There have been shortages of film in the market during March & April due to delayed shipments and longer lead times particularly from plants in Turkey and the Middle East. As a consequence we have been helping out some companies let down by competitors.

Whilst oil prices have fluctuated over the period there is no doubt that the overall higher prices for film in 2011/12 have been mostly due to polymer suppliers simply increasing their margins. In January one polymer manufacturer stated: “Price increases were necessary for the implementation of our Value Creation through Innovation Strategy“! Sure enough, first 1/4 results fom Basell were excellent with ‘increased margins’ whilst BASF recorded a solid start to the year with Q1 sales 6% up.

We all use indices to benchmark supply agreements and contracts; these usually assume oil and polymer prices will move in tandem. This relationship has been broken down and is simply not happening. The latest ICIS report emphasises that “producers are determined not to lose margin“. Plant ‘outages’ have been implemented at several European plants which ‘balance’ supply with demand, thus prices don’t come down when demand falls.

The consequences to film prices are there for everyone to see. National Flexible like its competitors has been subjected to price increases of 15-20% year to date. We have little alternative but to buy to secure our supplies, the problem is not with the film manufacturers, it is their raw material cost. Undoubtedly there has been some panic buying to beat the increases, but as lead times have extended this has mitigated some benefits, as film has had to be purchased at spot rates to fill gaps.

There are some developments which may be more favourable going forward, namely:-

1/ Two new large Middle East plants producing polymer for both PE & PP are scheduled for commissioning in the next three months. These should provide some alternative raw material supplies to film manufacturers.

2/ The increasing strength of Sterling is making the UK a more attractive market for an increasing number of film suppliers from further afield. These new sources, whilst temporary, should ease the situation.

3/ Many companies have ‘over-ordered’ film, thus availability should improve and lead times become more normal.

All UK film suppliers will undoubtedly have to increase prices further if they are to survive. In the last few months we have seen one UK converter close, another have a pre-pack administration (for the fourth time!) and two others complete re-financing. Without price increases this trend will undoubtedly continue.

As ever, we would love to know what you think…..?

Some film manufacturers are exacerbating the problem by:-

a/ Giving little or no notice of the increases

b/ Applying them (in some cases) to existing orders despite prices previously agreed

c/ Reducing credit terms, many of which have existed for years

UK converters (including National Flexible) are between a rock and a hard place. Our delivered prices will have to be increased as the scale of the increases make 100% absorption impractical. We suffer as at best all we can do is pass on the increase and absorb the extra cost of stocks.

What actions are we taking to mitigate the effect on our customers…..?

1. All of our customers were given the opportunity in January to place bulk orders for film which then enabled us to fix their prices until May/June. Some did – others were not so convinced (see blog entry January 9th)

2. We repeated this advice in our blog entry Feb 15th. We said then it was worth taking a small price increase to fix prices to the end of May/June. Again – some did.

3. We reiterate this advice now. Why? – because unless Sterling continues to strengthen then increases announced for April will mean the upward price trend continues. The forecast is polymer increases will continue in Q2.

4. We are selling off much of our stock to those customers who fixed prices at the agreed rates. As stated, some suppliers are failing to honour the prices on orders already placed claiming ‘Force Majeure‘ as polymer suppliers have similarly increased rates. We will not be trading with these companies in 2012, but right now it’s too late to cancel orders.

5. Our key suppliers are supporting us and will continue to do so. We will remain competitive and we will continue to order forward from these companies for our customers.

In summary, there is no shortage of capacity in the industry but in some cases lead tmes are being extended, prices increased and credit curtailled. It is difficult in these circumstances to change suppliers. All of our main suppliers have supported us but they are faced with the same problem as ourselves. The reduced demand in mid-summer should mitigate this situation as polymer prices reach peak levels. The danger to UK converters is the need for more stock holding allied to tighter credit which will hit cash-flows and there is a natural reluctance to increase prices in the difficult markets faced by customers. This means at best only increases or part increases can be passed on. The same cost increase situation in 2010 resulted in several bankruptcies for converters while the rest of us were very busy making losses or little profit (busy fools!).

