The Price Movements of Plastics

- February 14, 2012 7:02 AM
Categories: Commodities, Conferences |

Spend Matters welcomes a guest post from Nick Peksa of Mintec Ltd.

Even if your core business isn’t related to plastics, you will likely notice the effect of plastic price movements. Plastics are everywhere in modern life: from polyethylene carrier bags to polypropylene car bumpers to polystyrene office furniture to PVA adhesives to the nylon fibres in clothing. It is useful, therefore, to know where plastic comes from and how to begin to predict the price movements.

A good starting point for investigating price movements is to look at the price of the feedstock, the raw material the product is made from. The base feedstocks of plastics are petrochemicals obtained from crude oil, natural gas or naphtha. These are non-renewable resources, although bio-plastics made from cereals are beginning to enter the marketplaces (useable for some applications). For plastics, 50-70% of the market price of the end product comes directly from the feedstock costs.

Make up of polystyrene:
Crude oil is refined; ethylene and benzene are obtained. These are processed into ethylbenzene, which is processed into styrene; this can be polymerized into polystyrene which is used in packaging.

The general trend is that styrene prices follow the benzene prices, which is not surprising as Benzene makes up 76% of the styrene, the other 24% being ethylene. But not all chemical processes are perfect and not everything single unit of ethylene and benzene will be successfully converted, so the yield needs to be taken into consideration. In this case we are looking at around 68%.

Therefore, looking at the crude oil prices gives a good indication of how polystyrene prices are likely to move, but it may not be the true picture. Factors such as supply are also important, but at least exploring the differences between the calculated and market price does give us the scope to ask a few more questions.

Crude oil market movements:
Global oil demand declined over Q4 2011 by 0.3m bbl/d to 89.1m bbl/d due to the slowing growth of global economic activity. Mild winter weather, the worsening economic situation in the eurozone and high oil prices all contributed to the lower demand estimate. The 2012 global oil demand growth forecast was also trimmed by 0.2m bbl/d and is now forecast to grow by 1.1m bbl/d. Oil demand is now seen at 90.1m bbl/d in 2012, down from 90.3m bbl/d previously. OECD industry oil inventories increased by 4.1m bbl/d to 2,647m bbl in November, driven by higher inventories in the North America and Europe.

OPEC crude oil production in December rose by 240k bbl/d to 30.9m bbl/d, the highest level in more than three years, supported by a fast recovery in Libyan output as well as increased production from Saudi Arabia and Iraq. Expectations of further increases of supply rose in the market following the statement of the Saudi Arabian oil minister that the oil-rich country would be seeking to stabilise crude oil prices at a level around 100 USD/bbl. Non-OPEC supply fell by 140k bbl/d to 53.2m bbl/d in December amidst a seasonal decline in biofuel production and lower supply from the former Soviet Union region.

On a personal note, I will be speaking at the Commodity EDGE conference in Chicago on March 19-20. As a regular reader of Spend Matters, I am sure you have already booked your tickets. But to add an interactive flavour to my presentation on ingredients and related commodities, the presentation is in your hands — please e-mail me topic and market requests: Nick (dot) peksa (at) mintec (dot) ltd (dot) uk

- Nick Peksa, Mintec Ltd.

Comments

  • United Global Sourcing & Procurement:

    Good to know the direction of plastic pricing. I’ll be checking more into this and I appreciate it.

Join the Conversation

* Required fields  [email address will not be published]

*