From the Economist's Newsbook blog:
TREAD carefully on your carpets. Hoard those squeezy bottles in your kitchen cupboards. Buy that model aeroplane you always promised yourself today, not tomorrow. The price of polypropylene, a versatile polymer, is soaring. It increased by 22% in January alone—and has risen by 133% over the past two years.
The price run-up is a headache for many companies. Some have shifted into other products: according to Plastics News some American fast-food chains are switching back to paper cups for fizzy drinks.
Some makers of polypropylene products have been able to pass the price increases along to their customers: Angela Luther of AET Films, which makes plastic consumer-goods packaging, says that many of its customers have indexed contracts and have seen their prices rise as a result. Others have just had to swallow the extra cost. Dea Kelly of Shaw Industries Group, a flooring firm, says that intense competition has prevented it from passing on the hike in polypropylene costs. Carpetright, a British retailer, blamed rising polypropylene costs, among other things, for the drop in profits it reported earlier this month.
As for most commodities, the “China effect” is part of the story. In emerging Asia and the Middle East, demand for polypropylene reflects increasing consumption of goods (which either incorporate polypropylene, or are packaged in it) and rising car ownership.
But there is another, more subtle effect. Esteban Sagel of Chemical Market Associates, a Houston-based consultancy, says that higher polypropylene prices also reflect the rise in the oil price relative to natural gas, especially in North America. In the past the polymer’s price moved fairly tightly with that of oil but that relationship has broken down recently (see chart)....MORE