It remains to be seen what happens next but whatever we would welcome your views.

Ineos have joined Borealis in increasing the price of OPP polymer for immediate delivery by €70-100 per tonne. Further increases for March have been flagged and the latest ISIS report indicates a total target increase of up to €150-175 per tonne for film grade polymers.

Polymer manufacturers claim that these increases are due to changes in basic raw material costs allied to tightening of supply. The resultant rush of orders into film manufacturers means some are now quoting April delivery with no agreement given on prices to be charged.

These price changes are amazing as during the second half of 2011 when raw material costs were not dissimilar to present levels, polymer manufacturers reduced their prices month by month. It is suggested by film manufacturers that the polymer suppliers want to return to the €1400 per tonne selling price they enjoyed in the first half of 2011. If that is the case then there are increases of €200-250 still to come!!

I did recommend last month (see January’s blog) that as many customers as possible should place bulk orders in January to enable us to hold their prices through to April/May by forward ordering. Although there is likely to be a small increase for bulkorders placed now for deliveries through to May/June, it’s still a very good idea as prices still don’t seem to have any chance of coming down. We will probably be increasing our film prices sometime in March when Dec/Jan stocks begin to deplete.

Reasons For Increase

A range of reasons are being put forward for these price increases:-

1. The problems with Iran
2. De-stocking at the year-end 2011 pushing up demand for the first quarter of 2012
3. Growth in demand from Eastern Europe/Middle East/Central America

Frankly none of these seems credible in isolation but may be contributory factors. In truth the polymer suppliers have proved if they all move prices together they all win.

Film Manufacture

Over 100,000 tonnes of new film manufacturing capacity came on stream in 2010/2011 mostly in the Middle East but Turkey and Eastern Europe also had new developments. To our knowledge there are none planned for 2012 this could be significant.

Some old European lines have been closed but the majority of the European capacity still comes from older less economical plants. TI’s takeover of Radici was the only significant consolidation in the sector over recent years, unless further consolidations occur we can expect to see the closure of more of the less profitable (loss making!) European plants in 2012.

UK Converters

Generally UK converters were profitable in 2011 primarily due to the decision by Amcor to reduce UK capacity in 2010/2011 by plant closures. As a consequence no less than 12 new print machines have been installed by converters over the period, all of which need work.

Obviously some have replaced obsolete print machines but all are higher speed/volume producers so market capacity has probably increased.

It will be interesting to see how these investments progress when interest rates increase in 2013-2014, but for now they are helping to hold down print prices despite the increasing film costs.

Sterling

Finally, Sterling is around a more reasonable €1.2 thus European converters are once again more interested in exporting to the UK. It will be no big surprise therefore at the next big packaging exhibition to see the number of overseas participants increasing to levels seen 3-4 years ago.

Despite record profits Borealis have announced a €100 increase for polymer prices in January. Other polymer suppliers have levied a €70 increase and are currently refusing to quote prices for February deliveries for some grades.

Not such a happy start to the New Year. We anticipated a period of price stability for films, particularly as there was an excess of polymer supply in the final quarter of 2011 forcing prices down.

Nevertheless despite Basell and Borealis producing record results for 2011 they are increasing prices once again claiming the reason is the jump in the oil price of 10% in the last 4 weeks, this is due to fears of an Iranian blockage of the straights of Hormuz. Whilst Sterling has strengthened against the Euro it has weakened against the dollar so it is unlikely that there will be any benefit for the UK market due to currency measurement.

The message seems to be ‘buy now’ as prices are going up, particularly if the relationship with Iran and the Western Nations deteriorates further. National Flexible will buy stock forward on our customer’s behalf to help fix prices so please let us know your requirements and we will hold stock for you for deliveries up to May.

The good news is that material costs fell in the last few months of 2011 and are forecast to remain stable for the first quarter of 2012.

So a much better start to 2012 than this year, may it bring you and yours success in business and good health.

