February 12, 2015
The dramatic drop in crude oil prices has resulted in significant declines in resin pricing in recent months. What the future holds in terms of resin prices is not easily understood as the drivers are global and complex.
The recent oil price decline is related to a complex set of global drivers including a slowing global economy, increased production in North America disrupting long standing supply balances, OPEC’s reluctance to lose market share and countries, such as Russia and Venezuela, with economies dependent on oil revenues needing to expand production as prices decline.
The recently released Platts Global Polyolefins Outlook points out that the falling naphtha price is expected to reduce margins of shale based production of ethylene and polyethylene. Naphtha produced resins play a pivotal role in global resin pricing as the highest cost source to which global pricing is usually benchmarked.
What will be the impact of the petrochemical industry’s proposed investments in shale feedstock based production? Perhaps little change will occur, as major investments that take several years to complete could continue as volatile oil pricing is an accepted risk in this industry.
However, as Edward J. Holland, of M. Holland Company points out in a Plastics Engineering article Global Resin Trends 2015: An Expert Roundtable “another fallout of lower oil prices, if sustained for any period, could be a slowdown in the extraction and development of shale gas and oil in America. This, in turn, could give pause to the U.S. petrochemical expansions announced but as yet unbuilt.”
“What we are seeing now is more of an anomaly,” said Jim Foster, director of petrochemical analysis at Platts. “For this to be a sustained trend, there would need to be indications that the crude oil and naphtha prices would remain below $70 /barrel for an extended period of time.”
Without a doubt the industry has entered into a period of uncertainty in regards to resin pricing. It will take many months before there is any hope of clarity as to where oil pricing will settle and we have a clearer picture as to future trends in resins pricing.