When will Film Prices begin to fall?

Posted on 21 Jun 2021

In February, I raised the problems the adverse effects polyolefin polymer shortages were having on both film prices and film deliveries. At that time, we had several Petro Chemical plants closed across Europe and the USA. As a consequence, there was a polyolefin polymer shortage and polymer prices were not only at their highest since 2014, but there was also rationing of some polyolefin polymer grades to film manufacturers.

Subsequently, during April we were notified by 5 different OPP film manufacturers of their difficulties in securing polymer. As a consequence, in every case, prices were increased significantly (40-50%) for all future deliveries. Jindal, the world’s 2^nd largest OPP film producer, went further and suspended its production of all ‘commodity’ grade films in order for them to focus their available PP polymer on what they defined as ‘Higher Value‘ speciality films. In effect, that meant the suspension of deliveries of their OPP standard co-ex film supply from all their factories.

During May, we were notified of two further declarations of ‘Force Majeure’ from European polyolefin polymer plants. However, at the time of writing, we have had no notification from any of these companies of any lifting of the ‘Force Majeure’ on those plants previously closed, which is strange to say the least.

It is interesting to find that against this background, three of the world’s leading polymer resin suppliers have published their first quarter financial performance, which all surprisingly show major upturns in their profitability. In summary, their results are as follows;  

In each case the results presented makes reference to their improvements in margins and whilst these Petro Chemical giants have a wide range of products, there is no doubt the polymers which have been in short supply are significant contributor to profits. This may also explain why plant closures for ‘routine maintenance’ were undertaken simultaneously whilst other plants were experiencing the Force Majeure ‘Outages’ due to the hurricane damage in the USA and the ‘Force Majeures’ noted in Europe.

As a consequence, in June, little has changed on the polymer supply side of packaging films, indeed lead times for specialist films, such as coated, are up to 12 weeks from some suppliers. Whilst it is currently claimed there are some lower ‘spot price’ resins currently available in the Middle East, there are no signs of any general film price reductions from Europe. Equally, recent information from suppliers as far afield as Turkey, Egypt, and India confirm that they are all maintaining their higher price levels.

For many years, it was apparent that film polymer resin prices were sustained at agreed levels by the major Petro Chemical companies. They made no secret of their strategy of balancing supply availability with demand to maintain ‘prices’. However, this practice appeared to cease after the intervention of the EU commissioners in 2016. It is difficult to believe the ongoing ‘Outages’ currently occurring are all coincidental, nevertheless, for whatever the reason, they are ensuring that current film prices remain significantly above 2020 levels, with no reductions in sight.

We suggested that by July we would be seeing some softening of film prices, albeit, not immediately to 2020 levels. We had previously recommended to all customers that they buy extra stock in both the final ¼ of 2020 and the first ¼ of 2021. Those who did so have done well. Currently we are now suggesting destocking, anticipating lower film prices for quarter 4. This may be a forlorn hope, but we consider the current prices have been inflated due to these polymer shortages and that at least some of the production capacity currently closed will be brought back on stream. Hopefully, this forecast will be correct but – we shall see.  

As ever, I welcome your views on any of the points raised in these notes and welcome you to join me on LinkedIn for more regular updates.

https://www.linkedin.com/in/barry-twigg-3a440b53/

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