National Flexible - Twigg´s Times

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……

Hi Folks,

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:

Polymer Supply:

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.

Polyester Supply:

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.

Film Manufacture:

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.

Film Convertors:

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……

This time last month we said “The interesting development for 2013 will be how many European film manufacturers will sell, merge or simply close – watch this space as something has to give.” Just one week later Mobil, the second largest film producer in Europe (and the last of the vertically integrated oil moguls in films) sold their complete European and US business to Jindal Poly of India.

During 2012 we have also been consistent in timing our advice as to the best time to buy film forward to secure fixed prices. We changed this advice for the final ¼ when we said ‘hold off’. In the event there has been a reduction of around €15-20 in November for January deliveries.

We visited Emballage, the European packaging show, in Paris last week and met many of the major film suppliers from Europe, Turkey and the Middle East. Virtually everyone expects price increases for polymer in January, their main conjecture being “It’s happened for the last 4 years – why not 2013?” and we agree. The capacity outages we mentioned in Sept/Oct were contrived to bring polymer availability in line with the reduced demand for film.

Financial reports from key polymer suppliers BASF and Borealis suggest that whilst prices have held up well in some key product areas, margins have been eroded!

On this basis our current views are that you should buy forward as we believe that the current UK film prices are about as good as it’s going to get. Current lead times for deliveries take us into the first ¼ of 2013, so buying forward in bulk now could make sound commercial sense and it’s a risk we are prepared to take – so if you want to lock in your current OPP prices from January through until May please talk to your Area Sales Manager.

Read on for 20 Year Price Analysis

Hi Everyone,

I hope you enjoyed your Summer of Sport and the holiday break – welcome back. Regrettably our return to the real world has once again been blighted by price increases from polymer producers. In June we noted that film prices had softened by 2-3%, we then saw similar reductions in July. At last we thought there were signs of reductions in polymer prices, but I have to say we were not convinced.

In actual fact we suggested at that time film buyers should use those price reductions as a purchasing opportunity and ‘order now’. We did not believe the polymer companies would allow prices to slide further and that ‘outages’ for ‘maintenance’ could be anticipated in the 3^rd Quarter – and guess what? No less than 10 have been announced (see outages list).

So this is exactly what occurred – these outages, along with increases in oil prices, saw polymer price increases in August producing an uplift in the price of OPP film of 7% per tonne – thus in effect they had recovered in August virtually all the slippage which occurred in June/July.

Worse was to follow! This week increases in polymer of a further 10% have been notified for September deliveries from two major suppliers in Europe and Middle East. These increases will take polymer prices to circa €1580 per tonne and mean that we will have a price increase of circa £300 per tonne (30p/kg) for all OPP film deliveries from around mid-October. Whilst all the rates quoted are currently for OPP polymer, other film prices will undoubtedly be similarly affected.

There does not appear to be any underlying circumstances to create such a major shift in prices. Oil has risen in price over the period but the scale of these increases in just 6 weeks is nearly unprecedented. How do we anticipate these increases will affect the market?

Last month I noted that polymer prices had stabilised, however there were few signs that the near 20% increase levied by manufacturers in 2012 was reducing. Virtually as soon as that was posted a reduction of 4% was notified to us for film to be delivered in July from the Middle East.

At that point, we were hopeful that other film suppliers nearer to home would duly follow suit as oil prices slipped below the $95/barrel mark (and £ reached a near 2 year high against the €). What happened next, with one notable exception – nothing! Some softening is occurring but European prices are not matching the reductions coming from the Middle East.

Currently we are being promised a further 2-3% reduction for deliveries sometime in July, but it seems most of the film suppliers have been working at or near capacity. This has been necessary to clear the extra demand caused by the panic buying of little more than a month or two ago. So it appears at the moment most manufacturers are hanging onto the polymer price reductions but we believe more must come through shortly.

Thus, in our opinion, the price outlook for film for the coming three months can be summarised as follows: there will be some ongoing price reductions, much improved availability and a period of supply stability. Spot buyers will be first to reduce prices as most carry minimal stocks, our own reductions will be from July onwards dependent upon material as we, as ever, have circa 8 weeks stock to ensure continuity of supply.

Whilst the current softening of film prices may continue into the third quarter of 2012 I don’t believe that film prices will return to 2010 levels. I appreciate this forecast appears to ignore the current evidence to the contrary, i.e;

1. There is now an oil glut with prices falling some 20% in little more than 6 months.

2. The new polymer capacity from the Middle East continues to grow. The new Chevron/Philips joint venture in Saudi is anticipated to come on stream in the next few weeks. This plant will contribute a further 1.5 million tonnes of PE/PP polymer, not all of this material will be available for packaging film but nevertheless it will become a major new source of polymer supply.

3. Sterling is some 20% stronger than early 2010, when prices of film were 20% lower.

4. There is current overstocking of film in many companies who bought bulk to beat the price increases.

So why, with all these downwards pressures, don’t we believe that film prices will fall dramatically by the year end?

History shows that polymer plant closures for maintenance, outages, breakdowns, etc. have always occurred as supply-side capacity has increased and demand reduced. These actions are usually sufficient to stabilise polymer prices. Our view is that there is no reason to believe that these circumstances will not re-occur and the price reductions currently occurring are halted.

Having formed that view we can accept that the extra capacity in polymer availability from Saudi could make the future somewhat different. There is no doubt eventually some older European polymer capacity will have to close along with some film manufacture but this will take time – meanwhile whilst we think prices may fall further in the short term, it is likely they will recover later in the year.

As ever your views are welcome.