Calling for a united front to seek long term solutions, Barry Turner, CEO, PAFA, said it was surprised by the size of price increases imposed on converters in March combined with significant price rises already notified and to come in April.
Higher duties on imports from the Middle East
The price increases come as a response to supply issues with an estimated 20% of European capacity out for maintenance or force majeure coinciding with a similar reduction in imports as a result of higher duties on imports from the Middle East and more attractive prices and exchange trades available elsewhere, he said.
Speaking exclusively to FoodProductionDaily, Turner said the polymer price increase could in worse case scenarios result in shortages of key packaging materials.
“Falling feedstock prices led to lower prices until February then shortages started to reverse this trend sharply,” he said.
“Some material shortages are more pronounced than others for example LLDPE has been hit particularly hard with over 30% of European capacity out and imports into Europe down by 30% due to better prices available to polymer producers elsewhere in the world combined with the increase in duties that came into force in January 2015 following some European polymer producers lobbying for increased protection.”
The German plastic packaging manufacturers association agrees with PAFA and said due to the fact major raw material suppliers currently consider themselves no longer able to meet their contractual obligations towards packaging manufacturers deliveries that have already been accepted are being cancelled.
'An end to this price spiral is not in sight'
It told its members in statement; ‘When deliveries are made, they are coupled with significant price hikes, despite the continuing moderate cost of crude oil. An end to this price spiral is not in sight.’
According to Turner the industry is heading into a very difficult territory this month as inventories are tight and demand is strong. “It is highly likely converters will not get the supply they require,” he said.
PAFA said the situation is made worse by the fact the published UK indices (where contracts use an industry index to fix prices at present) have so far failed to reflect anything like the magnitude of the increase.
“Some are showing a significant gap between what is being paid by a company and what the index is saying they are paying and this will change due to extreme differences being quoted for material this month,” added Turner.
“This has caused some members to hastily consider how to rebuild their business models to better manage shocks like this in the future. It is difficult to find any parallel anywhere else where converters have to manage such extreme volatility in raw material prices.”
The German plastic packaging manufacturers association said in recent weeks, the number of cases of force majeure registered by raw materials producers in Europe has reached “epidemic proportions”.
“Such reports have so far contained no detailed information and consequently make it difficult to ascertain whether the criteria for force majeure have actually been met,” it said in a statement.
“Since raw materials account for a large proportion of costs, up to 70%, margin losses represent a potential existential threat. To date, no other packaging sector, neither paper nor metal, has seen such serious occurrences.”