What's Really Going On With Plastic Prices?

The article below from IDES provides a clear picture of the correlation between the global oil market and plastics prices:

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Resin sellers and buyers have been on a wild ride over the past couple years.  Hoards of plastic price increases have pervaded the plastics industry making the job of producing plastic parts all the more challenging.  Will the situation improve over time?  Can molders expect some degree of predictability with regard to the price they pay for resin?  There is compelling evidence suggesting that the situation may, in fact, worsen over time leading to a much different buyer/seller landscape in the industry.

Any meaningful discussion relating to the price of resin really must start with a look at what is happening in the oil industry.  Although you’ll hear from some that plastic prices have become ‘decoupled’ from crude, at the end of the day there simply must always be a correlation.  The reality is that the oil market is an exceedingly complex organism and to attempt to predict resin prices based on the price of crude would not be meaningful.  This is principally because oil is selling at a price that is based upon market factors instead of a reflection of production costs.  As the price of crude continues to increase, the price of plastics that are produced from oil feedstocks must increase as well.  The same holds true for those resins that utilize feedstocks from natural gas.  Simply put, if the price of flour goes up, the baker has to raise the price of the cake if he wants to keep his margin. 

If one takes a very high-level look at the global oil situation, some conclusions are immediately apparent.  From the day that the Drake well was drilled in quiet Pennsylvania farm country in 1859, the world has been depleting its finite endowment of oil.  There is no more being produced, period.  As with any commodity that is in demand and becomes scarce, it is inevitable that its worth will increase.

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