API Foils, EMEA and Holographics managing director Stephen Clarke said a perfect storm of changing global supply and demand trends along with a lack of investment in thin foils in Europe and North America had been behind the company’s decision last month to increase its foil prices by up to 20 per cent.
He admitted that a doubling of PET prices over the past 12 months had taken the firm by surprise and that despite efforts to absorb these, it had been forced to pass them onto customers through its price hike announcement on 17 December.
While no further price increases were planned in 2011, the current volatile situation meant that they could not be ruled out, said Clarke.
Supply trends
“In recent times PET suppliers have moved away from thin films used in packaging towards thicker films for products such as TV screens, MPM players and laptops because these applications command higher prices,” he told FoodProductionDaily.com.
Clarke added that another factor was a lack of investment over the last decade that had seen a “significant amount of capacity” removed from North America and Europe.
Further pressure has also come from a surprising source – a surge in the price of cotton - as demand for PET resin chips has increased from the textile industry.
“Packaging films amount to around five per cent of demand for PET resin chips, with bottles and the textile sectors accounting for around half each of the remaining 95 per cent," said Clarke. “As cotton prices have risen recently, the textile sector has used PET resin chips as a substitute to balance costs.”
A third main reason has been the recovery of demand for feedstock from markets in India and Asia.
Price pressures
The company, which produces specialist holographic and laminate products, has operations in the UK, North America and China.
The API chief said the rise in raw material prices started last February, with further increases following on a monthly basis.
"The trend accelerated in the final two months of the year and meant that PET prices had more than doubled over 12 months, while those for solvents and inks rose by about 80 per cent”, said Clarke.
He added “Our price increase was unavoidable. It is not about enhancing our margins but rather cost recovery. We did not expect the scale and speed of the raw material increases and it has been difficult to absorb."
2011 outlook
The outlook for 2011 remains uncertain, with Clarke expressing no optimism that the situation would improve to any significant degree before the end of the year.
“More capacity from the Middle and Far East is expected in the third and fourth quarters but at the moment it is difficult see what impact that will have on prices,” he said.
It was also unknown how much of the new capacity would be absorbed by growing markets and therefore any positive impact could well be delayed until 2012, Clarke added.
“Further price increases are not planned next year – but the situation is so volatile it is difficult to say with any confidence,” he said.