Envelope Window Film®

PLASTIC FILM PRICING FACTORS

News Headlines

January 1, 2008
"Oil prices ended the year near $96 a barrel, or 57 percent higher than where they began, and analysts expect rising demand andgeopolitical instability to keep upward pressure on energy costs early in 2008. Other factors influencing energy prices were the West's standoff with Iran over its nuclear program, attacks by Nigerian rebels on that nations's oil infrastructure and Turkish attacks on Kurdish rebels in northern Iraq, which sparked concerns that the rebels would retaliate by attacking an oil pipeline. The recent assassination of Pakistani opposition leader Benazir Bhutto has exacerbated worries about global instability." Quote from The Plain Dealer, Cleveland, Ohio via Associated Press, John Wilen, New York

What is driving the increased cost of plastic films?
Cost of base resin and other key feedstocks are establishing unprecedented new highs as the price of oil and propane have escalated. Prices for key feedstocks such as naphtha, benzene and ethane are setting record highs.

Demand for plastic films, such as, polystyrene, polypropylene, polyethylene and polyester are growing between 3 - 4% per year. The demand for plastic films continues to increase with packaging films (baked goods, organic foods, snack foods) and label films (tags, coupons, food ingredient labels, bottle wrap) demonstrating substantial growth.

Supply of base resin has tightened due to the growth of plastic films coupled with the lack of new capacity to manufacture resin / feedstocks in the past few years.

Consolidation, like many industries, is also taking place with resin producers and film manufacturers.
Economic pressures remain unfavorable and have prompted the closure of a Polystyrene resin plant, which is scheduled to go offline in early 2008. Fewer players mean less competition.

Devaluation of the US dollar has also made it more profitable for North American resin manufacturers to export to Europe. This export of base resin tightens supply in North America.

Transportation cost have added cost burden, both to the manufacturer and converter, with the ever increasing cost of gasoline and diesel fuels (notice any "fuel surcharge" on your bills at home recently?).

What is driving the cost escalation of feedstock?
Petrochemicals derived from oil and propane are establishing record highs almost daily (note: the once - unimaginable threshold of $100 per barrel of crude oil is nearly a reality).

Energy consumption by the film manufacturers and the related higher costs are factors adding to production cost. While manufacturers have steadily increased "productivity levels" of their plants, it has not been enough to offset the large increased cost of energy.

Competition for oil from developing industrial nations such as China and India have put a worldwide strain on the available resources and driven the prices upward.

Will new capacity to produce film be available soon?
Installation of new capacity to produce base resin and other feedstocks will be slow to come on line. Over the past 3 years, film manufacturers have not invested in any new film lines, but recently, at least three known manufacturers have new lines that are or will be producing film in early 2008. While this is good news, it will have very small impact on lead times and needed capacity as the added poundage is likely to only add slightly more than100 million pounds (in a 15 billion pound industry).

What is the pricing future forecast?
Information from vendors as well as organizations that forecast market conditions indicate that prices of plastic films will unfortunately continue the steep upward climb for the near future. These industry sources all agree the future increases are being driven by the tight resin supply, limited plant capacity and raw materials increases. Producers will likely continue trying to tip supply/demand balance in their favor and increase production margins through both higher prices and operating efficiencies.