Start of downward price cycle for resins, commodities looming on the horizon
A downward price cycle for plastic resins and other chemical products is already looming on the horizon following gains over the past months fueled by Covid-19 recovery as well as federal incentives.
Plastic converters will soon see new polyethylene supply hit the markets, said by e-mail Philip Karig, managing director of Mathelin Bay Associates, which provides consulting to plastic processors.
“Some non-plastic commodities such as lumber have already fallen, suggesting general inflation in commodity prices will soon moderate,” Karig said.
The World Bank published in April a report to say that while nearly all commodity prices are now above pre-pandemic levels, driven by an upsurge in economic activity, declines will follow. It estimated urea prices may rise 31% in 2021 but then fall 8% next year.
Resin producers optimistic
Dow officials said that during their first quarter 2021 earnings discussion that “constrained inventory levels” are likely to continue until later in the year. LyondellBasell officials also had a positive outlook for petrochemical resin pricing.
“Plastics resin manufacturers very much have their own interests in mind when they predict that current tight markets and continuing price increases will continue to stick around until the end of 2021 if not longer,” Karig said.
“What they forget to acknowledge is that for commodity products such as most plastic resins what goes up has historically come down and will come down again,” he said.
“Resin manufacturers understand that they must continue to announce price increases because once prices stabilize the next price move will invariably be down, often sharply down,” Karig added.
“Most of the economy was shut down on short notice. Then major portions of the economy came back to life faster than expected, increasing demand for plastic items such as food packaging,” Karig said.
“Add in a freeze in Texas shutting down multiple resin plants, international shipping container dislocations and massive amounts of federal money to consumers pumping up domestic demand, and enormous resin price increases were inevitable,” he added.
“Looking forward, though, the start of a downward price cycle for resins is already within sight. Federal money to consumers is slowing as there is no guarantee of further broad stimulus payments and various states are stopping the incremental $300 per week federal unemployment adder,” Karig said.
“In the case of polyethylene, billions of pounds of new resin capacity in Texas (Sabic) and in Pittsburgh (Shell) could begin to come on-line as early as the end of 2021,” he said.
Shell is approaching completion of a Pennsylvania plant with 1.6 million tonnes/year capacity. A joint venture of ExxonMobil and SABIC is separately set to add 1.3 million tonnes/year annual polyethylene capacity by early next year.
“Domestic polyethylene manufacturers are also continuing to build inventory rather than to export it at lower prices which could quickly bleed back and lower resin prices domestically but that is not a sustainable strategy for the long-term,” he said.
Fertilizer prices seen receding in 2022
According to a World Bank report released in April the fertilizer price index it tracks jumped 24% in the first quarter of 2021, with urea and phosphates leading gains. Urea is a combination of carbon dioxide and ammonia. Ammonia plants use natural gas as feedstock.
The World Bank projects fertilizer prices will average 27% more in 2021 but recede in 2022 as demand moderates and production capacity increases, according to the April report.
Urea prices “jumped nearly 30% in the first quarter of 2021 as it reflected strong demand due to improved profitability, supply shortfalls from earlier pandemic closures, and higher input costs,” the World Bank said in April.
New urea capacity will start operations over the next few years in Azerbaijan, Brunei, India, Iran, Nigeria, Russia, and Uzbekistan. Urea prices will increase by 31% in 2021 and fall by 8% in 2022, according to the report.
“Global growth has been stronger than expected so far and vaccination campaigns are underway, and these trends have buoyed commodity prices. However, the durability of the recovery is highly uncertain,” said Ayhan Kose, World Bank Group's acting vice president for Equitable Growth.
By Renzo Pipoli