BPI counts the cost of raw material hikes, vows recycling ops boost

By Rory Harrington

- Last updated on GMT

Related tags Raw material Cost Economics

British Polythene Industries (BPI) said raw material price hikes had cost the company ₤45m (€ 52.3m) in 2010 and said it would be accelerating investment in its recycling operations in a bid to insulate itself from future polymer cost instabilities.

The UK-based firm revealed the extent to which it had been hit by soaring raw material tariffs in its preliminary full year results for 2010. It attributed these “substantial increases​” as a factor in posting a deflated operating profit of ₤17.9m - a year-on-year drop of ₤1.1m.

“Operating profits were impacted by a substantial increase in raw material costs, due to the inevitable time lag in passing these on to our customers,”​ said BPI.

In order to provide its own hedge against continuing price spikes BPI spokesman Mike Baxter told FoodProductionDaily.com that the firm would be accelerating investment in its recycling operations of agricultural film that would see one of its four plants “significantly expanded”.

Company sales for 2010 jumped 12.5 per cent to ₤478m, while profit before tax rose from ₤11.8m in 2009 to ₤16.9m. Its total materials sales volumes increased from 275,000 tonnes last year to 280,000 tonnes.

EC investigation and 2011 outlook

BPI also spent ₤500,000 on legal costs relating to a joint investigation by European Commission and UK Office of Fair Trade (OFT) into the agricultural film market. It added it did not currently know whether it would face further action after regulators swooped on the company in May 2010.

“We have extensive guidelines and controls in place designed to ensure compliance with competition laws across our operations,”​ said a BPI statement.

BPI chairman Cameron McLatchie said: “2010 showed evidence of further improvement in the underlying performance of our business.”

He said he was confident that cost cutting measures in the last two years had made the business more resilient to the economic headwinds.

“2011 will not be easy, but we have made a good start,”​ added McLatchie

Raw material prices

The company acknowledged that it had underestimated the strength of the upward trend in polymer prices last year – when it said a return to the record price levels experienced in 2008 was “unsustainable”.

“Events have proved us wrong, and we are now back at these levels once again; but only in Europe, where polyethylene polymer, our basic raw material, is mainly manufactured from ethylene derived from naptha and, in turn, from oil,”​ said the company today.

It explained that in the Middle East and North America, much of this polymer was manufactured from the much cheaper ethane gas, resulting in lower prices in these markets.

“Tariff barriers, high shipping costs and transit time risk all inhibit global trade in these polymers and there is no effective hedge available in the financial markets,”​ added BPI. “Margins in polymer, from well-head to granule, have never been so high; although demand is certainly not robust in Europe. Despite that, there is no sign of prices coming down and we have seen increases from suppliers both in January and February 2011.”

Related topics Processing & Packaging

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