Flexible packaging makers react to polymer price rise

This is already prompting users to shift to value-added products

Polymer prices are likely to rise by 10 per cent in the wake of a sharp increase in crude oil prices. This is already prompting users i.e. flexible packaging material manufacturers, to shift to value-added products.

The price of polypropylene, a derivative of crude oil, rose five per cent this month, to $1,050 a tonne. The price of Brent crude jumped 19 per cent to $54.50 a barrel since the petrol exporters cartel decided on November 30 to cut output.

“Polypropylene prices tend to move in the direction of crude prices with a lag of about one month. Thus, we estimate at least a 10 per cent spurt in polymer prices in the next four weeks,” said Neeraj Jain, finance head at Cosmo Films, a leading maker of flexible packaging material. The company has already increased the proportion of speciality films in its output, to improve its margins.

“Flexible packaging material manufacturers work on a cost-plus model. Hence, a volatility in crude oil prices is completely passed on to the client,” said a senior industry official.

Cosmo has an edge over other companies in this sector, with higher dependence on commodity films. It has focused on improving profitability through various cost-saving measures and in raising the share of value-added films to its revenue; it has plans to raise the share over the next two years. 

Also, its margins have gained from improved throughput, reduction in power costs and improved product mix. 

Operating earnings have dropped for most of the other companies in the flexible packaging segment, due to pressure in commodity films' gross margins. 

The industry has embarked on the next phase of expansion, with the end-user industry driving healthy demand growth; flexible packaging has been seeing a growth wave over recent years in India. 

There has been a keen shift from PET to BOPP as the preferred choice of packaging for the end-user segment. The trend is expected to continue.