Packaging material prices set to increase yet again

The reason given for this price increase is the greater-than-expected rise in raw material costs in the month of September. This meant that the necessary improvement in the margin could not be attained, and as a consequence, BASF says that it has been forced to make further price adjustments.

Polystyrene, a versatile plastic that can be rigid or foamed, is used extensively in protective packaging, containers, lids, cups, bottles and trays, and the rises will again be felt by manufacturers.

This latest increase suggests that packaging raw material prices are set to remain high. Natural gas - a starting point for the production of polyethylene - has shot up in price this year, with the effect that chemical giants have continually passed on the cost to packaging firms.

For example, BASF announced last month that as of 1 August, the price of its plastic material Styrolux, a styrene-butadiene copolymer used in extrusion applications in food packaging, would be increased by €200 per metric ton in Europe.

Dow has also increased the prices of its packaging materials. "Our price increases in 2004 have not compensated for the tremendous rise in raw material costs during the first half of this year,"​ said Markus Wildi, commercial vice president for Dow's plastics portfolio in Europe, the Middle East and Africa. "Additional increases in raw material costs during Q3, as well as unusually high oil prices, have further eroded our margins."​

Analysts attribute the rise in prices to the rising trend in petroleum sector because naphtha, a fraction derived from crude oil refining, is the starting point for producing ethylene and propylene, which are the building blocks for polymers.

With the increase in crude oil prices, the international prices for Naphtha have increased from US $222 a tonne in May 2003 to US $420 a tonne in August.Polyethylene producers now have the highest feedstock costs in the plastics producing world. It is these high ethylene prices that have been the primary driving force behind most PE price increases.

And the cost of benzene, which is used to make styrene, has now reached historically high levels. Prices have been rising steadily since the start of the year, and are now double what they were six months ago. Again, benzene is derived from oil refining.

According to theplasticsexchange.com, US feedstock costs are set to subside. But US resin prices are still high because international traders are buying all reasonably priced resin, bringing new demand to the market and eliminating any surplus resin that might have been encouraged by high producer margins.

The global plastics industry is huge. The United States is the largest consumer and producer of plastics in the world - in 1996 the plastics industry in the US was worth $274.5 billion in shipments. Packaging represents a quarter of this market.

Europe on the other hand represents the world's largest packaging market, valued at $129 billion, and there remains considerable scope for growth. However, the recent fluctuations reveal how closely tied the industry is to the energy market.