Sun Chemical price increase hits packagers
coatings by three to seven per cent this month, blaming rising
petrochemical costs that could affect the entire packaging industry
for the next couple of years.
The announcement spells more bad news for the packaging industry, which has experienced continual raw material price increases since January this year.
The increases, which cover all inks and coatings for flexible, folding carton and paper packaging, have been linked to the rising cost of petrochemicals.
"Petrochemicals are the key ingredients in many of our products, and there has been a steady rise in the cost of all our raw materials, which have spiked in recent months with the run-up in oil prices," said Richard Pettifor, Sun Chemical corporate vice president and president, North American packaging inks division.
"Other leading factors contributing to rising costs have been environmental compliance, freight and rapidly escalating employee health care costs."
The petrochemical industry is experiencing an unprecedented rise in raw material prices, which is not just due to high oil and gas prices. Other factors, such as the ongoing growth in China, have also affected costs.
According to the Plastics And Chemicals Industries Association (PACIA), the growth of the Chinese economy has kept the chemical industry ticking over, but with low prices that could not justify further investment. China has continued to grow, but a little over a year ago other major economies, including the largest - the US and Japan - have also recovered.
These economies recovered quicker than predicted. The consequence of this is that, for many chemical products, global industry operating rates have climbed above 90 per cent. With the integration of the industry and wide product mixes, this represents virtual capacity operation for many products.
Chemical plants are complex and usually take at least two years to construct. Barring a collapse of China growth or a global meltdown, the industry is faced with at least a two-year period of shortages. At the moment, the industry has skyrocketing prices for many products.
For Sun Chemical, prolonged shortages of other key materials such as titanium dioxide, nitrocellulose resins and acrylic acid-based derivatives have also contributed to higher costs. Nonetheless, the company maintains that this month's price increases have been kept as low as possible, and that the company is not passing on the entire cost.
"These price increases only partially offset the impact of rising costs," he said. "It has been four years since Sun Chemical has had any form of general price increase.
"During that time, Sun Chemical has improved its productivity and made capital investments to reduce costs so our products and our customers would remain competitive. However, rapidly escalating costs have overrun these efforts to such an extent that we cannot adequately reinvest in our business, nor sustain a minimum acceptable level of return on capital employed."
It is too early to say whether petrochemical prices will come down. The underlying drivers behind supply and demand at each step of production remain unclear.
However, it appears that the availability of two absolutely basic materials, benzene and propylene, may be depressed for several years, for reasons beyond simple plant construction. This would significantly affect the packaging industry, which uses both benzene and propylene as the starting point for the production of packaging materials.
The situation is further aggravated by shortages of containers, tight availability of parcel tanker ships, rising freight rates - due in part to oil prices - and growing cases of port congestion. PACIA points out that the common 20-foot shipping container has just doubled in price to $4000.
Sun Chemical, the world's largest producer of printing inks and pigments, is a leading provider of materials to the packaging industry. The group recorded annual sales of more than $3 billion last year.
