Film extruders push for price hikes not related to resin pricing - I have received many calls regarding the rationale behind the most recent 'non-resin price increase'. The article below offers some insight into the factors driving it.
Topics Packaging, Pallet overwrap, Shrink film, Stretch film, Film & Sheet
Rising costs in freight, packaging and other areas have led major North American polyethylene film companies to announce non-resin price increases on a wide range of film products.
The list of suppliers raising prices an average of 4 percent includes AEP Industries Inc., Berry Plastics Corp., and several units of Sigma Plastics Group. Those three firms each rank among North America’s 10 largest film and sheet extruders, according to Plastics News rankings. Intertape Polymer Group, which ranked 23rd, has taken similar action.
Most of the announced increases limit current prices to one month’s normal average film purchases. Most firms have announced June 2 as the effective date for the increases.
John Powers — executive vice president of sales and marketing at South Hackensack, N.J.-based AEP — said that all nine divisions of his firm need to raise prices to cover higher expenses. That group includes PE-based can liners, shrink film and bags, as well as Resinite-brand PVC film.
“We’ve seen increases on fuel, shipping and freight in the last two years — as well as in packaging such as pallets and strapping and also for medical benefits — but [PE] resin prices have only gone up,” Powers said in a May 13 phone interview.
Powers added that this is the first time since 2010 that AEP has initiated a non-resin price increase on its products. North American PE prices have not shown a monthly decrease since late 2012, according to thePlastics News resin pricing chart. Since then, prices for the material in the region are up an average of 20 cents per pound.
Many plastics processors — including film extruders — typically have to pay higher resin prices before passing those costs on their own customers. But processors then benefit when prices drop by paying the lower price before passing the savings on in the same manner. But this extended period of elevated PE pricing has prevented this balancing out from taking place and, as a result, has affected film company profits.
AEP posted a loss of almost $4 million in the first quarter of 2014 after registering a profit of almost $7 million for the same quarter in 2013. In the first half of Berry’s fiscal year — ended March 29 — operating income at its Flexible Packaging unit fell 33 percent to $6 million vs. the year-ago period.
In a May 2 conference call with stock analysts, Berry Chairman and CEO Jon Rich said his firm is raising prices because of “cost increases in the March quarter related to higher energy and freight expenses, as well as continued direct material inflation.” He added that Evansville, Ind.-based Berry had not made such a move since 2011.
“We don’t think Berry was the only company that was impacted by those factors,” Rich said on the call. “And so I think while no customers like to get price increases, I think most of our customers are seeing the same challenges we are.”
According to Rich, about 75 percent of Berry’s customers are on resin escalator and de-escalator clauses, but only “a small fraction” have any provisions for non-resin-related costs.
Letters from units of Lyndhurst, N.J.-based Sigma all contained identical language, saying the firm “has
experienced unprecedented resin increases over the last 18 months.” A letter from Sarasota, Fla.-based Intertape said that during the past year, the firm’s non-resin-related costs “have steadily increased without any ability to recover them.”
Market sources said that Inteplast Group — a Top 10 film extruder based in Livingston, N.J. — had made a similar non-resin move. Officials with the firm could not be reached for comment.