What’s behind materials price rises?

27 April 2011



Bob Bolton, Managing Director of specialist B2B marketing communications agency Barton Grange Advertising, reports unusual findings following a commission to benchmark prices in the thermoforming industry.


Generally speaking, the first quarter of any new year heralds the opportunity for a fresh round of modest price increases from manufacturers to their customers. It’s an age-old custom and will no doubt continue ad nauseam long after you and I are pushing up daisies. This year, though, the plastics sector has witnessed astronomic price hikes of infamous magnitudes. The thermoforming industry and major consumers of PET packaging are being severely hit, with no signs of any let-up on the horizon. There will have been scores of strained conversations between customer and supplier, with the latter offering muted apologies and trite justifications that ‘raw material prices have rocketed, leaving no choice but to pass some of these increases on’. We’ve heard it all before, but this time there are deeper reasons conspiring to create the biggest price rises that UK thermoformers and their customers have ever faced.

A general explanation is that ‘the supply chain is under increased pressure from the Far East’. Sounds plausible and to an extent it’s true, but it’s only a snapshot of the bigger picture. A whole series of events have coalesced in what could be described as a perfect storm; ironic considering the crux of the problem is directly related to the failure of cotton crops due to cyclones and flooding in Pakistan, India and parts of Australia.

So what has cotton got to do with the price of PET? PET, aka polyester, is a major textile material. The textile industry accounts for around 70% of global polyester consumption, much of which is taken by China and India for conversion to clothing and industrial textiles. A quick scan through the labels in your wardrobe is likely to reveal varying blends of polyester with cotton or other man-made fibres. The price of cotton has soared to record levels, making it a highly prized commodity. In September 2010 it was valued at 104 cents/lb. By February 2011 this had risen to 213 cents/lb. To put it into perspective, a national newspaper recently stated that the last time cotton prices were this high the deep south had lost almost its entire slave workforce during the American Civil War. As a consequence, textile manufacturers are changing the blend ratios of cotton to polyester. It’s not uncommon for 70:30 cotton:polyester ratios to be reversed or for cotton to be completely eliminated, which is placing severe demands on the remaining 30% of PET availability.

The bottle sector accounts for 20% of the PET market, and as the seasons change from winter to spring to summer, so does the upward demand for bottles, placing even more strain on supplies. The remaining 10% is available for packaging film production, the lifeblood of thermoformers, so it isn’t difficult to see that even a small increase in demand from the textile sector has a huge effect on the film supply market, driving prices upwards.

Whipping up the price storm from another angle are soaring production costs in Europe. PET is manufactured principally by an esterification reaction between the feedstocks PTA (Purified Terephthalic Acid) and MEG (Mono Ethylene Glycol). Availability of upstream PTA has been especially tight due to Asian demand and a force majeure at one of BP’s manufacturing plants at Geel in Belgium during the first quarter of 2011 (since lifted). Adding to the problem are three other major European factories that are working short time due to lack of feedstock. Additionally Poland’s PKN Orien plant was supposed to come on stream in January but this was delayed until March. The price of MEG rose from a figure of €905/tonne in November 2010 to €1,035 by January 2011, followed by further increases exacerbated by pressure from Asian demand.

Feedstock shortages are reducing new virgin material volumes, resulting in less material availability for future scrap recycling. Scrap market prices have, needless to say, also risen. PET manufacture is ultimately at the mercy of oil prices as the feedstock is derived from oil. Crude oil rose from 143 cents/barrel in September 2010 to 184 cents by the following February. Conflicts in the Middle East are casting uncertainty over future stability of prices and oil is being held in refineries that are inflating prices.

It’s not all doom and gloom out there, though. The USA is the biggest exporter globally of cotton and it has pledged to increase new plantings by 14% during 2011. This will take time to filter into the system, but if better harvests are realised there and in other parts of the world it will alleviate pressure on polyester demand. A best guess would be that by the start of Q4 this year the seasonal demand from the bottle market and food industry will reduce. Feedstock issues are currently being addressed as manufacturers remobilise their efforts, bringing more plants on-line, so prices of PET will start to fall once again – just don’t expect them to be quite where they were last year.

Views expressed on this page are those of the author and may not be shared by this publication.


Bob Bolton. Bob Bolton

Bob Bolton Bob Bolton


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