Polymer Comply Europe (PCE), which provides advice on EU legislation to members of the plastics industry, has released a statement warning that energy surcharges being introduced by polymer suppliers could significantly undermine the profit margins of plastics convertors.
According to the group, suppliers of various polymer types are bringing in energy surcharges and other unilateral non-market price adaptions irrespective of actual cost structures and margins. While PCE acknowledges that energy costs have escalated, it argues that this should be absorbed into contract prices and market indices when suppliers determine prices for customers.
PCE adds that it believes polymer suppliers are aware that such energy surcharges would represent uncoverable costs for convertors, an industry that reportedly already sees low levels of profitability. Therefore, PCE identifies the possibility of a series of ‘own goals’ wherein surcharges could “decimate the conversion industry” and, in the medium-term, rebound to the detriment of polymer suppliers.
In addition, PCE warns that more key players in the plastic conversion industry could exit Europe due to the surcharges and move manufacturing processes to regions with fewer regulations and longer supply chains, potentially with damaging environmental consequences.
PCE says that this follows a difficult two years for global manufacturing, with the plastics industry apparently being “severely affected”, and which convertors were seemingly recovering from in recent months before this additional challenge.
For example, the COVID-19 pandemic resulted in the extreme unpredictability of supply and demand, shortages of raw materials, and the delay of maintenance works due to lockdowns that companies have had to undertake later, alongside surges in demand. Meanwhile, extreme weather events in early 2021, particularly Storm Uri in Texas, have impacted the manufacture of polymers and exacerbated the challenges introduced by COVID-19.
In 2021, there has also been a higher volume of Forces Majeures; comparing this to 2015, when Forces Majeures apparently contributed to a plummet in oil prices while polymer production was expanding, PCE notes that this has resulted in a series of more unpredictable and serious challenges for the plastics industry than ever before.
Renato Zelcher, president of EuPC – which also oversees the Polymers for Europe Alliance, an information platform supported by PCE – has said that the current issues facing the plastics industry are part of a “perfect storm”. Convertors, in particular, have already experienced difficulties in terms of receiving adequate volumes of polymers and transferring price increases through the value chain, with many other companies anticipating price hikes because of this. PCE’s recent statement appears to forecast further conflict over pricing between different players in the plastics industry.
Alongside this, EuPC has criticised measures such as the EU’s plans to introduce a plastic tax as part of its COVID-19 recovery strategy and the inconsistent implementation of the Single-Use Plastic Directive (SUPD) across member states as additional pressure points in terms of pricing and margins across the plastics value chain.
Going forward, a study from Smithers has suggested that reshoring the supply of raw materials may help to mitigate future demand shocks – a solution that could be undermined if surcharges drive convertors out of Europe, according to PCE. PCE concludes that the coming weeks will be illustrative of how these issues will play out.