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Get Ready to Pay More for Plastic Products; Soaring Natural Gas Prices Push Up Costs for Chemicals and Resins

Posted on: Monday, 19 September 2005, 15:00 CDT

Consumers could start paying more for everything from automobiles to lawn chairs, as prices of raw materials used to make plastics rise at a rapid clip.

Blame much of it on resins and chemicals materials used to make plastics that have surged as much as 40% in price since June. Another round of price increases is coming this fall, according to resin producers.

It's a strain for companies like Wisconsin Film & Bag, a Shawano firm that makes plastic products and already has seen hefty price increases for raw materials. Companies are passing the price increases on to customers, said Jim Feeney, Wisconsin Film & Bag vice president.

"These are business-threatening cost changes that give us no choice," he said. "It's difficult for everyone in the supply chain because no one could forecast these types of increases."

The plastics industry is an integral part of Wisconsin's economy. The state ranks 10th in the nation for employment in plastics manufacturing and 12th for plastics shipments, which total more than $10 billion a year, according to industry sources.

As prices of raw materials used to make plastic goes up, consumers could start paying more for a plethora of products, including common items such as packaging.

"An example would be a bottle of shampoo," said Kevin Swift, an economist with the American Chemistry Council, a trade group that works with manufacturers.

Shampoo has contents derived from chemicals that are under cost pressures. And the plastic bottle, cap, label, glue and ink are made from plastic and petroleum-based ingredients that also are susceptible to rising costs, Swift said.

Higher natural gas prices caused much of the problem, since natural gas is used as a raw material for making resins and as a fuel to run factories. To make matters worse, Hurricane Katrina disrupted the already tight chemical and plastics supply chain.

"Raw material prices had started to drift upward in the past couple of months. The impact of Katrina has accelerated cost increases well beyond what we were expecting," said Steve Wetzel, national sales manager for Interplastic Corp., a St. Paul, Minn., resins supplier.

Styrene, glycols and other raw materials are in tight supply because of hurricane-related production shutdowns and transportation issues. Fuel surcharges for trucking materials to their destinations have doubled, Wetzel wrote in a note to customers.

Reichhold Inc., a North Carolina resins supplier, recently announced an Oct. 1 price increase.

"Our industry had begun to see an escalation of raw material costs that began in July and August," Bill Schramm, business management director, wrote in a note to Reichhold customers.

The U.S. trade deficit in plastics products grew to $1.47 billion in 2003 from $526 million in 2002, according to U.S. Census Bureau figures. Many companies that make plastic products rebounded with the manufacturing economy only to be hit with raw material price increases that have battered profit margins.

"We are all stretched to the limit," Feeney said.

Resin prices aren't likely to drop much as long as the price of natural gas remains high. Resin shortages are an even bigger concern, according to industry sources.

"So far, we are not having trouble getting material. But it is my No. 1 concern," said Chuck Hamley, president of Advanced Extrusions Inc., in Franklin.

When prices rise unexpectedly, there's a race to synchronize supplies, prices and promises to customers. Everyone has to negotiate for price relief from their suppliers and customers, said Jim Nurmi, president of Plastocon Inc., a custom molding plastics business in Oconomowoc.

"That takes a lot of effort, and it's certainly not 100% successful," Nurmi said. "So there has been some erosion of profit margins."

Copyright 2005, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

Source: Milwaukee Journal Sentinel

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