Plastics Industry Perspective
4th Quarter 2014
Impact of Falling Oil Prices on
North American Resins
Brent crude oil prices fell
from a high of $115 a barrel in
the middle of June 2014 to an
annual low of $55 on December
31, the lowest level since May
2009. Global resin prices follow
oil prices tied to high-cost regions
like Europe, which utilize
naptha as the primary feedstock
for cracking. The U.S. and Middle
East are low-cost regions,
which utilize ethane derived
from natural gas as a primary
feedstock for cracking ethylene.
Natural gas prices have remained
relatively flat during the
recent fall in oil prices. Lower
oil prices reduce the margins
and competitive advantage
North American resin producers
have over high-cost regions like
Europe. Although the competitive
cost advantage has shrunk,
it is still cheaper to manufacture
ethylene-based resins in North
America compared to most
places in the world.
Significant North American
investments surrounding natural
gas have been announced. The
current slide in oil prices will
certainly delay and potentially cancel some of those projects.
On the flip side, consumers
of resins will likely benefit from
lower oil prices. Chairman &
CEO Jon Rich of Berry Plastics,
a large consumer of resin and
stated ,“Historically, Berry’s
operating margins have moved
inversely to oil price movements.”
When resin prices are
high, users of resin often have
trouble passing along all of the
material cost increases. Conversely,
when resin prices are
low users of resin generally do
not have to pass all of the benefit
back to the customer.
North American resin producers
have not implemented price reductions in line with
global resin prices. This is partially
tied to now-resolved supply
issues with ethylene feedstock
and partially tied to an
apprehension to give up some
profits. This premium in North
American resin will likely be
closed in the near future, which
will further help North American
users of resin. If the North
American premium is not resolved,
resin producers will
almost certainly lose some export
sales to the Middle East,
which would also damage the
profitability of North American
resin producers through lost
demand.
Kevin Duffy is a Senior Inventory appraiser who specializes in the plastics industry. He
has appraised numerous plastics-related companies in North America that are involved
in distributing, compounding and manufacturing resins, films, sheets, and molds. Kevin
received his B.A. in finance from Illinois State University, and passed the CPA exam in
Illinois. Kevin has diverse business experience in
accounting, banking, manufacturing,
distribution, and retail.