Saudi comments heighten concern over spiralling raw material costs

BASF is set to raise its European prices for the styrene polymers Terluran (ABS) and Luran (SAN) by €200 per metric ton from 1 March 2005.

The company claims that the measures are necessary because raw material costs have increased yet again and are expected to increase further. This, says BASF, has made the extreme erosion of margins for these two product groups even worse.

The fundamental reason for the increase is the current price of petroleum and natural gas, a starting point for the production of many packaging materials and the chief contributor to rising freight prices. The cost of benzene, a petroleum byproduct that is used to make styrene, has now reached historically high levels.

Oil prices struck $50 a barrel for the first time since November this week, prompting traders to forecast a return of the record prices seen last autumn. According to the Financial times, the European cold snap has pushed fuel prices higher, with gasoline prices in Asia hitting a record of $60 a barrel.

And there are fears that these high prices could be sustained. Crude oil futures rose to a four-month high yesterday after Saudi oil minister Ali Naimi claimed that prices could stay between $40 and $50 a barrel for the rest of the year.

The comments by the Organisation of the Petroleum Exporting Countries' lead producer will fuel fears that the tight supply-demand picture and high prices are here to stay.

Continuing high raw material prices, passed on by producers, could prove difficult for the packaging industry, which has had to absorb steadily increasing costs over the past 12 months. Polystyrene prices rose by nearly 70 per cent in 2004, and it has been packaging companies that have been forced to absorb these increases.

Indeed, producers such as BASF spent much of the fourth quarter of 2004 trying to hang on to their higher prices in order to recover from a tough year, and have tried to push higher resin prices along to their customers. The latest cost increase shows the continued ability of producers to transfer costs onto packaging companies.

Both Terulan and Luran belong to BASF's range of styrenic plastics commodities. Terluran is the trade name for BASF's ABS (acrylonitrile/styrene/butadiene copolymer). BASF's​ styrene/acrylonitrile-copolymer (SAN) is marketed under the trade name Luran.

Styrene is a versatile plastic polymer used in the production of protective packaging, containers, lids, cups, bottles and trays, and the price rises will be felt by packaging manufacturers already squeezed by high raw material prices and intense competition.

Europe represents the world's largest packaging market, valued at $129 billion, and there remains considerable scope for growth. However, recent fluctuations in the price of raw materials demonstrates how closely tied the industry is to the energy market, and susceptible the packaging sector is to high oil prices.