FocusWellman and others struggle with margins

03 March 2008 19:03  [Source: ICIS news]

By Al Greenwood

HOUSTON (ICIS news)--The bankruptcy of US producer Wellman comes as other producers have also struggled with tighter margins, analysts said.

Wellman produces polyethylene terephthalate (PET) and polyester staple fibre. Wellman said that one of the reasons it filed for bankruptcy was because of the rising costs of feedstock monoethylene glycol (MEG) and purified terephthalic acid (PTA).

Costs for feedstock as varied as grease and ethylene are rising while the economies in the US and western Europe are slowing down. The results have squeezed margins for several products.

Polypropylene (PP) margins had tightened following cost increases for feedstock propylene, said Jerry Fordyce, editor of the Plastic Market Monthly, a pricing report published by Townsend's Polymer Services & Information.

Those margins should loosen somewhat, as propylene costs moderate, he said.

Polyvinyl chloride (PVC) producers, however, have struggled with rising ethylene costs and falling demand from the US housing industry, Fordyce said.

"At some point, the housing market needs to pick up," he said.

In general, resin prices are difficult to maintain, Fordyce said. If suppliers increase prices too rapidly, their customers could go out of business.

Some producers, especially those that rely on feedstock naphtha, have attempted to recover margins by improving production efficiencies and by moving into products with higher margins, said Andrew Swanson, vice president of chemicals for Nexant.

Many companies have avoided the full brunt of the cost increased because they are integrated producers, Swanson said.

Wellman is a non-integrated producer, and that was one of the reasons why the company went bankruptcy, it said in court documents.

"Integration has always been a source of competitive protection," Swanson said. "It enables you to survive a little bit longer."

For more on resins visit ICIS chemical intelligence

By: Al Greenwood
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