Rubber & Plastics industry review Q4-2007; RSM EquiCo Capital Markets

Raw Material Price Increases Cause Instability

Due to the Saudi and Dow Taft outages, ethylene glycol (EG) prices have risen 40 percent from Q3 to Q4. The shortage of EG, coupled with historically high energy prices, has led to a subsequent increase in raw material costs for polyethylene terephthalate resin (PET). In response, producers of PET have aimed to raise their contract prices again in December by a consensus of $0.02-0.04/lb. Unfortunately, the pass-through of costs to customers has yet to make headway for profit margins as most producers began to tread into negative territory in late 2007 with no sign of relief expected in 2008. On the rubber side of things, most tire makers are set to increase their prices by 5-7 percent over the next few months. These price hikes are a direct result of the year-over-year increases in natural and synthetic rubber prices. However, in Q4 raw material prices remained relatively flat as the increase in synthetic rubber prices (+5.3 percent) was offset by a decline in natural rubber prices (-3.8 percent) from October to November. Industry consolidation should continue as strategic players aim to achieve sustainable economies of scale and increase market share. Read complete report.