The forecast came in the wake of a warning by the German Association for Plastics Packaging and Films that the sector was being buffeted by soaring commodity prices set to reach record highs.
The trade body - Industrievereinigung Kunststoffverpackungen (IK) – said that unlike two years ago, the price hike in commodities had not been triggered by high demand. Instead the steep rises in the last four month have been caused by a combination of increasing crude oil prices and a move by recession-hit chemical and especially plastics companies to recoup lost revenues incurred over the last 12 months by raising their tariffs.
IK spokesperson Inga Kelkenberg told FoodProductionDaily.com that information from the industry showed that since December 2009 the price of polyethylene had risen 26 per cent, polypropylene by 28 per cent and a primary material called butadiene by 45 per cent.
IK also pointed out that greater volatility in pricing was now evident among different plastics – with tariff increases for polyethylene doubling in comparison to ethylene. The group said such price increases were severely impacting profit margins of packaging companies.
“This increase in income for plastics manufacturers leads to further dramatic margin reductions for packaging companies”, said an IK statement. “As an example, the incredible price jump of the primary product butadiene demonstrates the special financial burden for many film manufacturers.”
The body added there were now some supply chain bottlenecks due to reduced cracker and refinery capacities. The situation with polypropylene was “particularly tense”, it said.
Ulf Kelterborn, IK managing director, estimated that the strong upturn in China meant not enough plastics were being imported to Europe. No early improvement of the situation regarding primary products nor with supply security was expected, said IK
Packaging sector implications
An industry source said that packaging manufacturers were likely to attempt to pass on price rises quickly through renegotiation of contracts with clients. But the sector expert said this might prove difficult as some producers were already locked into 12-month agreements, inked when commodity price were much lower.
The slow pace of the economic recovery would also curtail both the speed and extent to which packaging producers would be able to pass higher prices down the chain to their customers, the insider added.
Consequently, the source predicted the German plastic and film producers would look to increase prices by around 10 per cent in the coming months.
IK Forecast for 2010
Despite the current raw material pricing woes, IK forecast 2010 would be a better year for the German plastics packaging sector than 2009 – when sales tumbled by 10 per cent. It predicted sales would increase as the economy improved and plastic increased its packaging market share compared to other sectors.
However IK spokeswoman Kelkenberg said that sector profits could still fall “substantially” in light of the present commodity price situation. This may be offset to a degree depending on whether packaging manufacturers were able to pass on any price increases to their customers, she added.