Monday, August 1, 2011

PTFE pricing revisited – inevitabilities in long term supply and demand

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When we started this blog, our aim was two-fold:

1. To inform and educate readers about PTFE, it’s applications and derived products
2. To serve as a platform for clients and other end-users to understand PTFE better and make informed decisions regarding their applications

However, it seems to have been the articles on pricing which have brought most of our traffic as regardless of how important the applications of PTFE are, it is – understandably – on pricing that most questions currently centre.

We therefore want to look at pricing again, just to see if any new information gleaned over the past couple of months helps us understand the situation any better than we did earlier.

Since our last blog on the impact of Fluorspar on PTFE prices, we have – like all other processors – been praying for stability. We haven’t been praying for a reduction in prices – that would be optimism to the point of pure irrationality. However, if prices could simply stabilize – even for a few months, it would give us some time to re-group, re-assess and possibly resume normal operations.

However, the pricing fluctuations have been coupled with lesser-known events in the background and together, these effects are causing the stabilization process to take much longer than earlier assumed.

We would like to take a look at some of the news floating in the market at present. We can vouch that since these are from rather reliable sources, we are inclined to believe them and therefore base our outlook on their implications:

1) Fluorspar shortage is no longer an issue

A supplier who regularly sources semi-finished PTFE from a Chinese manufacturer told us this anecdote: The supplier approached the manufacturer with the offer to supply R22. The proposed arrangement was that the PTFE manufacturer could then supply the resin manufacturer with R22 (assumed to be in very short supply) and in return procure resin at a discounted price. The supplier was shocked to hear that the resin manufacturer declined – saying that they had ample R22 to meet their production needs. This does lead us to believe that although the Fluorspar story may have started the PTFE price frenzy, it is now not playing as significant a part.

2) European resin manufacturers have re-allocated resources away from PTFE

This was partly confirmed by a representative from DuPont, who stated that their company was slowly coming out of PTFE resin manufacture, as long-term competition against Chinese suppliers was not feasible for them. The resulting effect, we hear, was that most of the European resin manufacturers have sub-contracted their PTFE business to Chinese resin suppliers. Since the realization for PTFE resins in Europe is much higher – the European price has become the new acting price across the global market.

This impact does throw some light on why the PTFE prices have increased so drastically all over the world. On the one hand, we have a supply constraint, as European manufacturers no longer compete in the market. At the same time, you have a huge supply-demand mismatch as European demand for resins stays the same and this drives up prices.

3) Russian suppliers are in a state of flux

From what we have heard, Russia has two main companies who manufacture PTFE resins, one of which acquired the other. The combined company is said to be undergoing some transition issues and management is also contemplating moving away from PTFE and into ETFE. The result has again been to constrain supply, impacting prices in the process.

4) Pricing set to stabilize within the next 2-3 months

Obviously, many are hoping that things will settle down sooner than this, but considering the extent of changes occurring across the market, one might expect that it would take no less than a few months to stabilise.

Our own local the supplier – who increased prices by another 30% in the month of July 2011, assured us that this would be the last-but-one, if not the last, price revision from their side. The current price we are getting is US$26.5 per Kilo for virgin PTFE resin. From what information we have from our European counterparts, it appears that local rates there are around the same price – so it does look like some sort of balance has been reached.

For those thinking about the long term implications of all this, we can infer the following from what data we have already collected:

  1. High prices are here to stay. If there is one thing that all this has shown us, it is that the demand has stayed strong enough despite the price escalation. This has justified the price hike for resin manufacturers from a business standpoint
  2. Long term, quality will improve. Although it looks like Chinese companies will be doing most of the manufacturing of PTFE resins, if they are supplying through companies like DuPont and 3M, the quality controls will most probably be more stringent.
  3. Volumes in PTFE will shrink. Although we have not seen a significant amount of substitution away from PTFE, there are murmurs of new materials and possible replacement materials in some areas. For the most part, we continue to believe that as a material, the extensive spectrum of properties offered by PTFE makes it a difficult material to shift out from. However, we do expect that at least 15-20% of the volumes in PTFE would slowly shift to other polymers such as PA66 and UHMWPE. Nonetheless, we can take comfort in the fact that a 15-20% fall in volumes when combined with a 100-200% increase in prices still implies an overall growth in the industry in value terms.
  4. Repro is here to stay. Not that anyone though that reprocessed PTFE would go away, but we do believe that the acceptance of recycled material in many applications (due to the price implications) would bring about some regularization in the market, with manufactures offering transparency on the extent to which reprocessed PTFE is used and possibly on the properties it could be expected to exhibit. Again - this would be a good thing from a quality standpoint, as buyers of semi-finished PTFE would at least know exactly what they were getting.

To conclude – we have, like most other processors, been trying to make the best out of a situation that has been completely out of our hands. We have faced a rather torrid 15-18 months, so if the end were 2-3 months away, we would look forward to that. In the mean time we would recommend planning one day at a time, because there is no telling what might happen during the next week or month.

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