At Belton Industries, Inc., our primary raw materials for the yarns and fabrics we produce are made out of polypropylene and high-density polyethylene. Over the past year, we have seen extreme volatility in raw material pricing and availability. Large monthly pricing adjustments have become the norm. What factors contribute to this pricing volatility? How does Belton Industries position itself to see these changes and plan to have consistent supply and competitive prices in this current short supply and high price environment?
Resin Availability and Pricing
To get a grip on the resin market, we have to keep up with numerous factors that influence resin availability and pricing. Market knowledge includes:
- pricing benchmarks (pricing trends)
- secondary market moves (spot market vs. contract market actions)
- International markets (export and import trends)
- supplier actions (price announcements, production changes, etc.)
- feedstock availability and costs
- resin producer production rates and inventory
Based on some of these factors, what do we see now with respect to resin supply and pricing? From a supply and demand perspective, the demand for polypropylene and polyethylene resins has been strong over the last 6 months. Much of this increased demand is attributed to a rebounding economy and increased need for PPE products.
The reduced output of feedstocks has plagued the supply side due to lower oil refinery production, low yield feedstocks such as ethane becoming cost-advantaged, an active hurricane season in the Gulf of Mexico, and more recent winter storm outages in Texas.
Currently, many resin producers have issued force majeure letters to their customers and are allocating product as they cannot fulfill their contractual obligations. Typically, producers will keep at least a month’s inventory on hand to meet their customers’ needs in a more balanced market. Today, many producers are basically “hand to mouth” and have no excessive inventory to meet incremental market needs. Many in our industry are having to run reduced production as they cannot get enough resin to operate fully to meet their client’s needs. Product prices have been steadily going up since the summer of 2020. Unreliable supply and the possibility of further product price increases may continue to impact your business.
Mitigate Risk and Uncertainty
Because we have kept ourselves abreast of the factors mentioned above, Belton Industries is well supplied with resin for March and April 2021 and we have not had to turn down orders or allocate supply to our customers. We have also been able to offset some of the higher pricing that is now prevalent in the market. Many people ask about tying our product pricing to a market pricing index. While this type of program follows the market resin pricing trends, it does cause more month-to-month pricing fluctuation. It doesn’t always allow you to take advantage of your manufacturer’s knowledge and resin purchasing strategy. Having a long-term relationship with a knowledgeable supplier will help you mitigate risk and uncertainty.