Sorry to be adding so quickly to my early October film price update but the situation on polymer supply seems to be changing week by week. Despite plant closures for ‘maintenance’ by some key polymer suppliers both here and in Europe the price of polymer continues to fall and new film prices for delivery in the first quarter 2012 reflect this trend.

Price Trends PE, OPP 

A price reduction of €60-80 per tonne in August/September fed through into October film prices. Further polymer reductions in October/November of €60-70 per tonne mean lower film prices in December. Currently January deliveries are being quoted at €50-60 per tonne down dependent upon supplier.

Thus over the 6 month period of August to January we should see a fall of €170-210 per Tonne.

Spot Prices

Spot prices of film have fallen at a similar if not faster rate particularly where customers would take short term volumes. In effect for the first time in over 2 years, holding film in stock, in bulk, has been the wrong strategy if the intention was to reduce price volatility.

Film Availability

Most film manufacturers have excess capacity due to volume reductions in both Europe and the Middle East. More new plant capacity from the Gulf has come on stream in 2011 further exacerbating the excess supply. Some films which were on 9-10 week lead times in the first half of the year are now on 5-6 weeks.

Stock Levels

Many companies (National Flexible included) have carried high stock levels in 2010/2011 in order to ensure service and mitigate price escalations to customers. We are now receiving film ordered in August/September at prices about €100 per tonne above those prevailing right now.

We are reducing our prices to customers as fast as we can but those competitors with little stock holding will currently have lower raw material costs now. This situation will rectify itself in the first half of 2012.

Outlook

Six weeks ago we anticipated a period of stability in prices, right now it’s difficult to forecast BUT there is every chance of a European film supplier going bankrupt, closing or being purchased for market share by a competitor.

For the time being we know high stock levels should be avoided, but customer service/film availability must come first so we really dare not reduce our forward offers to take full advantage of the falling prices. We will however always remain competitive.

Trusting this information is of interest.

Film Prices: Final Quarter 2011 – First Quarter 2012

Apologies for my absence in August/September but I managed to marry off my daughter and the break did me good!

There is every reason to believe that the film market is in for a period of price stability. Reduced demand for polymers world wide allied to lower oil prices and a more stable political scenario in the Middle East suggest that polymer suppliers will balance supply/demand at around current price levels. The closure of the UK’s largest polymer producer for a month for maintenance indicates this may already be happening. It is unlikely that the polymer companies will allow any margin erosion.

Film Manufacture:

The shift to the Gulf as the main source of film production continues at a pace as extra capacity in LLDPE, OPP, and PET production are all either in hand or on stream. Production of specialist films in Europe will probably continue for some years but it is unlikely that manufacture of commodity films can be profitable for current manufacturers in the longer term. More company integration and plant closures can be anticipated over the next 1 to 2 years.

Effect On Convertors:

The recent demise of Scandiflex and the action of another mid-size UK printer in asking suppliers for a moratorium on its monthly payments highlights the price pressures occurring in the convertor market. Several printers are working at or near to capacity but higher raw material costs allied to price resistance from customers are limiting profitability and stretching cash flow.

Whilst this position may ease as film prices soften, the introduction of new print machines will intensify this pressure in the longer term. It will be interesting to see how the market reacts when print volumes fall in the first quarter of 2012. Will we see even more predatory pricing and/or company closures?

National Flexible:

Finally how does all this influence our business?

A) Unfortunately as film was on 8-10 week lead time in the first half of the year we have had material delivered at the higher prices all the way into July/August.

B) However, we are de-stocking as we believe the massive escalation in film prices has abated, at least for the time being. (Even now polymer prices are 25% above January 2010).

C) We are reducing our prices as quickly as possible in line with the price of new film being delivered to us, to keep our prices competitive.

D) We are moving more of our film purchasing to the Gulf whilst maintaining our relationship with our European specialist film suppliers.

E) We are monitoring the suppliers we have and are not being seduced by some of the latest loss leader spot prices on offer from companies who we know from experience will not be around when supplies are tight.

