Sunday, January 16, 2005

Brett Mountain / Bloomberg News General Motors Corp. is trimming costs by using more recycled plastics under the hood, behind the instrument panel and inside the wheel wells of full-size trucks, such as the Chevy Silverado.

Record plastic costs hurt GM, aid Dow

Companies raise prices 57 percent in 2004 due to high demand and costly raw materials such as oil.

By Jack Kaskey / Bloomberg News

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General Motors Corp., Pepsi Bottling Group Inc. and Pactiv Corp. are seeing profits eroded by the surging cost of plastics that are used in everything from automobile bumpers to beverage bottles and trash bags.

The price of polyethylene, the world's most widely used plastic, surged 57 percent in 2004 and is the highest in more than a decade, boosting earnings for producers such as Midland-based Dow Chemical Co. and Nova Chemicals Corp.

Demand for plastic resins, a $51 billion business in the United States, grew 8.3 percent in the first 10 months of 2004, the American Plastics Council estimates. New cars contain about 280 pounds of plastic, double the amount in 1988. Chemical makers are raising prices as their raw material costs surge and as growing demand exhausts spare production capacity.

"In North America, we need at least three polyethylene plants per year announced and built, in order to keep up with demand growth," Nova Chief Executive Jeffrey Lipton said.

U.S. production of plastic resin in 2004 rose to 89 percent of industry capacity from 85 percent in 2003, the Arlington, Va.-based American Chemistry Council said. Capacity use will climb to 91 percent this year.

A growing imbalance between supply and demand has been spurred in part by increased purchases by China, Lipton said. General Motors, the world's largest carmaker, is trimming costs by using more recycled plastics under the hood, behind the instrument panel and inside the wheel wells of full-size trucks, such as the Silverado.

"We are challenging our suppliers to find good solutions using recycled materials," said Tom Hill, a GM spokesman.

U.S. automakers are using more plastic than a decade ago, replacing steel with light, easily shaped polymers in everything from door panels to bumpers, said Jim Kolb, vice president of automotive programs at the American Chemistry Council.