Price know-how August 2017

Price increases look likely as polymer producers close order books early in August.

For polymer producers the planning process is complex. Not only is it necessary to carefully organize the sequence in which various grades of a given polymer are produced (or in the case of so called HDPE/LDPE swing plants, within each material type which grades are produced in what order), but often there is the added complexity of long lead-times to consider. In combination with production planning, there is a process of demand planning.

The outcome is typically an anticipated sales plan by grade for a month. Typically, a producer will monitor orders placed by customers against the sales plan and take action to intervene when there is any significant variation. Lower than expected demand may result in actions to stimulate demand, such as special deals or often a complete price revision downwards. However, when demand exceeds plan by a given margin, producers will typically close their order books for new orders.

This action both preserves inventory for future periods, and allows the producer to realise the benefit of price increases. Whilst for plastic converters the action of closing order books is controversial, the reality is that this restriction in supply sends a clear message to the market that prices are likely to increase.

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