Canadian Plastics

Five Tips for Getting the Best Price on Resin

By Michael Legault   



When it comes to buying resin, it's all simple cause and effect, right? High oil and gas prices, means you'll inevitably be paying more for polyethylene or polypropylene. Perhaps, but there are numerous ways to delay the inevitable and mitigate th...

When it comes to buying resin, it’s all simple cause and effect, right? High oil and gas prices, means you’ll inevitably be paying more for polyethylene or polypropylene. Perhaps, but there are numerous ways to delay the inevitable and mitigate the pain.

“Just because resin producers announce a price increase doesn’t mean the market will immediately accept it,” says Michael Greenberg, CEO of The Plastics Exchange. “Spot market activity will provide key insight to the major player’s attitude towards the viability of a particular price increase.” The Plastics Exchange is a real-time marketplace for anonymous buying and selling of prime and widespec commodity resin in truckloads and railcars.

Which brings Greenberg to his first tip: Know the market and why resin prices increase/decrease. He says buyers and sellers should especially pay close attention to the supply/demand/price equilibrium evident in the spot market. Producers can quickly change this equilibrium if they are dumping resin in order to reduce inventory, or withholding resin if they think resin prices will rise, or that by restricting supply they could help reinforce price increases. The rules of this “card game” are largely dictated by available resin production capacity and the feedstock pricing fundamentals. Greenberg’s second tip boils down to the old axiom: choice is good.

“Give yourself options. If you’re spec’d to only one prime resin for a given applications, you’re in a less competitive situation.” Getting more than one resin approved requires doing a little extra work, but the effort can save money by making suppliers compete for your business.

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Once you’ve approved three or more resins for an application, you can maximize cost efficiency by setting up a generic prime program with your distributor, Greenberg’s third tip.

“Producers optimize their profit margins by selling branded prime resin. When they make too much, it becomes available on the market as generic. It’s the same pellet, just without the name, and the mark up.”

For critical applications, branded prime is probably the best way to go, but for price sensitive commodity applications running off-grade resin is another way to save money, Greenberg allows.

“Process engineers are usually motivated to produce consistent parts and frequently do not have incentive to help save the company money on purchasing resin. Yet a company could save five cents a lb. or more if the engineer would take time to tweak his machines from railcar to railcar.”

The fourth tip for buying resin cheap is to buy in bulk. If you use less-than-truck load quantities, moving up to truckloads will save you a significant amount of money, mainly as a result of savings on freight. If you are a truckload buyer, issue blanket orders and commit to railcar quantities. At this level of buying, you’ll need a silo, but eliminating Gaylords from your plant could save you $0.04 per lb.

The fifth and final suggestion for getting resin cheaper is to consider buying a certain percentage in the spot market, as opposed to only contract purchases.

“Historically, about nine to ten months out of the year, the spot market is cheaper than contract,” says Greenberg. He cautions, however, that a large processor is not regularly going to fill 10 million lb. orders, and that a buyer should not commit all their purchases to spot. However, it’s expedient, and relatively easy, for a processor to pick a rail car or two on short notice in the spot market. The Plastics Exchange maintains at least 20 to 30 million lb. on their online trading floor.

As a whole is the sum of its parts, these five tips taken together could yield a whole lot of savings.

The Plastics Exchange www.PlasticsExchange.com

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