With oil bouncing around at under $45 per barrel, downstream commodity plastics have dropped precipitously. The chart below maps out the prices for HDPE, PS & PP (high-density polyethylene, polystyrene & polypropylene respectively) since January 2007. They’ve fallen off of a very steep cliff…

HDPE and PP are down more than 60% since their peak prices earlier this year while PS is down almost 20% since September.  And as demand struggles, these prices could very well drop even further. US export markets have cooled off, and plastic producers are throttling back production to reduce oversupply. Plastic and rubber converters have even more excess capacity, and with raw material pressures easing, this is perhaps the most favorable sourcing environment for plastic and rubber parts in the last few years.

Now is a great time to recalibrate pricing in just about any energy or petrochemical-based market.  Buyers should be seeking frequent (monthly) price adjustment clauses to remain as consistent as possible with these rapidly falling markets. This approach assures that you’ll reap the benefits of weak demand and further eroding prices. And when oil prices rebound, pushing your supplier’s costs up, the adjustment clause will provide them with the margins they need in order to keep their finances above water, and more importantly, your supply chain flowing smoothly.

Bob Zieger is a Category Manager for Plastics and Raw Materials in Ariba’s Global Sourcing Organization. Bob holds a MBA from Katz Graduate School of Business at the University of Pittsburgh and spent 11 years in the plastics industry in engineering and sourcing roles. He is also a Certified Purchasing Manager (C.P.M.) as recognized by the Institute for Supply Management.