Now is the time of year for budgeting, an exercise which requires diligent managers to gaze into their crystal balls and forecast what the future holds for their business.

Here at National Flexible the most common question we are asked by our customers is ‘What’s going to happen to packaging film prices in the coming year?’

  • The answer to this question requires us to speculate on the following variables.
  • The future price of oil
  • The future price of polymer
  • The future value of Sterling vs the Euro
  • The future value of the Euro vs the Dollar
  • The future availability of polymer
  • And in 2017 the likely effects of Brexit on these variables.
  • With the exception of Brexit, these variables are constants and thus over time we have learned to accommodate their fluctuations. As a consequence we have been surprisingly accurate in our forecasts, albeit that we limit our projection to 6 months ahead and then re-evaluate at the half year.

Without doubt throughout this decade the main cause of price increases in film has been the manipulation of the volume of film polymer available from the large European polymer manufacturers. As a consequence, not only did film prices fail to benefit significantly from the collapse in the oil price from $110 to $35 in 2015/16 but they contrived by regular plant ‘outages’ to create a supply crisis in 2015 which forced up polymer prices to an all-time high.

However, current indications are that due to the European wide outcry which resulted, these ‘outages’ are unlikely to occur again in the near future. Equally significantly, polymer manufacture in China increased by some 6% in the first quarter of 2016 and is now some 10% higher year on year.

These factors combined suggest for the first time in many years the European supply/demand balance for polymer in Europe, will be in equilibrium. Whilst, this does not suggest any price reductions it does support the view that the current film price increases occurring, due to the fall in Sterling, are probably due to European film manufacturers maintaining margins.

Undoubtedly there will be more price pressure until Sterling recovers but we believe this will only be circa 5-10% through to mid-year 2017.

Interestingly, our more enlightened European suppliers are working with us to mitigate these increases, in addition we are buying forward, in bulk, to secure fixed prices for our customers through the first quarter 2017.This approach allows them 6 months free credit.

The ‘Elephant in the room’ must be a major increase in oil prices. Should OPEC and Russia actually strike a deal $60 plus becomes a feasible future price level. At that point we feel the restraint from polymer producers will disappear and all bets are off.

We shall see…

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