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Brentwood Plastics blog

Polyethylene Price Increases after Harvey

Posted by Joel Longstreth on Fri, Sep 01, 2017 @ 03:42 PM

Replacement costs are uncertain in Harvey's aftermath.


Scroll down for updates

Predictions range from complacent denial from buyers of finished parts ( "it might go up" ) to "scary" from a decades - old plastics credit reporting agency.  


It's a fluid situation which is not moving by the hour like back in 1973 - 74.  In the wake of hurricanes Katrina and Rita in 2005, the CDI became the agreed-upon benchmark for polyethylene prices.  At this writing, the nominated three cent increase for August is generally accepted with a few exceptions.  The supply chain dominoes haven't all fallen yet, so there is no sense of panic or urgency among the smaller

 processors. It's like the force majeure letters never existed. 

Large volume buyers of finished goods are fighting the August 3 cent increase tooth and nail.  What is happening does not fit their Walmartized reality.  The large volume extruders have laid  people off and they are scrounging for resin.  Dow's second letter announces a second price increase, but fails to mention allocation.  Customers are asking us for documentation because it is difficult to pass price increases along these days.

Herewith is a compilation of letters and updates we have received in Harvey's aftermath.  



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Topics: PE resin price, price for polyethylene, polyethylene price,

Fracking shale gas - how it affects price of plastic

Posted by Joel Longstreth on Thu, May 10, 2012 @ 10:59 AM

Feedstocks are the major drivers of the price of plastics.  Whether you are for or against fracking, it has had a dramatic effect on the price of anything derived from natural gas or oil. 


Not so long ago, Alan Greenspan expressed concern about depletion of natural gas in the U S.   Time was "peak oil" was sacrosanct.  The time horizon for peak oil gets pushed farther into the future.  Now it's cool to say "peak demand".  Soon we will have benevolent government control of our electric cars and solar powered airplanes.  About a year ago, Cheniere shipped their first order of fracked natural gas to India.  Who'd a thunk it ?

Skip ahead to today and we are running out of places to store natural gas thanks to the advent of fracking.  As of March 2016 there is over 2.536 trillion cubic feet in storage.  The active rig count for oil is down to 315.

So how is this relevant to plastics ?  The debate about which feedstock choice for making plastic is sustainable is a hot topic.  Many major food companies are against bioplastics because they will drive up the price of their raw materials just as ethanol has driven up the price of protein.

Exxon and Chevron are confident enough about the continuing natural gas discoveries that they have commssioned capital intensive plants which will have a combined annual capacity of  over 5 billion pounds. Obviously, the factors of production are most favorable here in the US gulf coast.  They plan to make plastic from US natural gas, not oil.  Same goes for Braskem who is cranking up grass roots capacity for fossil fuel-derived plastic despite their success with their "green" plastic derived from sugar cane.  The common thread is that with the information they had when these plants were commissioned, the US looked like the low cost producer.  They made the right call.

The world consumed over 450 billion pounds of plastics in 2011.  About 99 % was derived from fossil fuels, though plastics production only accounts for 4% of overall fossil fuel usage.  Polyethylene capacity will increase from 324 billion pounds in 2017, growing at a rate of 3.4 %.  At the same time, global demand will increase 4.7 %. Much of that demand will be exported from American resin plants in Texas and Louisiana.

The global price of oil is a big factor in determining who has the best price for commodity thermoplastics.  If the price of oil drops enough, plastic derived from naptha will be cheaper than plastic derived from natural gas.

For the foreseeable future, most of the market is not ready to pay triple for plant based bioplastics, so plastics from natural gas looks like the most practical choice.  Major food companies are waiting for "generation 3" of bioplastics.  They do not want plastic made from agricultural sources because it would raise the price of their raw materials.  They have seen what ethanol has done to the price of protein.   " Fossil fuel" plastic is anathema to the focus groups, so they are waiting for a solution which is palatable to the general public that will not raise prices of other commodities.

Fracking will continue to widen the price disparity between fossil fuel plastics and bioplastics.  That is, unless the rules change.  The Obama administration is issuing a constant stream of regulations with the obvious end game of regulating the frackers out of business.  Despite oil and natural gas at an all-time low, the administration wants to implement a $10 per barrel tax on oil.  Hillary Clinton has stated that if all her conditions are met, there will be no more fracking. 

update January 17, 2017

What a difference a few years makes !  The scale of investment by globocorps in U S resin capacity is staggering.  It's happening not just in the traditional gulf coast, but places like Bartlesville, OK and West Virginia.  The reason why is simple: the US is the low cost producer.  Note the reference to fracking in this latest announcement of $ 1.7 billion investment in Texas.



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Topics: fossil fuels, plastic made, price for polyethylene, fracking

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