The plastics sector has not been the subject of a comprehensive review despite its growing importance. The current imbalances that have surfaced around pricing come as critical questions related to medical and consumer product production and the environment have taken center stage.
While prices for plastics remain high, several trends suggest that a more balanced repricing should be occurring. The rebalancing, or a price adjustment, should be the next chapter in the plastics price industry storyline.
Extraordinary prices are being charged for a basic necessity based upon an uncritical acceptance that the abnormal conditions of 2021 created a temporary market dysfunction.
A review of the nation’s production and price-setting mechanism for single-use plastics is long overdue. Going into the pandemic, the industry in the United States was oversupplied with new ethylene and polyethylene capacity. Prices and profit margins were low. The plastics industry and its companion, the oil and gas sector, were in financial distress. Demand increased at the onset of the pandemic while production was temporarily impaired by the severe weather conditions of February 2021. Prices rose. As production has adjusted to meet demand and the impact of the severe weather conditions has subsided, basic market forces should be pulling prices downward. They are not.
The major plastics producers send out monthly price announcements to customers. From January through August customers experienced large monthly increases.
The prices for the principal chemical components of single-use plastics— ethylene, high density polyethylene (HDPE), lower linear density polyethylene (LLDPE), low density polyethylene (LDPE) and polypropylene (PP)—are at historic highs. According to short-term price indicators, the price of polypropylene—a key ingredient for such commonly used items as syringes, bottles and snack food packages— has risen by 138% since January 2021. The other plastic resin commodities have seen doubledigit increases. In August 2021, after eight months of price increases, the price of each commodity hit a peak and were flat through September.
The prices for components of single-use plastics are at historic highs.
The plastics industry provides a series of rationales to justify why the prices are high and, increasingly, why they may remain high. Even considering the recent market disruptions, however, something is wrong and needs to be investigated:
Oil and gas companies are looking to plastics to repair a failing profit model.
These issues point to market irregularities and suggest that the high prices should be coming down. Yet other factors are at play that may be motivating the industry to push prices up and keep them up.
Prices are set by leading industry players like ExxonMobil, LyondellBasell, Braskem, Chevron and Dow. The industry is heavily concentrated, with a handful of companies sharing 65% to 85% of the ethylene, polyethylene and polypropylene markets. Several of the petrochemical leaders are integrated oil and gas major companies. They have shown a decade of weak performance. Indeed, the underlying financial stress facing the oil and gas industry brought it to an almost complete collapse in the spring of 2020. They are now looking to plastics to repair a failing profit model. It is important to determine to what extent this motivation and any other unknown factors are driving prices up.
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