National Flexible - 01274 685 566 - The UK’s largest independent distributor of flexible packaging films

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.

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. 

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.

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.....