Companies search for alternates as polymer prices rise

By Ahmed ElAmin

- Last updated on GMT

Related tags: Natural gas, Petroleum, Kpmg

Biodegradable and recycled packaging may soon become viable
alternatives for more food companies as the increasing price of
plastics begins to be passed on by suppliers, KPMG states in a
report.

Packaging is going to become more expensive, whether a company is using glass, paper or aluminum, KPMG quotes market experts as stating. However plastic prices are outpacing the rest. It is alsothe most-used form of packaging, prized because it is lighter, durable and easy to manufacture.

Prices for resins have been rising steadily, but have skyrocketed in recent months as the price of oil and natural gas has risen. Polyethylene resin, which comes from natural gas, andpolypropylene, which is derived from crude oil, are used to make a variety of containers and films for the food and beverage industry.

Polyethylene, a plastic film used in food and other packaging, are up 25 per cent from levels in May and June. KPMG expects another 15 to 20 per cent increase in short- to mid-term polyethyleneprices, according to data from the Plastics Exchange in Chicago.

In a published report KPMG partner Scott Flynn says the price increases are just beginning to trickle down to the consumer products industry, including food processors. Packaging accounts for about10 per cent of a product's cost, Flynn stated.

Depending on their contracts, plastics packaging manufacturers have so far borne the brunt of the increased costs rather than attempting to pass them on to their customers. In the short term theyhave been anxious to keep their business relationships with their large consumers and are instead leveraging productivity increases to help soften the blow, Flynn stated.

"But plastics producers can absorb increased costs for only so long,"​ he stated. "When food commodity prices rose over the past several years, ingredient supplierseventually had to raise their prices for food makers."

Under such conditions, resin alternatives, including starch-based packaging, looks increasingly attractive to food processors. Polyactic acid (PLA), a biodegradable extract of corn, can be used forfood and consumer products packaging. For example Cargill Dow Polymers uses PLA to make packaging under its NatureWorks brand name.

Another alternative is starch. California.-based Earthshell Corp. holds patents to make biodegradable packages from starch. The company licenses its biodegradable packaging technology to packagingmanufacturers. The company primarily use starch from potatoes to make packages, but also uses corn and wheat.

However KPMG quotes industry observers as stating that market growth has been inhibited by several factors, including capacity issues, a long-established supply network for petroleum-based plasticsand institutional resistance to change.

Starch-based alternatives have their drawbacks. They requires lots of fuel and petroleum-based fertilizer to grow the crops. Food industries need to consider using recycled packaging instead.

The move to biodegradable or more use of recycled materials might occur if the high prices for petrol and resins is maintained in the long term, as seems likely to occur.

Prices for crude oil recently topped a record $70 a barrel, while natural gas hovers around $10 per million British thermal units (BTU). The Center for Global Energy Studies expects oil prices toremain above $50 a barrel throughout 2006. Historical prices for natural gas usually were around the $1.25 to $2 per million BTU, according to the Plastics Exchange in Chicago.

Polymer prices, which eased slightly in the second quarter, seem set to return to, and possibly exceed, the record highs experienced towards the end of 2004, according to industry experts.

Related topics: Processing & Packaging

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