Costs push up film and flexible packaging prices

The trade associations representing UK plastics film producers and flexible packaging converters are jointly warning their customers to expect price rises as a direct result of the rapid escalation of the cost of gas and electricity, and polymers during July and August.

Packaging and Industrial Film Association chief executive David Tyson says: "These rises are inevitable if our members are to stay in business. Last year we reported increases up to 40 per cent in energy costs as our members came out of contract with their suppliers. But this year we are seeing the figure get up to 100 per cent as long term contracts expire. In an energy intensive industry like ours, this could add between £50 to £100 per tonne, depending on the product."

Martin Unwin, director of the Flexible Packaging Association, adds: "Polymer price increases of this magnitude are having a similar effect on our members and the increased energy costs will also inevitably affect all the materials we process. This covers not just plastics films, but also paper and aluminium, as well as other substrates and a wide range of inks, coatings and adhesives."

The viability of the industry is also strongly affected by the imposition of the Climate Change Levy and, together with organizations such as the British Plastics Federation, is making continuing calls for its removal. Government response is so far described as "not particularly promising", but the film production sector believes it has a strong case as an energy intensive user to negotiate a Climate Change Agreement for the extrusion sector.

David Tyson says: "If we could achieve a CCA it would provide at least some relief to our industry through an agreed rebate of the CCL levy in exchange for meeting CO2 reduction targets."

Polymer prices are also being elevated by a combination of tight supply and record oil prices. These have come through in July and August to push the cost of some film grade materials up by 20 per cent, with continuing substantial increases being flagged up for September and October and exacerbated by Hurricane Katrina's effect on oil supplies.

"This upward momentum is likely to continue with the prospect of fourth quarter feedstock rising on the back of higher oil prices," David Tyson concludes. "Supply is very tight and not helped by recent production problems in North West Europe which resulted in some grades being put on 'allocation' and some producers closing their order books early in August. This has effectively prevented the building of stocks as a hedge for further increases."

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