UK PE, PP buyers under heavy pressure on weak pound

Focus article by Linda Naylor

LONDON (ICIS)–Polyethylene (PE) and polypropylene (PP) buyers in the UK are under strong pressure to pay more for their product as the pound sterling tanks against the euro, sources said recently.

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There has been tension on a public scale in the UK as some brandowners have tried to recover increased prices, said to be down to the weakness of the pound which has left imported prices high.

Last week there was public outcry as Unilever sought to increase prices on some its goods to supermarket giant Tesco, and a private agreement led to the resolution of this issue.

This is something that is not likely to go away, however, said some large packaging buyers.

“You just have to pay the price,” said one. “The UK price is the euro price plus €20 [/tonne].”

The UK imports a lot of its packaging, including the contents of much of it, said the buyer, and this meant that costs were higher.

“My costs will have gone up by around £100 [tonne],” said another large buyer, “I can’t take that hit.”

This is at a time when European PE prices were largely rolling over in euro terms.

Yet another buyer said its costs had not increased completely in line with euro costs, but that it was now hard to get all the product it needed without paying more.

“If we’re prepared to pay more we will get the material we need,” said the buyer.

Some traders were having difficulty getting increases in line with the new currency rates, and they were doubly hit by the fact that many buyers are now looking to trigger end-year rebates by reaching pre-agreed volumes with their regular European suppliers.

The UK does have its own PE and PP production: SABIC produces low density polyethylene (LDPE) at Wilton; INEOS produces PP and C6 (hexene based) linear low density polyethylene (LLDPE) at Grangemouth, and LyondellBasell has a PP plant at Carrington. It remains a net importer of plastics goods, however.

In spite of the settling of the Unilever-Tesco dispute, this sort of issue is not expected to go away as importers are forced to pay more for their products, said many sources.

Ian Wright, of the Food and Drink Federation, which speaks for manufacturers, warned of the potential for more similar disputes as imported costs rose, according to press reports.

On a more positive note the weak pound has been a boon for exporters.

“Business is good,” said another converter. “There are no imports and [our] machines don’t stop running.”

The £/€ issue is expected to run for many months, as highlighted by several economists, and this is only the start, they said.

PE and PP are used widely in packaging and the manufacture of household goods.