One of the few letters we all still have to send and receive these days is the not so humble “Price increase letter”
Dear Valued Customer… We regret to inform you… Price of raw materials/feedstock… supply and demand… currency… inflation etc.
It used to be so simple, every January all products increased a few points above or below inflation, done and dusted for the year. All distributors had a chance to alter their catalogues or price lists once a year; simple.
Then competition got fiercer; inflation and growth reduced; prices went up but they also went down and margins certainly went down. Suddenly the selling price of sheets actually started to depend heavily on the cost of producing them rather than reflecting the yearly increase for inflation. In the world of extrusion the cost is mostly the price of the raw materials.
The raw material producers have the price of their feedstock to consider, but there is also the very tricky business of supply and demand to match up. New resin plants can take 3-5 years to build and markets can boom and bust in half the time. Prices of polymer shoot up when production is sold out with busy end markets outstripping capacity. The opposite is true when new resin plants come on line just in time for the markets to under perform the forecasts.
So what is meant by an increase in the price of feedstock, is it just the influence of the price of oil, or is it more complicated? Of course it’s more complicated!
Take Acrylic and Polycarbonate sheet. They are made from polymers deriving from a monomer base of “methyl methacrylate” and “bisphenol A” respectively. As it happens both of these are made from and dependant on the price of acetone, which in turn is made from and dependant on the price of propylene (propene). Now we are getting closer to the price of oil, because propylene is a by product of the refining of oil and gas.
So there is a connection eventually, but it’s the supply and demand of acetone and propylene around the world for many other things besides acrylic and polycarbonate that also have an important part in shaping price trends.
It’s funny how you do not see any price decrease letters!
Brett Martin Ltd
EPDA’s Raw Materials Liaison