November 16, 2016
Three Factors That Will Drive Resin Prices in 2017
by Anthony Wright
Many window fabricators are wondering where the market pricing for resin is headed over the next 18 months. For vinyl extruding window fabricators, resin pricing has a direct correlation to their profitability due to raw materials costs. With the presidential election behind us, some of the uncertainty is eliminated, and now we can project what the market is likely to do moving forward.
There are three factors I believe are likely to impact the price of resin: crude oil supply, producer capacity and consumer/commercial demand. All factors appear to be pointing toward moderate PVC resin pricing growth over the next 18 months. The five-year pricing trend provided by the Chemical Data Inc. (CDI) price index shows a gradually increasing pricing trend moving forward. CDI projects in 18 months, the price index of PVC resin to increase $0.05 per pound to $0.85 per pound.
- Crude Oil Supply – With the Republican party sweeping the White House, Senate and House of Representatives, many pro-growth and pro-business initiatives thought to be dead are now back on the table, namely the Keystone Pipeline. The oil and gas industry should have the support it needs with reduced regulations and taxes trending toward increased profitability. With OPEC indicating its intent to tighten its production quotas, we could see the price of crude oil moderate upwards to $60 per barrel. Crossing the $60 per barrel threshold will allow many domestic upstream oil producers to cross back into positive profitability territory. The U.S. Energy Information Administration (EIA), however, projects the price of Brent Crude oil to remain near $50 per barrel through 2018.
- Producer Capacity – Over the next few years, production capacity for PVC resin producers is forecasted to grow 5.6 percent in 2017 and 2.8 percent in 2018. Currently, the market has a design capacity of 18.8 billion pounds, with vinyl window and door demand requiring only 550 million pounds. Given the likelihood of a stronger dollar, I think we can forecast crude oil prices (and thus ethane/ethylene feedstock prices) to remain below $60 per barrel. With healthy domestic demand in place, the market should have ample capacity to meet the market needs moving forward. A stronger dollar will place significant pressure on the growth of export demand for PVC Resin leaving additional supply for the domestic market.
- Consumer/Commercial Demand – The EIA projects global crude demand to grow only 1.6 percent moving into 2017. Over this period, PVC resin exports are forecasted to increase 14 percent while domestic demand is forecasted to increase 14 percent as well. I anticipate the export demand to be less than forecast, and the pressure of oversupply on PVC Resin producers to keep PVC pricing low (if not lower).
There are no alarms or red flags that would have me to project that PVC resin pricing will exceed $0.85 per pound through 2018. If anything, I would estimate that there is a better chance for pricing to remain low and experience downward pressure due to oversupply in the crude oil markets and decreased export demand due to a stronger dollar.
What do you think? Contact me directly at Anthony.Wright@Quanex.com
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