Swings and roundabouts

29 July 2002



Simon King, director of PCI Films Consulting, looks at the reasons behind materials' price rises


The European converting industry has worked hard in recent years to improve margins and efficiencies. But now with plastics film, aluminium foil and paper prices all looking set to increase, much of that hard work could be undone.

Most flexible packaging converters will have noted the rise in the price of PE, PP, PVC and PS polymers since January 2002. The cause of this latest cycle of price increases to converters is more complex than the rising cost of raw materials. It is the result of a combination of factors inherent in today's flexible packaging supply chain.

These involve a tightening supply and demand situation within substrate industries, linked to a lack of investment in new capacity over the last 12 months, as well as the recent weakness in the euro against the dollar, which are affecting prices of substrate imports. Also influencial is a rationalization at all levels of the supply chain; in polymers creating suppliers with a stronger selling position, less willing to compromise on price; in end-users creating larger and stronger buying forces, equally unwilling to accept price increases. In addition, rising oil prices mean increased raw material costs.

Substrate producers have successfully resisted upward price pressures from raw material producers, particularly polymers, for long periods. However, in recent months, the M&A activity and temporary outages of production capacity has meant that polymer producers have been more successful in pushing through significant price increases. Now that film producers have already started to pass on these extra costs, the next stage of the battle will be between converters and end-users. Which of them will be able and willing to sacrifice margin or put up prices?

The table above illustrates the influence of many of these factors across both raw material and substrate prices.

The newly enlarged converting groups will be better placed to resist increases and also to recover some of these cost increases once they do hit. Others will have their already low margins even further squeezed, although they might take a leaf out of one continental converter's book. He has gone down the 'toll converting' route; encouraging major customers to negotiate prices direct with the substrate suppliers, then agreeing with them the added value element he will deliver. He can therefore concentrate on managing the processes over which he has control and so do better at managing his margins.

'European Price Trends - Substrates & Raw Materials' is a new study which tracks quarterly price movements from the mid 1990s through to mid 2002, and provides price outlooks and explanations for 12 categories of substrate and raw material.

Major influences on raw material and substrate prices

Raw material A general downward trend for polymers, pulp and aluminium in 2001 is now being reversed.
  • Rationalization has taken place in the PP resin industry to overcome the over-supply situation and improve the supply/demand balance. The industry is now better poised to push through price rises for PP polymers.
  • Protectionist measures by European PET resin producers have largely dissuaded S E Asian sources from doing business in Europe and created a tighter market. The low profitability in the industry is set to improve with a concerted push on prices.
  • The pulp industry is in serious need of rationalization to avoid the severe demand/capacity imbalances that historically have dogged the industry and caused significant fluctuations in price. Upward movements in current pulp prices may not be sustainable.
  • Euro/$ exchange rate movements play a significant role in setting aluminium metal prices, so in the current climate of a weaker dollar European foil producers will enjoy lower raw material prices, but is it sustainable?
  • Prior to the introduction of the euro, most substrate prices varied significantly from one country to another, but since its introduction prices have converged. Substrate After downward pressure on PP polymer prices in 2001, the OPP film industry is now facing concerted efforts from PP resin producers to improve their margins and drive prices upwards. OPP film producers have begun to implement price rises.
  • Low profitability in the PET film industry is expected to improve following the latest round of announced price increases lead by the three dominant suppliers. Curbs on S E Asian imports of PET film have tightened the supply/demand balance and the rises are likely to be implemented.
  • The voluntary withdrawal of the Korean BOPA film suppliers from the European market, due to better margins elsewhere, has tightened supplies and already prices are starting to rise.
  • With one producer of cellulose film in Europe, and little volume imported from elsewhere, it dominates. However, it is very sensitive to the relative prices of competing substrates (eg, OPP film) and therefore significant price rises are unlikely. Source: PCI Films Consulting Ltd


  • Price trends graph Price trends graph


    Privacy Policy
    We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.