INSIGHT: BPI's fortunes reflect pressured plastics

07 March 2007 18:14  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Plastics bag maker BPI faces stiff challenges in 2007 as it tries to grow against the backdrop of high raw material costs and difficult conditions in its domestic UK market.

BPI fared somewhat better in continental Europe last year but has had in 2007 once again to face up to higher raw material prices It is caught in the trap of suppliers reacting as quickly as they can to fluctuating feedstock costs and competitors trying to second guess the market.

Chief executive Cameron McLatchie says it is far too early to make predictions about the financial outcome for 2007 but that BPI has made a reasonable start.

Restructuring in the UK should help. The company has little control, however, over changing market conditions that have had an impact on demand for agricultural film and in the plastic bag market on bag demand. The plastics packaging business is far from easy.

Having pushed into bag manufacture in China the company finds itself having to pay an additional tariff of 8.2% on certain polythene bag imports. The costs were unwelcome last year but are likely to settle at a sizeable additional annual amount.

McLatchie’s view is that the basis of the tariffs is flawed. Having already incurred considerable legal costs making representations on the bag tariffs to the European Commission, extra costs might be expected as it seeks to expand production in China.

On the domestic front, BPI has lobbied hard against the imposition of plastic bag taxes. The issues are complex but retailers in the UK are being encouraged to try to cut carrier bag use.

The 15 euro cents levy on plastic carrier bags in Eire is set to rise to 22 euro cents from 1 July. Plastic bag usage in Eire dropped sharply when the levy was first introduced but has climbed since.

Given the pressure for change in use, BPI is facing a tough battle along with other bag producers. Indeed, it admits that, in general, the packaging industry is under threat for what is widely perceived as excess packaging on retail goods.

The sector has perhaps had it too good for too long but it has responded to customer’s perceived needs. And it is not all perception.

Packaging in the western world enables food to reach customers with less than 2% wastage compared to over 50% in certain undeveloped markets with no packaging, McClatchie says.

The contents of modern packaging also typically consume a great deal more energy in their production than the packaging itself.

Where packaging is preventing waste that must be added to the environmental equation, he believes. “The current debate needs to be balanced by greater scientific and informed comment,” he adds.

Whether he will see that remains to be seen. Markets are fickle and often easily swayed.

The recycling market in the UK is a case in point. BPI was hurt last year by limited availability of polyethylene scrap for recycling.

Packaging exports are seen to satisfy current European Packaging Waste Directive rules  In 2001 UK recyclers handled around three quarters of UK plastic waste arising, in 2006 over two thirds were exported to the far East.

The trade promotes wider use of recyclate in goods manufactured in Asia and shipped to global markets. It works against the development of a viable recycling industry in the UK

BPI is at the forefront of this and other fundamental changes in the downstream plastics markets which are having a direct impact on the breadth and depth of its business. Earlier this year it announced departmental closures at two of its sites in the UK as a consequence of changed recycling conditions. In its home market it is facing an uphill battle on more than one front.

By: Nigel Davis
+44 20 8652 3214

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