High oil prices are threatening the recovery of Europe's plastics processing industry, according to the Brussels-based European Plastics Converters.
This year, polymer and additive prices already have reached, or are nearing, record levels. Price hikes since 2004 range from 50 percent for polypropylene to 100 percent for polystyrene, and the upward trend is expected to continue during the next six months, said EuPC. The trade group represents plastics processors in Europe.
In response, processors will be forced to raise product prices in coming months by 15-20 percent. However, they may be unable to pass on their higher raw material costs to their larger, multinational customers, said Managing Director Alexandre Dangis.
``This will put further pressure on profitability,'' Dangis said in a news release. ``Recovering raw material price increases is absolutely necessary to guarantee the appropriate levels of investment and innovation by plastics converters.''
He praised European converters that have absorbed some recent increases through productivity efficiencies, energy savings, product innovations and new market developments.
``However, these efforts don't make up the increase in raw material prices and wages,'' Dangis said.
In spite of overall economic growth, he said profits have not recovered and now the sector's future health depends on passing on costs.
Apart from soaring prices, processors also are suffering from a regional shortage of raw materials.
``For the past two years, our manufacturers [haven't been able to] rely on their orders of raw materials being executed,'' he said.
EuPC's members regularly face nondelivery due to suppliers' force majeure declarations, and the partial supply of 80-90 percent of orders for certain materials is now ``a widely accepted fact,'' he added.
The result for converters is that they are unable to meet their commitments. Consequently, their reputations are damaged, outputs fall and growth is restricted, Dangis said.
High oil prices have a huge impact on an industry where raw materials account for as much as 70 percent of the selling price. That is particularly so as the world demand for plastics, not the least in China and India, is escalating, he said.