A perfect storm?
As the label converting industry struggles to recover from the economic crisis, converters have been hit by a wave of price increases across the consumables sector. Michael House reports
Just as label converters were preparing for a final surge out of the economic downturn, a sudden rise in the cost of consumables is threatening their businesses with a knockout punch.
Manufacturers of paper, ink, coatings and plastics all report steep rises in the cost of raw materials inputs. But why now, and how much further has it to go? Is this a cynical attempt by suppliers to take advantage of the end of the global recession, or are there deeper causes?
In February this year
This coincided with strikes across the pulp manufacturing industry in
A worrying predicament, according to the association¹s managing director Jules Lejeune, who points out that during Q1 2010, major paper suppliers announced price increases ranging from eight to 10 percent.
Lejeune sees the same trends in the filmic materials segment. ‘Refineries and feedstock suppliers have adjusted capacity in the course of the demand crisis and announced price increases in the range five to 10 percent for polyethylene (PE) and polypropylene (PP).’ The European Plastic Converters organization (EUPC) blames increasing crude oil prices for pushing up the cost of polystyrene and polypropylene by 40 percent by the end of March 2010. More shortages are expected as processors struggle to get hold of raw materials, with some already being forced to put their customers on allocation.
Similar capacity constraints are affecting the specialty chemicals used by ink and adhesives manufacturers. The British Coatings Federation (BCF) points out that many manufacturers chose to shut down capacity during the downturn, a situation made worse by a series of major plant breakdowns.
On top of this are longer term, structural factors to do with an increase in raw materials demand from the Far East, and particularly China as it comes out of the recession.
Tony Mash, CEO of the BCF says coatings producers have already felt the effects of
Rise in prices
The ripple effect is already being felt further downstream. Both Flint Group and Sun Chemical have recently announced ink price increases. In July Sun Chemical increased prices on its sheetfed and UV products by between 5-10 percent, while Flint Group put up prices across its packaging inks in
Flint Group director for global marketing, Jens Zimmerman says the move is due entirely to raw material suppliers raising their prices by up to 30 percent and is something his organization could not put off any longer.
The cost increases have now proved too large for Flint Group and force us to adapt the prices for packaging inks in Europe in order to enable the group to maintain its ability to deliver exceptional value, consistent quality and continuous innovation to customers around the world,’ says Zimmerman.
Industry concern
The two companies are not the only ones to raise their prices and it seems certain they won¹t be the last. A senior executive at a major German industry supplier, who asked not to be named, says the situation could quickly become more serious. ‘So far our business has not been affected [by the increases] and we have been able to pass price increases on to our customers. However, if the supply situation remains like this or even gets worse we expect severe problems in Quarter Four. Everybody [in the industry] is concerned that the shortage in films, papers, chemicals will lead to a slow down of our industry. For those who are unable to pass price increases on a very difficult situation might arise in [a] short time.’
When pressed to elaborate, his reply is blunt. ‘Some companies might go out of business.’ His concerns are echoed by Finat’s Jules Lejeune. ‘The sector appears to be facing a classic example of bottoming out of the economic cycle,’ says Lejeune. ‘On the one hand, customers start filling up their empty warehouses in anticipation of returning consumer confidence. On the other hand, the crisis has trigged raw materials suppliers to implement or accelerate capacity adjustments and they have great difficulty meeting the upswing. The net effect is that there is great pressure on label converters to cope with the tight market conditions at present. Business prospects for the sector therefore remain fragile.’
This article was published in L&L issue 4, 2010
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