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Resin pricing disparity hits home

November 1, 2003

6 Min Read
Resin pricing disparity hits home

Resin pricing, by some accounts, is the plastic industry''s dirty little secret. Asia and North America prices have varied significantly for years. But soaring natural gas prices and foreign competition are widening the gap even more, experts say, making it increasingly difficult for plastics processors to compete domestically.

"There is a significant price advantage at the polymer level for processors in Asia vs. North America," confirms Bill Bowie, COO, Resin Technology Inc., Fort Worth, TX. "It''s a very complicated problem."

Natural gas is a major feedstock used to produce resins, the primary raw material for plastics. Industry watchers estimate U.S. natural gas prices are $5 to $7/million BTUs compared to less than $1/million BTUs in the Middle East, among the lowest in the world. When U.S. natural gas prices skyrocketed earlier this year, molders were impacted because resin costs elevated as well.

But the resin pricing disparity between North America and Asia goes far beyond natural gas prices. Plastic processors doing business with offshore suppliers have a leg up on competitors because they pay roughly 25% to 35% less for resins, according to industry estimates. "There is no valid economic reason for this kind of magnitude difference," says Jim Morrison, CFO, Teknor Apex Co., a Pawtucket, RI custom compounder of plastics and rubber materials.

The situation has led to, among other things, an expanded margin and competitive difference for resin buyers in Asia and the West. For example, Morrison claims resins used to manufacture PVC compounds for injection molding sells for $.10/lb less in Asia. "We know because we have an operation in Singapore. That''s a huge difference."

Observers say the pricing disparity affects major commodity grade resins, such as polyethylene and polypropylene. Considering resins represent the majority of product costs for molders, the purchasing decision greatly impacts product quality, sales and profitability. To put it in perspective, Jon McClure, president, ISO Poly Films, Gray Court, SC, estimates the company''s resins costs are between $.40 and $.49/lb. By comparison, "my direct labor cost is less than 5 cents per pound to turn that into a finished product," he says.

Not everyone, however, is convinced that companies doing business in Asia receive lower prices on resins. Mark Wall, president, Greater China, GE Plastics, reports that raw material pricing is more or less equivalent in all markets. "The variance may appear when different layers of industry players, such as the manufacturers and distributors, have different pricing policy and return of investment," he says. "That may result in a more obvious variance in the commodity level where more trading layers are involved."

There are times when resin suppliers will sell excess supply overseas for significantly less. Regional factors often impact pricing, such as energy costs, supply and demand. "There''s nothing wrong with that," McClure says. "But it''s like screwing your good customers and giving the customers you really don''t want, your best price."

Eastman Chemical Co. tries to be competitive with pricing in various regions and markets served globally, according to Cary Clubb, marketing communications manager, specialty plastics. Most of these products are considered specialty resins. "Our Specialty Plastics Business prices products based on the value they provide to our customers," he says. "We also consider various influences, including our costs to deliver product and the price of the materials we compete with—often dissimilar resins."

Some processors are turning the tables on competitors by purchasing less expensive resins from abroad, either direct from suppliers or through a third-party company. "I have looked into importing specialty resins and found them in Malaysia on the same major commodity grade," McClure reports. "They are priced at least 30% to 40% less than the same resin I can buy in America."

Importing, however, can be problematic. Resins are delivered in 25-kilo bags and must be sorted manually. While ISO Poly Films still incurs a substantial savings on resin costs, despite additional labor charges, it adds extra steps to the production process. "No one wants to handle 30 million lb of resins in 25-kilo bags," McClure says. "It''s not the best and most efficient way to get the raw material."

Resin Technology provides clients, such as resin processors, extruders, injection and blow molders, with critical information and strategic proposals to help them get the best resin prices. "Our approach is we are going to buy from foreign processors every day," Bowie explains. "We can break even and not worry about saving a nickel, because they will be windows of opportunity." For instance, Bowie notes that earlier this year, when U.S. natural gas prices jumped to $7/million BTUs, customers would have paid $.05 to $.07/lb less for resins compared to domestic prices.

While there are foreign resin suppliers who will not sell to the U.S. market for competitive reasons, observers say processors can purchase similar, less expensive materials from other sources. Obtaining the best price is not necessarily predicated on company size. "I can show you a smaller guy who buys less because he is better informed, makes knowledge-based decisions and doesn''t have to buy a certain brand," Bowie says. "That savings goes straight down to your bottom line."

Greg Valero [email protected]

Outlook optimistic for new PUR blowing agent

Prospects for Enovate 3000, the non ozone-depleting hydroflourocarbon (HFC 245fa) that Honeywell makes in Geismar, TX, are looking good, company managers report.

The hydroflourocarbon has already been widely accepted in the U.S. appliance industry, which is under greater government pressure than elsewhere to provide high energy efficiency. And they say that a likely revision of minimum energy efficiency requirements in Europe around 2005/6 could help business there too.

The decision by U.S. authorities to allow stockpiling of HCFC 141b after the end of 2002, when production was banned under the Montreal Protocol, has meant conversion to HFCs has not been as fast as it could have been. Estimates are that the stockpiles will be fully depleted by around the end of this year. In Europe, use of 141b was much less widespread, since most refrigerators are insulated with foams blown with pentane.

Governments will be looking closely at building insulation and domestic appliances to see how they can cut CO2 emissions to meet obligations under the Kyoto Agreement. Europe, for example, is commited to reducing its emissions by 2012 to 92% of 1999 levels. At the current rate of change, it will fall well short of its objective.

Aware that this is currently the only source of HFC 245fa in the world, Honeywell has equipped the Geismar plant with a stand-by reactor to minimize the risks associated with any possible outage. In addition, there is reportedly "more than adequate" storage in Europe and Japan.

Peter Mapleston [email protected]

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