All oil products have seen a massive price drop over the past few months. Two exceptions are motor oil, and finished products made of plastic. Plastic is made out of oil, so why wouldn’t things like toys and water bottles see a price drop as well? And what is the deal with motor oil? Its price hasn’t gone down at all either.
Why should it? It’s not like the manufacturers have some ethical or legal imperative to track their costs closely and reduce retail price correspondingly. Lower input costs == more profit, at least in the short term. The first competitor to try to increase their market share by reducing their price to match their costs would spoil that, of course, but the prisoners’ dilemma shows that everyone wins (except the consumer) if everyone stands pat.
And they typically don’t buy feedstock on the spot market and immediately put it into the factory. They’re manufacturing from inputs they bought days, weeks, or maybe months ago (depending on either their ability to store, or the futures contract they bought to take delivery now).
A barrel of crude oil contains 42 gallons (168 quarts). At $36/barrel, that’s 21 cents a quart; at $100/barrel, that’s still only 59 cents a quart. Yes, I know it takes more than a quart of crude to produce a quart of motor oil, but at an average of maybe $5/qt, the price of the raw materials are not the biggest component of the cost of the finished goods. That’s even more true for plastic toys and bottles; the amount of oil within is a pretty insignificant part of the cost.
Plastics are made from what are essentially waste products from oil refining anyway. The value of that waste is even less tied to the input cost of crude oil. A price drop on something that is as close to zero is pretty much zero. Almost everything in plastics is the processing.
Most of the cost of a plastic item is in development, assembly, and transportation, not in raw material. That’s probably true for pretty much everything other than precious metals, to more or less degrees depending on the product. What’s in most products is not worth very much - how it’s arranged is far more valuable.
The cost of plastics themselves has certainly fallen with the price of oil. Compare the graphs of bulk resin prices here:
with the graph of crude oil prices here:
How much that shows up in the retail cost of a plastic thingy depends very much on what fraction of the thingy’s cost is raw material. One would expect it to be low in general, since plastic is a very cheap material. It’s like the fact that the cost of almost any steel part contains very little of the price of the bulk steel that was used to make it. It’s almost all design, labor, sales & marketing, regulation, et cetera.
The volatility of the price of gasoline is close to that of crude because supplies don’t last long. Plastic items tend to sit on the shelf longer before sale, so their price doesn’t track crude prices as closely. And, as has already been pointed out, the cost of crude is a higher proportion of the cost of gasoline than it is of the cost of a manufactured plastic item.
Just want to know if anyone else besides me saw that as “the plastic sex change”
Not the only one.
The company I work for sells hundreds of millions of dollars worth of plastics components every year to the automotive industry. The price charged is agreed upon in a contract and the automakers demand a cost reduction every year. They don’t give us more money when the price of plastic goes up, why would we give them a break when the price drops?
Same thing applies to other plastic do-dads. Suppliers negotiate a price and sign a contract to supply them at a set price for a certain period of time. The price charged generally doesn’t change daily, weekly or even quarterly.
I’m sure the guy who suggested that name was thinking, “I hope no one notices right away!!!”
Plastic is not made from oil, it comes from natural gas and gas liquids derived from natural gas. Cite: http://www.eia.gov/tools/faqs/faq.cfm?id=34&t=6
I don’t know the history of gas prices, I will leave that for others.
From your link - “They are manufactured from hydrocarbon gas liquids (HGL) and natural gas. HGL are byproducts of **petroleum refining **and natural gas processing.” (bolding added)
I am not aware of HGL being other than condensate from the production of natural gas. Do you have a cite that shows that crude is used in the production of plastics? It may be but I don’t think it is a major feed source.
A related question: when oil prices went up, airlines used that to explain the rise in fares. The price of oil drops and fares do not go down. WTF?
Eventually, prices for plastic products will come down, not due to cheaper feedstocks, but due to lower fuel costs for transportation. The same thing will happen to products not made from plastic.
“Hydrocarbon gas liquids (HGL) refers to both the natural gas liquids (paraffins or alkanes) and olefins (alkenes) produced by natural gas processing plants, fractionators, crude oil refineries, and condensate splitters but excludes liquefied natural gas (LNG) and aromatics.” – per Energy Information Administration (bolding mine)
Per the Association of Plastics Manufacturers in Europe, “The production of plastic begins with a distillation process in an oil refinery. The distillation process involves the separation of heavy crude oil into lighter groups called fractions. Each fraction is a mixture of hydrocarbon chains (chemical compounds made up of carbon and hydrogen), which differ in terms of the size and structure of their molecules. One of these fractions, naphtha, is the crucial element for the production of plastics.”