Costs for plastic use by food makers to ease as oil prices plummet

By Lindsey Partos

- Last updated on GMT

Related tags Petroleum Peak oil

Costs are set to ease for food makers reliant on plastics packaging as crude oil futures in New York plummet on Friday to the lowest level since October 2007.

In afternoon trading in New York, crude oil fell to below $78 a barrel. A figure that contrasts sharply to the soaring $150 a barrel reached this summer.

Plastics manufacturers can use oil to make a range of plastics to include the hydrocarbons ethylene, propylene and styrene.

Indeed, according to the British Plastics Federation - that slates global oil demand at an estimated 87.2m barrels a day in 2008 - 4 per cent of global oil production is used for plastics.

But using oil as a key raw material means keen exposure to the fluctuating world price of crude oil. In recent months when prices escalated to highs of $150 a barrel, suppliers had to march in tune to the rise in costs, stepping up price increases to their customers.

Only recently, paper and plastic packaging supplier Nampak Europe announced a ‘double digit’ price increase to offset what it called 'unparalleled input costs', highlighting the rising price for polymers.

Elsewhere, Alcan Packaging, a supplier of flexible packaging for the food and beverage market, announced a five per cent price increase on all its products. German chemical firm BASF upped the price of its Styrolux polymer last month by €150 a tonne, after previously announcing in June that the price of the material had risen by €100 a tonne.

However, as panic continued to wreak havoc on the global financial markets on Friday, prices for oil swooped downwards. And compounding the price downwards are the deteriorating economic conditions across the globe - France and Britain, for example, officially entered recession status last week - that have reduced the demand for oil.

But a steep fall in price for oil - also a key factor of course in energy costs - is set to make savings for food makers impacted by spiralling upward raw material costs over the past twelve months.

Indeed, a recent report from investment bank Credit Suisse underlines this cost hope for manufacturers. With the fall in crude oil costs over recent weeks, Credit Suisse's packaging index is 15 per cent lower than "a month or two ago", despite the fact that the firm's index – that includes plastics, paper and tin – is up more than 15 per cent year on year, and about 10 per cent year to date.

Alternative sources

Facing increasing criticism from environmental and consumer groups, food processors are keen to show that they are responding to consumer demand for products and packaging that are more environmentally friendly, and many have come up with 'greener' alternatives to traditional plastics.

Hydrocarbons used to make plastics can also be produced from methane, coal and biomass (for example, bio-ethanol), while other potential raw materials for plastics are: starch; cellulose; sugars; lactic acid; organic waste; vegetable oils; and micro-organisms.

But the market for bio-plastics is small.

Chris Noble, an analyst at AMI (Applied Market Information), recently told that "less than one per cent of global polymers are currently classified as compostable bioplastics according to the European EN 13432 standard."

Related topics Processing & packaging

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