of oil and gas.

Below you will see a chart describing how polypropylene capacity is defined.  The bars represent the following:

1st bar:  Total name plate capacity as defined by each producer and production lines.

2nd bar:  There are always feedstock issues throughout the year.

3rd bar:  Commercial mix is defined as the type of products produced.  Fractional melts yield far less product than higher injection grades.

4th bar:  Unplanned outages are just that.  Plants go down.

5th bar:  Planned outages are basically for preventative maintenance.

What does this all mean?  The ACC numbers show production was only at 88.6 percent, so one would assume that there should be available capacity and available resin.  However, when you back out the four market dynamics described above, polypropylene production is in a sold out (actually oversold) situation, at 97.8 percent of capacity, which means that prices will trend up and lead times could be extended.  The best way for injection molding companies to manage these market conditions is to work with extended 12-month forecasts from its customers and blanket purchase orders, which allow for better projections for material suppliers, thus providing for a more predictable supply and price scenarios.

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