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Relentless rise in polymer price rattles European converters

By Ilana Djelal in London

March 10, 2011 - A relentless rally in polymer prices in the first quarter of 2011 has savaged European plastics converters, denting profitability, straining credit lines and even causing some to teeter on the edge of their financial existence. (Related price chart: Platts Polypropylene Copol FOB NWE Spot (mean $/mt): October 1, 2008 - March 9, 2011).

In the current environment of new record high commodity prices, European converters have collectively expressed concern about the sustained strength of the upstream energy complex, as it has driven an unprecedented rise in polymer prices in Q1 2011. They also stressed that they struggled to pass the full weight of higher prices on to their end-users.

"When you have rises in the tens of percent, that's not a level of increase our industry can afford or absorb, particularly as raw material purchases can represent up to 50% of the cost of the product," said Dick Searle, chief executive of the Packaging Federation, UK.

He added that, faced with such raw material hikes, packaging producers would have no option but to pass such cost increases on in order to stay in business.

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These concerns have been echoed by the French plastic and flexible packaging industry body, Elipso. The group's members remain "astonished and anxious" about the price increases for the plastic and flexible packaging industry, said Elipso General Manager Francoise Gerardi.

"We want to make everyone in the chain aware that prices are rising. It is a reality," Gerardi said.

In a statement in December, Elipso warned that 2011 would be particularly difficult for the industry, with supply problems exacerbating the situation.

Plastics, paper, ink, dyes, polyester films, boxes, energy and transport, "are all flashing red," the association said.

European polymer prices have been progressively rising since 2008, when the global financial downturn resulted in an unprecedented fall in commodity prices.

Polymer prices have recovered by around 80% since then, as European economies started to show signs of normality.

The new crude oil rally, which saw front-month Brent crude hit a 30-month high of $119.79/barrel in February amid political turbulence in the Middle East and Africa, led to a 12% average rise in Q1 polymer prices.

Polypropylene (PP) prices have posted an increase of 15%, while polyethylene terephthalate (PET) prices strengthened by 14%.

Platts Polypropylene Copol FOB NWE Spot  (mean $/mt): October 1, 2008 - March 9, 2011

Polyethylene (PE) and polystyrene (PS) prices have moved up by 13%. Polyvinyl chloride (PVC) prices, meanwhile, have increased by 6.7% in Q1.

The rally in polymer prices was also supported by pronounced supply constraints, as rationalization and restructuring after the 2008 crisis led to a shrinkage in the European supply base.

Converters are faced with limited available alternatives to address shortfalls in supply, as imports are still far from being prominent.

Domestic supply has contracted since 2008 but the much awaited competitive material from the Middle East is yet to materialize in significant volumes.

With the recent political upheavals in the Middle East, a perception of regular and stable supply from the region cannot easily be formed among European converters.

While European polymer supply has been consistently limited, demand recovery in most polymer applications continued, often outpacing incremental additions in new global supply base, some sources said.

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