National Flexible - Twigg´s Times
With a wealth of experience in the packaging industry at the most senior levels, Barry Twigg - National Flexible´s major shareholder and CEO – shares his thoughts and ideas about the latest trends.
Film Prices 2014 + UK Film Convertors Financial Health
“Prediction is very difficult especially if it’s about the future” (Niels Bohr).
Its 3½ years since we started writing these notes in which time we have called the market trends on film prices wrong just twice. However the September forecast of a major upturn was spectacularly wrong and I have been taken to task accordingly by those customers who joined us in buying forward extra stock. The reasons for the wrong call were highlighted last month, the prime one being the cancellation of the American plan to bomb Syria.
Fortunately little has been lost, a €30 ’softening’ of the polymer input prices for November is hardly a cause for heartache and if our market contacts are to be believed the December/January fix for polymer will recover this amount.
The real question then is where does this leave us for 2014 prices?
Overall Film prices in 2013 have been very stable, with some mid-year increases offset by the year-end reductions. However, there is a 3% import levy to be applied on film from the Middle East in January, plus in every year since 2008 we have seen film prices increase in the first ¼. Market Gossip at the recent K Show in Dusseldorf was that the ‘soft’ market in the final ¼ of 2013 would not continue and that some price recovery from the polymer suppliers would result in some small increases. However the current supply/demand favours price stability particularly if European demand remains at present levels.
As ever there are variables which would rapidly change this situation but with polymer plants operating at only 80-85% capacity, oil prices potentially falling and Sterling relatively strong, there is little to suggest any short term major increases in film prices. Last month we suggested de-stocking until Christmas. Despite the current stable price climate buying forward in January through to May would seem prudent as changes in any of the current benign influences would be likely to move prices up rather than down.
Film Price Stability – Our Thanks To The Russians
Is it only 5 weeks ago since the USA proposed to unleash its military might on the denizens of Syria? So much has happened since, most of which I missed due to a four week sojourn in the Algarve.
At that time the attack was forecast to coincide with the scheduled “outages” of no less than 5 major polymer plants across Europe. It was also due to occur when historically sales volumes across the flexible packaging industry tend to increase prior to Christmas. The concurrence of these three events had all the ingredients of a “Perfect Storm” when considered in the context of the previous actions of the polymer suppliers in straitened times. Little wonder then that we anticipated an increase in film prices for the final ¼ of 2013!
In the event thanks to the intervention of the Russians the Americans desisted. Equally as surprising was that there seems to be sufficient polymer available to fill the void created by outages. As a consequence film prices have remained stable. In October there is even a suggestion of a slight fall in the final ¼. The reasons given for this turnaround in price trends are difficult to ascertain, but our contacts in the market suggest:
Film Prices – Brace Yourself!
Sorry if I sound alarmist about the upward direction of future film prices but I believe we have another “Perfect Storm” brewing. There are three significant events occurring almost simultaneously:-
1. Demand for films of all types is increasing into the year end, in both the UK and Europe.
2. The political situation in the Middle East seems to be deteriorating by the day.
3. There are 5 large polymer plant “outages” either in progress or planned for September (2 Italian, 1 Netherlands, 1 German, and 1 UK)
In June I speculated that we should not trust the “eerie calm” which had descended on film prices in the first half of the year. What followed in July was a £40 per tonne increase from film manufacturers on most films, then another £50 per tonne in August.
These were almost “increases by stealth” as it was not possible for these small sums to be passed through the supply chain. However together they more than took up any slack which converters may have had from the first ¼ price weakness. As a consequence any September price increases (which look inevitable) will need to be passed on to customers, whatever the consequences!
In both May & June I recommended buying forward into the window of opportunity which had arisen, this enabled astute buyers to fix prevailing prices right through to the year end. Unfortunately that opportunity has now passed.
Leading Polymer resin suppliers Basell and Borealis have both publicly stated that their selling margins on resins must be improved, this will simply add to the pressure for higher film prices to the year end.
Film – Prices, Prepacks & Pyrotechnics
These three themes have been dominant over the last four weeks. The first because of what didn’t happen and number 2 & 3 because of what did. Consider the following:-
The market price of film continues to be becalmed. A small increase in polymer prices in July equated to a request for £40/tonne increase in OPP from some suppliers, whilst a larger increase of £80/tonne was demanded for PE. In most cases these requests fell on stony ground and were either reduced or waived by suppliers. Meanwhile PET prices stabilised.
