This bold type entry is January 25, 2016. The plain type is from October 24, 2011. There's a deja vu all over / plus ca change sense about PE pricing. CDI just came out with 3 cents down with "(e)" after it which means estimated. This didn't surprize us; it just confirmed the rumors of recent wheeling and dealing in Houston on large volumes.
A billion pounds of gulf coast grass roots capacity here, a billion there, eventually it adds up. It's like back in the 70's when we wondered if they were going to pave the interstates with polyethylene. Export is slowing because resin made from cheap oil costs less than plastic made from cheap natural gas.
The good news is an increase is off the radar. The bad news for anybody who buys resin is classic deflationary behavior - it's rational to postpone purchases when prices are dropping. You have to hope you can turn your inventory as fast as your competition.
Here we go again. Polyethylene resin pricing is dropping. That's the good news. The bad news is nobody knows how much it has dropped. How can that be? Either the price dropped by $0.03 per pound or it didn't. It should be self evident. But it is not.
There is a company called CDI that issues a fiat every month that is supposed to have the inside baseball on where polyethylene resin pricing has been, is and will go. Resin producers, resin users and consumers of plastic products buy this report. They pay thousands of dollars for these words of wisdom. Many consumers tie their contracts with manufacturers to this publication. If CDI says resin went up the manufacturer gets an increase, if CDI says it went down they have to give a price concession. Seems like a fair way to handle decreases and increases but what if CDI gets it wrong?
Early in October the major resin producers dropped their prices by $0.03. Prices have been on the rise and are historically quite high so this was some welcomed relief. Manufacturers told their customers that they would be getting a $0.03 decrease as soon as their inventories had changed. Everyone was pleased.
From what I've been told (I don't subscribe to CDI) CDI's report comes out on Thursday or Friday in the third week of the month. By Monday everybody in the industry knows what it says. Last week CDI's report came out saying the price of low density polyethylene had dropped $0.05 in October and was going to be flat in November. Great! Now the manufacturers have to give away more than they got from the resin producers.
This has happened before. A few years ago CDI came out with a report saying that resin had dropped across the board. What had happened is a few large users got some preferential treatment while us mere mortals got squat. Over the weekend the major producers got really mad at CDI and CDI said, "Oops. Nobody got a price decrease, it never happened. Sorrrrry!".
It's Monday and I haven't heard anything about CDI or the majors changing their minds. Time will tell.