F) We continue to seek new materials and high quality sources of supply from around the world to ensure we maintain our “technical edge”. (We are visiting Anuga and South America in the next two months checking new materials).

Your views on these opinions, and any other issue you wish to raise would be very welcome.

For the first time in 18 months film prices have not risen over any given 1/4 period. Indeed stable prices in April & May have been followed by a £20/tonne weakening in June. But as they have risen some 50% over the previous 18 month period, a slow down is hardly surprising.

July is forecast to see a further reduction in prices and again £20-30/tonne is anticipated. However with the August holiday shut down in Italy and plant closures due to Ramadan in the Gulf, the supply/demand situation will palpably change by September.

Many companies such as ourselves have remained fully stocked in 2011 due to extended lead times on most films, no doubt this is a factor in the weakening demand in Q2. But with the turmoil in the Middle East and a weakening of sterling against the Euro there is little reason to believe that film prices (other than polyester) will fall dramatically. Polyester is another story but we believe that the current level of polymer prices will be at least held until the year end, thus film prices are likely to remain static.

We further believe that any weakening in polymer prices will result in capacity closures to maintain prices and the supply/demand balance.

However, whatever your views are we would love to have them…..

Facts and Figures

With 32 teams participating in the tournament, there are 64 scheduled matches

2006 – 147 goals (average 2.3 goals/match)

2002 – 164 goals (average 2.5 goals/match)

1998 – 171 goals (average 2.6 goals/match)

Q. How many goals will be scored in total during the 2010 World Cup?

Terms & Conditions

Closing date for entries 10/06/10. Entries posted after this will not be eligible to enter the competition. Sorry, we can only accept one entry per person. If we receive more than one entry only the first will be accepted. If there is more than one correct answer at the close of the competition we will decide the final winner with a random draw. Dates for the holiday will be dependent on availability at the time of booking. To see details of the prize please visit www.llamedos-dois.co.uk

The results of the competition will be posted on the blog after the final game.

Good luck!

As recently as last September we had the ludicrous announcement that Lincolnshire Trading Standards were to take Sainsbury’s to court for wrapping a joint of beef in a plastic tray with a film overwrap and a cardboard sleeve. The fact that they subsequently dropped the case only highlights the ignorance that exists, even within local authorities, of the packaging required to preserve food whilst at the same time meeting all the numerous legal labelling requirements.

Why are these companies not targetted in the same way as any food packer would be if they were stupid enough to use even a fraction of the extra volume of packaging used by the luxury brands?

Regrettably, it’s not just wines and spirits that spend a fortune producing packaging waste. A cursory look around any airport at the perfume counters will discover presentation packs that are beyond belief to anyone in our industry – an industry where packaging reduction and weight elimination are paramount. This example shows the total amount of packaging used for only 30ml of  perfume:-

The volume of packaging waste, excessive material, wasted resources and energy consumption in this one pack is obscene. But no doubt the ‘Packaging Fascists’ from the Friends of the Earth and the Local Government Association (LGA) will condemn the use of the ‘plastic overwrap’. These were just some of the organisations who were at the forefront of the criticism of the Sainsburys packs – claiming it was typical of the excess packaging used by food companies.

The consistent persecution of the food industry for its packaging waste would perhaps be a little more acceptable if the authorities took the slightest interest in those industries which really go over the top with packaging. Anyone who has recently purchased toys, electrical goods, DIY products, as well as a whole range of luxury goods will know exactly what I mean. The major difference between food packaging and all these other products is that whilst food packs save millions of pounds in food waste – the majority of the rest contribute nothing other than to generate rubbish and consume resources.

Meamwhile the legislators take no action, the press are not interested (The Mail was just one paper who ran a whole page on the Sainsburys fiasco) and those of us in the food industry who have technical teams working virtually full time trialling materials to reduce waste, save costs or extend shelf-life are given no credit whatsoever for our efforts.

Never mind – if all else fails the Environment Agency can be asked to produce a report on excess packaging in the luxury goods sector and we can all wait 7 years for its views!