New PE pricing system needed

Jim Morris

Published: April 30, 2010 6:00 am ET

Related to this story

Topics Materials, Suppliers

Buyers of polyethylene, and especially PE film converters, have long had a practice of offering their customers various fixed-pricing programs. In even the best circumstances and with well-written agreements, converters are not able to implement price increases until the following month.

However, in many other cases, converters may have to hold their price longer before they are contractually allowed to implement an increase. The “fixed-price” approach has been around for many years and has always been somewhat of a challenge for film manufacturers. So what’s different today?

The pricing practices of the flexible packaging industry were developed and aggressively applied during periods of relatively modest price volatility — both up and down. Over the past 15 months, resin price moves have been neither modest nor two-way. In 2009, PE prices increased 17 cents per pound. So far in 2010, resin prices have increased another 18 cents. That’s a total of 35 cents over 15 months.

Few film converters are prepared to manage such sustained price pressure while maintaining an acceptable margin. The exception is those who have structured sales agreements to allow for prompt cost pass-through.

A few years ago, resin producers eliminated broad-based price-increase protection in an effort to more quickly recoup unexpected increases. They realized that, due to a more volatile raw material environment, the practices of the past were not necessarily going to serve them well. They systematically removed the barriers that prevented them from changing their prices when faced with raw material cost increases. They developed a “new normal.” When that occurred, the burden of margin volatility was not removed; it simply shifted from resin producers to resin converters.

The film industry must press the issue of more efficient price pass-through agreements. Converters can start by asking customers for contract relief. In many cases, there is no other viable solution.

Resin price volatility will continue. Failure to make changes now will result in the same margin compression in the future.

The system today is broken. Resin increases come fast and furious. Film and bag salespeople are encountering significant resistance to price increases and lack the tools and support to adequately address the situation. Margins are squeezed to a breaking point. We need to better educate our film sellers and we need to encourage management to show resolve. If we do not, a very good industry will be destroyed. The film industry must recognize its own “new normal.”

Morris is president of Benchmark Polymers LLC, a consulting service in Coppell, Texas.


Comments

New PE pricing system needed

Jim Morris

Published: April 30, 2010 6:00 am ET

Post Your Comments


Back to story


More stories

Image

2014 sees modest sales increase, but profit decrease, for Dow Chemical

January 29, 2015 4:20 pm ET

Dow Chemical Co. delivered modest sales growth in 2014, but the firm's profit took a tumble.    More

Image

Resin prices continuing to tumble

January 29, 2015 2:24 pm ET

The ongoing slide in crude oil prices is taking commodity resin prices down as well.    More

Image

Materials firms look for stock rebound

January 29, 2015 1:52 pm ET

DuPont Co., A. Schulman Inc. and Rogers Corp. thrived amid the stock market chaos of 2014, but the other 12 publicly held materials firms tracked by...    More

Image

Chemtrusion, Mytex Indiana compounding plant set for expansion

January 29, 2015 1:35 pm ET

Japanese and American partners in a compounding plant in Indiana plan to expand the facility.    More

Image

DuPont-Chenguang JV to produce fluoroelastomers in China

January 29, 2015 12:30 pm ET

DuPont Fluoropolymer Solutions and Zhonghao Chenguang Chemical Research Institute Co. Ltd. are proceeding with a 50-50 joint venture to serve the fast...    More

Market Reports

Plastics in Automotive: Innovation & Emerging Trends

This special report newly released by PN and sponsored by The Conair Group examines current trends in the use of plastics in automotive, materials innovations and the changing landscape. It includes a review of legislative/regulatory activity impacting vehicle development and lightweighting, market opportunities & challenges for mold and toolmakers, innovative design strategies being implemented by major OEMs and suppliers, as well as a review of key indicators in Canada, Mexico, Brazil and China.

Learn more

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Injection Molding Market Analysis & Processor Rankings

Plastics News BUNDLED package contains our in-depth Market Analysis of the Injection Molding segment. You will gain keen insight on current trends and our economic outlook.

As a BONUS this includes PN's updated 2014 database of North American Injection Molders RANKED by sales volume. Sort, merge, mail & prospect by end market, materials processed, region, # of plants and more.

Learn more

Upcoming Plastics News Events

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events