Canadian Plastics

Natural gas, monomers driving resin price increases

Canadian Plastics   



Plastics processors don't often give a second though to monomers -- the building blocks of plastics -- but with the increasing cost of resins, now is the time to sit up and pay attention....

Plastics processors don’t often give a second though to monomers — the building blocks of plastics — but with the increasing cost of resins, now is the time to sit up and pay attention.

That’s because recent drastic increases in the cost of monomers is one of the major driving forces behind the increased cost of resins, said Peter Killen, senior advisor at Muse Stancil & Co., who is based in Houston, Tex. Muse Stancil is an energy consulting firm, which is headquartered in Dallas, Tex.

Ethylene, propylene, butadiene, benzene, toluene and xylene are the “Basic Six” monomers used to create polymers, Killen said. The primary derivatives are polyethylene (PE), polypropylene (PP), polystyrene (PS) and a variety of elastomers and rubber, he added.

For ethylene in particular, about 35 per cent of North America’s capacity is offline because of hurricanes Katrina and Rita.

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Styrene, a primary derivative of benzene, ethylene and natural gas, is used to produce polymers and has also experienced huge price increases lately, increasing the price of resin. Rita affected eighty-five per cent of North America’s styrene capacity, he added and 19 per cent is still offline, he said.

Monomers, as well as the rising cost of natural gas, is one of the reasons styrene prices are skyrocketing.

“Throughout the 1990s, the Basic Six and its primary derivatives enjoyed an enormous competitive advantage because of the very low cost of natural gas that existed in North America,” he explained.

Back in the 1990s, natural gas averaged US$2.19 per a million BTUs — the price was low because there was more supply than demand, he said. However, the harsher-than-normal winter of 2000 and 2001 caused the monthly price to jump to nearly US$10 per million BTUs.

Years of cheap prices and low returns on natural gas led the exploration companies to focus finding crude oil reserves instead, and industrial users during that time were switching from using crude oil to natural gas to save money.

With fewer companies seeking out natural gas reserves, and usage of natural gas increasing, demand started catching up with supply, resulting in higher costs.

Eventually, Killen projects natural gas prices become on par with crude oil. But he expects the price of natural gas and monomers to reduce after the facilities affected by Katrina come back online.

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