The massive increases in both polymer and film production from the Middle East in 2012 now appear to be exerting a positive impact on film prices all across Europe. Meanwhile Turkey’s commitment to local and Eastern European markets plus Ramadan is enabling film suppliers and converters to balance sales volumes. Western European demand for most films is reported as ‘sluggish’.
Unfortunately we remain pessimistic about price trends to the year end, this is simply because the last 5 years have seen price increases in polymer ‘engineered’ by suppliers through ‘outages’. 2013 could be different, but history suggests this is unlikely. Thus we have been offering customers the opportunity to buy forward and fix their current prices to the year end.
However in July we have had some other significant events to consider and without wishing to claim prescience in both cases we foresaw the problems. As recently as last month we highlighted the potential for financial problems in some converter companies. In addition we have consistently raised the spectre of disaster to both film manufacturer and converters from fires since 2011.
It is obvious to anyone within the film manufacturing and converting sector that in 2013 financial pressures are constantly building month by month for the following reasons:-
a/ Customers are consistently demanding more credit
b/ Suppliers are reducing credit terms and imposing lower credit limits
c/ In some cases suppliers are restricting film supplies to reduce their credit exposure
d/ Credit insurance companies perceive our market sector as ‘high risk’ and are limiting cover
One of the latest casualties of these actions (which I described last month as a Perfect Storm!) is Cornwallis, a well-established print company with a good reputation, built up over many years. the company called in administrators on June 24th. However they then opened their doors on June 25th as a new ‘Cornwallis’ having agreed a pre-pack administration. Personally I don’t know how this can work, a company is either bankrupt or it’s not and whilst we don’t bear any ill will to the individuals involved it is difficult to see how they can remain credible with their customers knowing that they have dumped debt on their creditors. A further casualty during July was Discovery Foils but here the administrators are trying to find new owners to carry on the business and not simply giving it back to the old management to carry on as normal until they again go bust.
We remain convinced there is more financial pain to come. Allowing customers to dictate excessive credit terms is a recipe for disaster unless sales margins are very high. In our industry they are currently wafer thin, so good cash management and sensible credit terms are essential to all our survival.
With the holiday season upon us this may not be read by as many people as usual. This is a pity because this message is critical. As far back as 2011 I raised the ‘Spectre of Disaster’ and questioned the existence of a credible Disaster Recovery plan in many film converters and suppliers. I argued then this was particularly relevant to our industry where fire is major threat to all our on-going activities.
In July there were no less than 3 major conflagrations, July 1st – Smethwick, July 14th – Sheffield, July 24th – Hull.
These events highlight the vulnerability of our industry to unforeseen events. In these circumstances a well-developed Disaster Recovery Plan based on realistic hazard analysis is essential. Simple steps like ensuring printing plates are in a separate building from raw materials. That origination and artwork are duplicated and stored off-site. Ensuing all computer information is downloaded daily and stored off-site. All these actions help facilitate a speedy resumption of activity.
However, the Achilles heel in such arrangements is film supply!
Lead times on some specialist films are 6-8 weeks with little or none available on the ‘spot’ market. This problem really is insurmountable without undertaking thorough analysis and pre-planning. At National Flexible we have tried to ensure every single one of our customer has an alternative film which we know will run on all their packing lines. This may seem a simplistic approach but it ensures we can respond quickly to interrupted supply from any one source. this film consultancy service is free but unfortunately we find in some companies production staff insist they are simply too busy to run trials, particularly if the film is not to be used immediately.
Believe it or not, but we know of one major international beverage company (not a customer of ours) who have all their factories using just one specialist film from one single source. They are happy with this arrangement and don’t wish to have any back up or alternative supplier. They will not even trial an alternative film as they are just ‘too busy’. An accident waiting to happen – OK, but how do they sleep at night?
Like some others we know who feel our disaster recovery alternative film approach is just another excuse to sell them film – it is, but it is also doing them one hell of a favour. Sorry for the extended read. Happy holidays and as ever your views, alternative or otherwise are always welcome.
Film Prices – Calm Before The Storm!
Storm what storm? Last month I speculated that despite all the evidence to the contrary film prices were set to increase ‘across the board’. In fairness to this forecast I also said there was no basis in fact for this assertion.
