The cost of packaging has rocketed due to increases in the cost of raw materials. Natural gas - a starting point for the production of polyethylene - has shot up in price, and the knock-on effects are tangible.
For example, chemical companies across the globe have been forced to increase the price of polyethylene. Dow for example raised the price of all grades of its low-density polyethylene (LDPE) resins and high-density polyethylene (HDPE) resins by €120 a ton.
Polyethylene is used in the manufacture of PET containers and film applications.
"Our price increases in 2004 have not compensated for the tremendous rise in raw material costs during the first half of this year," said Markus Wildi, commercial vice president for Dow's plastics portfolio in Europe, the Middle East and Africa. "Additional increases in raw material costs during Q3, as well as unusually high oil prices, have further eroded our margins."
US producers are enforcing a $.05/lb price increase for September, and producers have nominated another $.06 for October, so resin prices are poised to move even higher.
In fact, polyethylene producers have the highest feedstock costs in the plastics producing world. It is these high ethylene prices that have been the primary driving force behind most PE price increases.
According to theplasticsexchange.com however, US feedstock costs are beginning to subside. But US resin prices are still high because international traders are buying all reasonably priced resin, bringing new demand to the market and eliminating any surplus resin that might have been encouraged by high producer margins.
It seems unlikely though that production margins can be maintained at current levels, and as energy costs normalise, the polyethylene market should begin to cool.
Demand for polypropylene has also continued to increase. Within the US market, resin demand is up about seven per cent from last year, and producers on average are operating their plants in the mid 90 per cent range.
Polypropylene is found in flexible and rigid packaging, and is used in items such as yoghurt pots and margarine tubs.
Record high crude oil prices have sent international polypropylene prices soaring, and producers are selling resin to the export market at high prices.
The Freedonia Group estimates that demand for polypropylene in the US will grow over six percent annually, a trend that could be reflected globally.
theplasticsexchange.com says that producers should keep an eye on energy and feedstock costs and particular attention to foreign resin prices to see how long this extraordinary demand continues.
Finally, the polystyrene market has rocketed to new highs. Chemical giant BASF increased the price of its styrene polymers Polystyrene (PS), Terluran (ABS) and Luran (SAN) by €250 per metric ton in Europe from 1 September, blaming a continuing erosion in margins caused by further increases in raw material costs.
Polystyrene is a versatile plastic that can be rigid or foamed. General purpose polystyrene is clear, hard and brittle. It has a relatively low melting point. Typical applications include protective packaging, containers, lids, cups, bottles and trays.
This price hike, which was announced this week, reflects an industry-wide increase in the cost of packaging materials, and comes after previous packaging price increases. BASF announced last month for example that as of 1 August, the price of its plastic material Styrolux, a styrene-butadiene copolymer used in extrusion applications in food packaging, would be increased by €200 per metric ton in Europe.
Benzene, which is directly affected by oil prices, is used to make styrene. The price of benzene has now reached historically high levels - prices have been rising steadily since the start of the year, and are now double what they were six months ago.
The global plastics industry is huge. The United States is the largest consumer and producer of plastics in the world - in 1996 the plastics industry in the US was worth $274.5 billion in shipments. Packaging represents a quarter of this market.
Europe on the other hand represents the world's largest packaging market, valued at $129 billion, and there remains considerable scope for growth. However, the recent fluctuations reveal how closely tied the industry is to the energy market.