Plastics Pricing : How gas and electricity prices influence plastic prices

Below is a detailed but simple explanation of how gas and electricity prices influence plastic prices

Direct production impacts:

• Plastics are made from oil and natural gas products
• Manufacturing requires large amounts of electricity
• Higher energy costs lea to higher production costs

Raw material connection:

Natural gas:

• It is used as the raw material feedstock for many plastics
• Price increases directly affect plastic material costs
• It is also used to generate power for factories
• Seasonal demand affects prices (winter heating vs summer)

Electricity usage in production:

• Used for running extruders
• Used for powering cooling systems
• Powering compressors
• Used for lighting and facility operations
• Running auxiliary equipment

Cost pass-through:

• Energy cost increases are usually passed down to customers
• It can cause immediate price adjustments
• Long-term contracts may delay impact of increasing prices
• Different regions have different energy costs

Cost pass-through is when a company transfers increased costs (like higher raw material or energy prices) to their customers through higher prices for their products

Example of the impact chain:

• Gas prices rise
• Raw material costs increase
• Production costs go up
• Plastic resin prices increase
• Final product costs more

Seasonal factors:

• In winter higher heating demand means higher gas prices
• Summer air conditioning means higher electricity usage
• Peak usage times will have higher rates

Geographic influences:

• Different regions have different energy costs
• Distance from raw materials affects transport costs
• Local energy regulations impact prices

Market response to production cost increases:

• Companies may switch to more energy-efficient equipment
• Companies shift production to lower-cost regions
• Recycling becomes more attractive when energy costs rise
• Companies may invest in alternative, cheaper materials

Long-term effects of the rise of prodution costs:

• Drives innovation in energy efficiency
• Influences investment in recycling
• Can change material choices in products
• May affect manufacturing location decisions

Example of how gas and electricity prices influence plastic prices:

Let's follow the production of a plastic water bottle (PET):

Starting Point (Normal Prices):

• Natural gas price: $3 per unit
• Electricity: $0.10 per kWh
• Cost to make 1 kg of PET plastic: $1.20

Scenario: 

Energy prices increase 

• Gas increases to $4.50 per unit (+50%) 
• Electricity rises to $0.15 per kWh (+50%)

Impact chain:

Raw material cost:

More expensive gas means pricier raw materials:

• Original cost: $0.70/kg
• New cost: $1.05/kg (+50%)

Production energy cost:

 
Electricity for running machines

• Original cost: $0.30/kg
• New cost: $0.45/kg (+50%)

Other operations:

 
Heating, cooling, lighting:

• Original cost: $0.20/kg
• New cost: $0.30/kg (+50%)

Final result:

• Original total cost: $1.20/kg
• New total cost: $1.80/kg
• 50% increase in energy = 50% increase in plastic cost

Real world impact:

• A pack of water bottles that cost $4 might increase to $6
• Manufacturer might switch to thinner bottles to save material
• Could lead to using more recycled content (less energy-intensive)

The above example shows how energy price changes directly flow through to plastic product costs.