During May Polypropylene and Polyethylene monomer prices softened and that meant price reductions of around €60/tonne. In addition ‘spot film’ became available at reduced prices (we ourselves were offered 100 tonnes spot for immediate delivery – this film was of dubious provenance at well below market prices). These price decreases for July delivery nearly offset the price hikes which occurred in January/February so my Blog forecast from April 5th that we should see perhaps 3 months of price stability seems to be have been even a little pessimistic. Currently we are told that the supply/demand market for most packaging films seems to be in equilibrium so no more changes can be anticipated. And yet… and yet….!
I honestly can’t believe the ‘leopard will change its spots’. Since 2010 the response by polymer suppliers to similar circumstances has been to curtail supply by ‘Outages’ and increase their prices. In real terms 2013 is proving remarkable in both its relative market stability and pricing levels. This we believe is because reduced input prices have enabled polymer suppliers to maintain margins; however they still maintain those for film grades of Polymer are too low!
I suggested last month the current market was a buying opportunity and to fix prices through until November, several customers took this advice. Whilst this proposal may have been a little premature, we still believe we are due some price reaction due to the decline in Sterling against both the Dollar and the Euro since early January. This allied to stronger volume demand as the year progresses makes fixing prices now well into the final ¼ of 2013 a good call, as ‘Outages’ can quickly totally change the supply side costs. Meanwhile there seems to be little to lose by buying forward.
On a totally different subject, the latest Plimsoll report on the UK plastic bags/convertors/sacks markets highlights that in 2012 some 219 companies had lower sales than 2011 and that 1 in 8, according to their published accounts, are in serious financial difficulty. We have our opinions on these figures, so if you are interested in this information please read on
Film Prices – Calm Before The Storm?
The above is a forecast, it has no basis on fact. There are no signs in the market that film prices will increase. No supplier has given any indication of their intention to raise flexible prices – and yet…. I just can’t believe the current period of stability will continue. My reasons are as follows:-
A/ In 2012 I had a look at 20 years of OPP prices adjusted for inflation. In 2013 they have reduced to their lowest since 1988 in real terms.
B/ ‘Outages’ for polymer supply are minimal. No doubt this will be changed.
C/ The petrochemical companies are once again blaming ‘low margins’ for poor results (Borealis profits fell 56% 1st Quarter).
D/ The acquisition of European film manufacturers by ‘foreigners’ will mix rationalisation with price increases to get a better ROI.
Nothing concrete I admit, but add in some Sterling weakness, small improvement in the oil price, European plant holiday closures and they ‘suggest we invest’. Therefore I believe the next price change will be up.
We are planning to buy in some stock next week. If anyone wants to join us, if you choose we will buy forward for you until October and fix the price. But we need to hear right away from those who are interested.
Converter/ Film Manufacturers’ Acquisitions & Mergers
On a totally different subject, since Amcor acquired Alcan we estimate there have been at least 10 significant takeovers in the flexible film business sector. The latest announced this week is the Schur acquisition of Greek converter Alfa Roto. All 10 (now 11 and counting) mean the big guys are getting bigger. If you are interested in the list we know about and their possible effects on UK supply please read on…..
Film Prices – Record Q1 2013 & Beyond
Currently we are experiencing what looks like an outbreak of price stability in the flexible film market. The bar chart shows that the price increases which were applied in January/February of around €70 have fed through to a more stable pricing structure in March (we have the detailed polymer pricing figures available for anyone out there who is particularly interested). However, even a cursory examination of the price fluctuations over the last 3 years show that the last 4 months have been exceptional with the most stable polymer base cost environment for all films.
Those customers who took our advice last November to buy forward have not lost out, but as we said last month, “There does not seem to be any need at the moment to build up stocks.” Indeed the current price stability may be due, in part, to a general de-stocking as most of us anticipated that the January/February price hikes would be followed through with larger increases. A pattern which seems to occur year by year (see chart 2011 and again in 2012).
Where do we go from here? Generally we can anticipate the next price shift, however currently most of the European polymer plants are working with a big reduction in ‘Outages’ in 2013. Sterling seems to be holding its own against the Dollar and the Euro, whilst oil prices are softening. This benign climate suggests that film prices will remain stable and perhaps some short term reductions can be anticipated but we wouldn’t take bets on the latter! Thus, now is not, in our opinion, time to increase stocks but to wait until May/June.
