Plastics Industry Perspective 4th Quarter 2015
Resin volume up, prices down in 2015
2015 saw domestic resin sales volumes for polyethylene (PE) increase approximately 5% compared to 2014. According to the American Chemistry Council, export sales of PE resin increased approximately 17% through year-to-date November 2015 compared to 2014.
Driven by an approximate 35% decline in crude oil prices, global petrochemical prices fell significantly. Though, U.S. Resin prices have not declined as severely as crude oil prices. Domestic PE prices fell approximately 16% in 2015, while export PE prices dropped approximately 19%. Resin prices were not as volatile as crude oil due to various factors, lincluding increased sales volume, and reduced inventory levels, in addition to handful of raw material supply issues.
Although export sales volumes were up in 2015, the industry faced numerous competitive pressures, including weaker demand for resin in important markets, such as China and Brazil, driven by economic slow downs, as well a strengthened U.S. dollar. Not only did the economic slowdown put pressure on sales volumes in certain regions, but it also exacerbated pricing pressures due to resin producers in regions like China and Brazil having increased levels of inventory resulting in an incentive to lower prices.
Market participants are skeptical about resin prices rising in the near future with oil prices appearing to remain low and the global economy experiencing slow growth, primarily driven by a slowdown in China. Additionally, increased levels of domestic supply is anticipated to continue to come online in 2016 and beyond.
Global versus domestic resin prices is contributing to ongoing downward price pressure felt by the U.S. market. Compared to global resin, domestic resin is mainly consumed in bulk trucks or rail quantities compared to global resin which generally is consumed packaged in super sacks and bags. This factor has kept domestic resin prices higher compared to global prices. If the price gap widens more, consumers could look to import more resin. Currently, the import market accounts for a minor share of the total resin market.
Kevin Duffy is a Senior Valuation Director who specializes in the plastics industry. He has valued 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.