Thousands of European manufacturers have been hit by a surge in the price of polymer resins used to make plastics, which has reached six-year highs due to strong demand and falling supply.
If prices remain high, additional costs can be passed on to supermarkets, other retailers and consumers, as margins of companies that process plastic resins into a variety of household and industrial products suffer.
Prices for polyethylene and polypropylene, the most commonly used plastic resins, have risen 25% since December to reach € 1,500 per tonne, the highest level since 2015, according to the market information service ICIS.
Market liquidity has also dried up because supplies are so low, which is having a “devastating effect” on the industry, said Ron Marsh, head of Polymers for Europe Alliance.
“There are factories that are running out of material and there are factories, which had reasonable stocks, that are going to run out soon,” Marsh said.
Renato Zelcher, managing director of Italian polyethylene maker Crocco, highlighted the crisis the industry was facing when he warned his company’s results would be “a disaster” because of the increases.
There are around 50,000 small and medium-sized plastics processing companies in Europe, which process several types of plastic resin into food packaging products, plastic bags, plastic films, containers and bottles.
The shortage of giant plastic bags, used to mix pharmaceutical ingredients, also threatens the rollout of Covid-19 injections across the world, another example of the importance of synthetic material.
Plastics prices in Europe were among the lowest in the world for much of 2020, but have soared in recent months due to shortages and high demand.
A rebound in crude oil, from which plastic resins are derived, also added to the upward pressure on prices.
Long-term contracts mean that manufacturers have yet to pass on the higher costs, but Zelcher warned that “our customers will notice higher prices eventually. If we don’t, we will go bankrupt ”.
“The pressure of a few months of price increases puts on margins to [plastic] converters is huge, ”said Marsh, of the Polymers for Europe Alliance industry group.
Shortages of plastic resins have also left inventories at worrying levels.
“If the tight supply lasts another month,” then supermarkets could run out of food packaging products, Marsh added.
Products that have seen an increase in demand include polymer-based hygiene items, such as gowns and face masks, as well as many products online.
US exports of polyethylene to Europe fell dramatically during the fall following a damaging hurricane season in September that hit refineries. The lack of shipping containers further slowed imports into Europe.
The supply tightening intensified late in the year as demand in Europe, which is heavily dependent on U.S. imports, began to pick up, ICIS said.
European manufacturers “only bought what was needed” in early fall, said Lorenzo Meazza, analyst at ICIS, “because there was uncertainty about when the next lockdown”.
“When we arrived in November and December, demand in Europe started to improve,” he continued. “But the limited supply meant that suddenly Europe was really running out of polyethylene.”