Prior to the pricing mania that exists today, the last big party for fluoropolymers occurred in the late 1990s when demand was growing and pricing was firm in the years leading up to Y2K. However, in the first decade of new millennium, three major shocks hit the industry. First was a rush of new entrants and associated capacity expansions in Asia Pacific; second was the punishing recession that followed the events of September 11, 2001; and third was the devastating impact of the Great Recession of 2008-2009. For much of the decade, prices and volumes of fluoropolymers remained depressed.
Until about 1990 the fluoropolymers industry was dominated by six companies with headquarters in the United States, Europe and Japan. In recent years, the number of fluoropolymer sources has doubled as new capacity has appeared in Russia, China and India. Although product range and geographic reach have always been important, vertical integration has become increasingly important in defining the cost position and differentiation among competitors. With that in mind, some of the newer suppliers have been establishing manufacturing positions further back in the value chain (e.g., fluorocarbons such as R22, hydrogen fluoride, and fluorspar – the mineral from which the fluorine atom is obtained). On the other hand, several of the longstanding suppliers have been finding opportunities to integrate forward into areas such as films, resulting in the diversion of old capacity for captive use.
Today’s unprecedented fluoropolymer prices are the result of unforeseen and coincidental circumstances occurring within a complex system. In the late 2000s, after enduring financial hardships earlier in the decade, several fluoropolymer suppliers took big chunks of capacity off line. In some instances, these decisions were permanent. In other cases, suppliers were not able to bring capacity back on line quickly enough to satisfy the rapid resurgence of demand that occurred starting early in 2010. Early in 2011, a huge earthquake and terrible tidal wave disrupted electrical power in Japan, resulting in plant outages. At the same time, unforeseen technical issues were plaguing certain suppliers in Europe and Asia, while violent tornadoes ripped apart electrical grids resulting in plant outages in the southern United States. As a result, certain grades of resin are now in short supply, and monomer capacity is tight.
Demand is booming nearly everywhere in the fluoropolymer world. Driven by concerns that supply will remain tight, customers are restocking (and in some cases overstocking) the value chains. Some customers are placing double orders with different suppliers. Meanwhile, economic times seem almost too good to be true given the short elapsed time since the economic calamity. Could it be the industry is simply awash in cash—a short-term beneficiary of bank bailouts, deficit spending, QE1, QE2, and counting? Let’s cross our fingers and hope all of this is not tantamount to putting out a fire with gasoline.
In the past year we have experienced an unprecedented situation in the history of fluoropolymers. Despite the proliferation of new resin suppliers, prices of many grades have more than doubled from historical levels. Price tags are up to three times higher than just a couple of years ago and resin suppliers are taking advantage of the situation.
Certain parts of the fluoropolymers industry have been somewhat cyclic for many years—similar in some ways to polyolefins—where double digit price increases are followed inevitably by double digit decreases. The twin realities of cash availability within the large, publicly-traded companies that produce these materials and the long lag time between an investment decision and its fruition often result in overinvesting at the tops of economic cycles and underinvesting at the bottoms. But what we are now experiencing is tremendous cyclicality—the amplitude of the cycle is simply unprecedented.
Fluoropolymer prices are poised for a correction when supply again exceeds demand. In the meantime, deselection of fluoropolymers is likely to result from extreme price volatility as well as the imbalance of supply and demand that accompanies it. On the other hand, stable prices will encourage the continued selection of high-function products made from fluoropolymers. Although it may take some time, let’s hope fluoropolymer prices will soon achieve a modicum of stability.
About the author
Mike Haley has held a variety of positions in the fluoropolymer industry for more than 20 years. Currently industry manager with Whitford for the past three years, Haley is also a member of the Board of Directors of SPI – The Plastics Industry Trade Association. Whitford is a leading producer of fluoropolymer-based coatings used in a diverse range of end-use applications from non-stick cookware to corrosion-resistant bolts for off-shore oil platforms. With manufacturing operations in seven countries, Whitford purchases several thousand metric tons of fluoropolymers, such as PTFE, annually for use as raw materials in coating formulations. Having started in the coatings business in the 1960s when fluoropolymers were also in their infancy, Whitford has been part the fluoropolymers industry for more than four decades.
Fluoropolymer Pricing Trends – An Unprecedented Situation
By Mike Haley, Whitford Corporation
Published September 13, 2011