For more thoughts on the future read on……
Film Prices & “Gossip” From The Packaging Shows
Film prices in the first ¼ have stabilised. By that I mean they only increased by £40 per tonne in February and £35 per tonne in March. It says everything about our price expectations that a £120 per tonne increase over 3 months is the new stability! The combined effect of rising Polymer costs, allied to the slide in Sterling are the reasons quoted for these increases, but as Polyethylene seems to have escaped much of this effect, one wonders why this should be the case?
2013 Packaging Film Supply – A Year Of Change
Happy New Year! Yes I know it’s a bit late but I spent the first few weeks of the year in warmer climes avoiding the worst of our winter.
However, the break gave me time to reflect on the momentous changes that took place during 2012 on the supply side of Packaging Films. It really was an amazing year of change, most of which I suspect went unnoticed by the end user. Some events which occurred:
Over 1½ Million tonnes of new polymer capacity came on stream in the Middle East during 2012 with the final ¼ seeing the commissioning of the Al Jubail operation. Whilst not all this polymer is earmarked for film packaging it is a major addition to the supply base, particularly as a further 1½ million tonnes of capacity is due on stream in 2013.
The major reduction in Polyester demand due to the market changes in India and fewer flat screen TV’s meant polyester prices significantly reduced over the year. In addition Uflex opened more new capacity in Europe, adding to availability.
As a consequence we now have some very good deals available on Polyester film.
The sale of Mobil’s film division to Jindal of India. Mobil was the last of the vertically integrated oil majors to sell its film business. The company may have been for sale for some years, but the Indians have acquired some of the best film technology in the world. It will be interesting to see if they are more “flexible” owners than their predecessors.
Meanwhile the expanding development of film manufacturing capacity in the Middle East is gradually grinding down the European suppliers. Many European companies are losing large amounts of money. As they are mostly owned by banks, closures and/or consolidation are inevitable. The alternative is they will be purchased for market share by the Indian or Middle East suppliers who would retain the speciality films.
Two new OPP production lines are currently being installed, one in Portugal and one in the Middle East adding a further 80,000 tonnes of new OPP capacity. Demand for film continues to grow at about 5% P.A. but these developments pose a further threat to the old European lines.
During 2012 Amcor consolidated their 2011 purchase of Alcan with plant closures and rationalisation. They now have 25% of the European Market and have just announced record ½ year profits.
The acquisition by Mondi of Nordenia takes them to number 3 in the European market, whilst Constantia & Schur with 3 acquisitions each during 2012 highlights the speed of consolidation of the film conversion market across Europe.
There is little doubt that this trend of acquisition and consolidation by the major’s will continue across Europe. It is very likely one or more of these companies and/or one from India will be looking to acquire a UK convertor probably in the next year.
How do we see these developments affecting the UK market? For our views – read on……
Film Prices 2013 – Not Such A Happy New Year
Hopefully you read our “News Flash” sent by e-mail December 19th advising immediate bulk purchases of film to enable you to fix your 2013 prices. Once again this advice proved highly profitable as Borealis, one of Europe’s largest polymer producers, subsequently increased polymer prices by up to 100 Euros per tonne for January. We forecast in our November blog that this would happen and there is little doubt further increases in film prices can be expected in the first quarter of 2013.
It is a recurring theme that over time these increases are being levied against a background of subdued market demand for polymer and very little movement in oil prices. However polymer producing plant ‘outages’ are common across Europe. They currently include Germany (2), Italy, Netherlands (4), Portugal, etc. It would be disingenuous to suggest that these plant closures do not assist in bringing the polymer supply/demand equation into at least equilibrium thus avoiding the oversupply situation that would otherwise exist. This enables suppliers to move prices upwards.
That said, we remain convinced that the inexorable increase of film polymer production emanating from the new plants in the Middle East will eventually, at least, stabilise film prices, if not actually reduce them, in real terms. Nevertheless all the indications are that buying film forward at today’s prices will be a good investment at least until June.
Looking back at 2012 we saw some major developments in the film manufacturing/converting sector. In November we forecast more acquisitions of UK convertors by companies from overseas, remarkably just one month later the purchase of Paragon by Sun Capital of America was announced. This confirms the Americans as by far the largest owners/investors in the UK print and converting sector. However there are probably more take overs to come from either Indian or European companies.
If you are interested in our views on how these and the other major supply side changes in film manufacturing/converting which took place in 2012 will affect our January – please read on.