Polymer cost and supply/demand trends

by Tim Laughlin, Global Business Director, Dow Wire & Cable

Dow Wire & Cable believes that it is important that we make every effort to provide you with information about the wire and cable market, our position in it, and any potential impact that industry trends may have on your business. Currently, Dow Wire & Cable, cable manufacturers and utilities are facing conflicting pressures from energy feedstock suppliers and ultimate consumers. Within Dow, we call this the “intermediate squeeze” that exists between the oil majors and the large retailers (such as Wal-Mart®). Specifically, these are the two ends of the value chain that can exert the most leverage on all interested parties. From feedstock suppliers, we’re seeing continuing oil and gas price volatility and a global increase in demand, which is leading to tight supply. And from consumers, while being faced with declining price expectations, we also see ongoing demand for better quality and reliability.

So what does this mean in terms of the wire and cable industry’s cost of doing business? First, hydrocarbons, feedstock and energy costs have escalated and will continue to remain high and volatile. In addition, the lack of a U.S. energy policy will continue to put pressure on the North American value chain. Several other factors that drive industry pricing, and Dow’s business position in the industry, include:

  • Geopolitical events
  • Supply/demand issues
  • Competitive activity among all players in the value chain
  • Value in end-use application
North America Polyethylene Supply/Demand Balance, 1997-2012

The Dow Chemical Company is determined to remain globally competitive. Following are some of the initiatives that we’ve undertaken as we focus on our cost structure:

  • Reducing our conversion costs by 20 percent from 2000 to 2002
  • Implementing aggressive cost-reduction plans
  • Calling for government help to resolve the need for U.S. energy policy to address the natural gas imbalance

With the increasing demand for polyethylene, a very tight supply/demand dynamic exists. Because the wire and cable industry is a consumer of polyethylene, it is critical that we keep pace with commodity polyethylene prices in order to secure supply.

Dow is committed to the petrochemical and plastics industry and the value chain that includes wire and cable compounds, cable manufacturers and utilities. We continue to invest significant resources in research and development to increase the efficiency, value and quality of our products that are sold into the wire and cable industry. Unlike other polymer applications, Dow Wire & Cable compounds have demonstrated the capabilities to provide performance over many years. We are committed and confident of our ability to supply value-added products to this industry for many years to come.

In future issues of Point-To-Point we will explore further the influencers that are impacting the cost and value of materials used in the wire and cable industry, as well as other relevant topics for you, our end users. Stay tuned.