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Key Findings

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.

Executive Summary

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:

  • Prices are way up, but utilization rates—the key metric for measuring the tightness of the market—are not showing uniform increases that justify these price levels. IHS Markit, a prominent industry group, the Federal Board of Governors and some companies are showing actual and projected utilization rates and price data that suggest prices should be lower.
  • When prices are high, CEOs and analysts usually see this as a market sign that new investment in manufacturing capacity is needed. The opposite is occurring. Going into the pandemic, the markets were oversupplied; at this stage of the pandemic, even with profits elevated and claims by corporate officials of strong demand, there is no talk of immediate need for new manufacturing plants. New projects are being delayed, and some CEOs are using the windfall to reduce debt.
  • Industry officials claim the pandemic and winter freeze in early 2021 hindered supply and increased demand, causing an unwieldy price spike. Production increased in 2020 for most of the commodities that IEEFA reviewed, and some companies posted record-breaking profits in 2020. For the first two quarters of 2021, the industry posted strong earnings. Recently one trade association referred to current returns as “fantastic.”
  • Industry leaders assert that strong demand is keeping upward pressure on prices as the economy recovers. Some analysts do see demand improving, but it is not strong. ExxonMobil, for example, saw Q2 petrochemical volumes higher than Q1 but basically flat against the previous three quarters.
  • Feedstock costs for plastic resins increased initially during the pandemic and winter freeze, but these prices are coming down and are expected to continue to decline. Feedstock costs are 60% of operating costs. As they decline, prices should come down. So far, this has not occurred, and if the trend of high plastics prices continues while feedstock costs decline, profits will remain extraordinary.

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.

Press release: IEEFA U.S.: Problems have mounted over last year for proposed Formosa petrochemical plant

Please view full report PDF for references and sources.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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Suzanne Mattei

Suzanne Mattei is an attorney with over 30 years of experience in public interest law and policy. She has analyzed the Federal Energy Regulatory Commission’s policies related to interstate pipeline approval. She has also conducted research on blue hydrogen, petrochemical projects, gas flaring and fossil fuel extraction on public lands.

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