Reduced productivity and high inventories are preventing plastic prices from rising significantly. Although demand may improve in 2H11, quotes are still not expected to go up considerably.
Plastic prices traditionally increase alongside crude oil cost hikes. Not this time.
Despite soaring crude oil quotes, which stand at $106.93 per barrel as of April 1, prices of various types of plastic have not advanced as expected. International PE prices have increased only about 5 percent year to date. In contrast, PP prices have declined by an average 5 cents per pound in the same period.
PE prices currently range from $1,380 to $1,770 per ton. PP stands at $1,670 to $1,710 and ABS is $2,790 to $2,960.
The situation is similar in China. Whether in the international or domestic market, spot and futures prices have been going up and down $15 to $45 every day since February 2011. This is because none of the various positive and negative factors are strong enough to force prices to go either way. This fluctuation is likely to continue through the coming months.
The impact of soaring crude oil costs, for instance, is tempered by the fact that many factories still have considerable stockpiles of various types of plastic. Guangdong province-based stationery products manufacturer Huisheng Metal & Plastic Mfg Co. Ltd purchased a large volume of raw materials late last year, when plastic prices started climbing. But the labor shortage afflicting many coastal factories has pulled down Huisheng's productivity, reducing capacity utilization to just 60 percent. As a result, the company has been unable to use up its plastic supply and has shelved immediate procurement plans for the material.
Wang Yang, an analyst at Hongyuan Futures, believes the labor shortage will affect productivity and, consequently, plastic demand at least through mid-2011. After that, Wong said it is likely suppliers would have already found ways to cope with the challenge and normalize production.
Even when consumption starts to pick up, plastic prices are not expected to increase significantly. Zhu Juanfeng of Ningbo Land Industrial Co. Ltd believes quotes for ABS are likely to hover around 16,000 to 18,000 yuan ($2,430 to $2,740) per ton in the months ahead. The company exports vacuum cleaners to the EU and the US.
Because many factories have sufficient inventory of plastic, the fluctuation in costs has not affected export prices significantly. The smaller consumer product makers that buy plastic on an as-needed basis are mainly the ones that adjust quotes depending on the movement of the material's cost.
Shenzhen Go-On Electronics Co. Ltd, for example, makes and exports headsets. Although the product uses a lot of plastic for the housing, the material accounts for about 10 percent of unit costs. Further, the company offers midrange and high-end models and can therefore absorb increases in plastic quotes better than suppliers of low-end units.
Note: This article "Weak demand keeps plastic prices low" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.
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