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.

Food for Thought -A Consultant’s View on Flexibles

We saw this recently and felt it may provide you with food for thought:

The Industry:

As recently as the 1980’s there were four OPP manufacturing plants and two Cellulose producing plants in the UK.  Investment subsidies for the building of OPP plants in Italy, subsequently emulated by Turkey, led to the closure of all these plants with the exception of Innovia at Wigton.  As a consequence currently all OPP film is imported.

During this transformation period there was a major shift by Supermarkets and Brand owners in the food industry from rigid packs and plain film with labels, towards printed flexible packaging, with laminated film packaging in particular growing exponentially.

As a consequence two major developments occurred:

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Spring Time for Film Supply

It’s good to be back!  Having been fortunate enough to miss out on much of the UK’s February Monsoon season.  Surprisingly for the first ¼ of any year nothing much has changed on the supply side of films.  Since I have been away, the push by Polymer suppliers for increased prices on both PE and OPP in January is petering out due to market resistance allied to some over-supply in February.  March seems to have followed suit and the market is strangely becalmed with little or no pressure at the moment for price changes in April.

The strength of Sterling against both the Dollar and the Euro has been a factor in creating this stability.  As ever at times like this there are signs of some “dumping” at lower spot prices from some different overseas suppliers, these Guys are unlikely to maintain their presence in the UK once the Continent gets busy and/or some of the more unstable economies in the Middle East get back to their more normal demand levels.  Currently we are told sales of film to both Egypt and Syria have been affected significantly due to the recent political upheavals.

On a somewhat different (but related) subject, it was interesting to note whilst I was away Treofan announced the installation of a new 30,000 tonne capacity BOPP line in Germany.  Whilst we understand this will be predominantly producing “Special films” it is a major departure from the current locations of the new OPP plants in the process of construction.

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Film Prices 2014 and Mergers & Acquisition Activity

Polymer suppliers welcomed in 2014 in a similar fashion to the way they left 2013; with a demand for price increases across both PE & PP polymers. Although the amounts involved were only €30-50 Euros per tonne, they follow similar requests for increases in December. At the moment there is no sign of these increases feeding through into the market, but film manufacturers continue to complain about “depressed margins”.

There is undoubtedly a current surfeit of film supply which is holding prices steady, particularly across commodity films. A similar over supply situation would exist within polymer, if we had a competitive market. However, as ever, major polymer suppliers are either closing down current capacity or leaving existing capacity “idle” in order to maintain a demand/supply balance acceptable to them. Thus Basell, Dow and Ineos all currently have “Outages” affecting both PE and OPP polymer supply.

It is difficult to believe this state of affairs can continue indefinitely. Bourge 3 came on stream last year and this will add significantly to the volume of polymer available from the Gulf. This polymer is based on lower cost energy than that in Europe, so prices should at the very least remain stable. In addition crude oil prices are falling and Sterling is stronger against both the Euro & Dollar. In theory all film prices should benefit from these benign influences which are a complete transformation from the circumstances which prevailed as recently as last September. We shall see what the first ¼ pricing structure brings. So for the present we are not buying forward in bulk.

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Customer Satisfaction Survey 2013 – Winners

Many thanks to those completing our Customer Satisfaction Survey for 2013. We had our best response ever for which we are very grateful. Whilst the analysis of the results is complete, we know how busy everyone is in December so we are delaying circulation of the results until January (this should add to the excitement of Christmas!).

However, as promised, we have a free case of fine wine on its way to one winner who has already been notified of their good fortune. Additionally, in recognition of the 20 years since National Flexible was formed, 20 more bottles of some excellent wine are winging their way to 20 other lucky individuals.

I would like to take this opportunity to reiterate our thanks to everyone who completed the survey and wish each and every one a very Happy Christmas and a very successful 2014 to you and yours from all of us at National Flexible.

P.S. there’s plenty more to talk about in 2014 – see you after the break

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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.

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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:

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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.

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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:-

Prices

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.

Pre-packs

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.

Pyrotechnics

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.

Fire at Smethwick (source: The Guardian 02/07/13)

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.

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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

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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…..

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