Plastics manufacturers are being hit by the simultaneous forces of supply interruptions, vastly changing demand, and volatile petroleum prices. So far, commodity polymer prices have slid slightly, but there are numerous opportunities to negotiate larger price reductions from resins suppliers if you know where to look.
The key factors that determine if the specific resins you purchase are candidates for aggressive cost-downs are:
- Do you know which resins are more affected by Crude Oil price changes? Crude oil prices recently hit an 18-year low and most resins have reduced prices, but the affect varies.
- How has the supply market been affected by COVID-19? Some resins such as Acrylics are a net export from China, so the first quarter impact was a reduction in global supply. Other resins such as Polycarbonate are a net import to China, resulting in a global surplus in Q1.
- Has demand for products made from your resin been impacted? The global automotive industry slowdown has impacted demand for PBT, but a number of resins are seeing an opposite effect as demand for PPE, masks, and syringes have skyrocketed.
- Do you have contracts in place with formula pricing or ties to a market index?
One example of the how these factors can come together is PET for packaging. After six months of price decline, PET is expected to see increased prices in May due to high demand for single serve water bottles. Companies that took APD’s advice to lock in formula pricing will benefit from the oil price decline, while companies that continued buying on spot prices will likely see increased costs.
According to resins industry expert Matt Kaufman, “This is a unique situation and very dynamic. Different economies will be coming back from COVID-19 slowdowns at varying times, impacting both supply and demand. Opportunities exist for lowering resin costs beyond what suppliers offer, but you have to know the whole supply and demand story to capture them.”
Opportunities to lower resin costs are very situational due to the competing effects of lower oil prices and reduced consumer demand. According to resins industry expert Paulo Moretti, “Most of Polymers (resins) are made from Crude Oil or Natural Gas derivatives, however most of them follow the Crude Oil prices, so when Crude Oil goes down, also the polymers price follow the same trend. There are some exceptions due to unbalance of supply and demand in each region like in China where the PP and HDPE price went up because the pandemic is driving consumption of masks, shields and ventilators.”
In these tumultuous times it can be difficult to know if your resins costs are competitive, even when suppliers come to you with price reductions. For example, if the cost for a particular resin you purchase has been reduced 5% in the past month, could it have been 15%? Contact APD if you’d like to discuss how our clients are able to capture the full value of resin cost decreases, and lock them in with index-based pricing agreements.