Risk of devastating ‘own goals’ in the plastics supply chain
It is a statement of the obvious that 2020 - 2021 have been difficult years for global manufacturing. Within that context, the plastics industry has been particularly severely affected. It is an industry which is subject to extreme volatility in normal times and depends on huge global shipments of a host of intermediate materials to maintain some semblance of balance between supply and demand. Since COVID appeared, it has been predictable that the industry would be a prime victim of inevitable shortages and disruption. What was rather less predictable was that 2021 would see in the supply base a higher level and longer-lasting Forces Majeures with a plethora of causes than even 2015* . In addition, extreme weather events of the type that perhaps we now need to learn to live with have combined with COVID to exacerbate the industry’s difficulties.
It has seemed to most European converters in recent months that a semblance of normality had returned. In fact, with few exceptions, most materials have become readily available and pricing has begun to reflect this reality. However, the conversion industry now seems to be confronted by energy “surcharges” and other unilateral non-market price adaptation attempts which have the potential to pose an existential threat to large swathes of the industry. These surcharges are being proposed by a wide group of suppliers of many types of polymers regardless of their actual cost structures and their margins. Nobody, of course, disputes the escalation in energy costs, but these are an integral part of the contract prices and market indices which are the basis of converters’ pricing to their customers. These increases are of a scale that would nullify the margins of many converters which notoriously survive on very meagre levels of profitability. In short, polymer suppliers who are proposing these additional costs cannot but know that they are trying to apply penal and unrecoverable costs to their customer base which will decimate the conversion industry and redound in the medium term to the detriment of themselves. The coming weeks will show how the issue plays out and whether the forces of nature with which we have all had to wrestle are now going to give way to a series of “own goals” which could be even more damaging to the whole supply chain.
From an environmental perspective, of course, the issue is whether yet more of the plastic conversion industry is going to exit Europe to Continents where the manufacturing processes are less well-regulated and supply chains inevitably longer.
* That was the year when the conversion industry under the auspices of European Plastics Converters came together to form the Alliance for European Polymers to give an industry which employs 1.6 million employees across Europe a voice. This was at a time when an exceptional level of Forces Majeures contributed to a situation in which oil prices were plummeting whilst polymers were escalating equally dramatically.
About Polymers for Europe Alliance
The Alliance was initiated by the European Plastics Converters association (EuPC) during its General Assembly in May 2015. It is an online, confidential information platform open to all parties who have an interest in the competitive conversion of polymers in Europe. Its objectives are to provide factual public information on the status of the polymer supply situation in Europe and to re-establish a constructive dialogue with the supply base. The initiatives of the Alliance also include the Best Polymer Producers Awards for Europe.
About European Plastics Converters (EuPC)
EuPC is the EU-level Trade Association, based in Brussels, representing European Plastics Converters. Plastics converters (sometimes called "Processors") are the heart of the plastics industry. They manufacture plastics semi-finished and finished products for an extremely wide range of industrial and consumer markets - the automotive electrical and electronic, packaging, construction and healthcare industries, to name but a few.
About Polymer Comply Europe (PCE)
PCE is a service provider for the plastics industry specialised in EU legislation. Since 1989 we have been closely working with the industry developing an indepth knowledge and wide experience in EU Regulatory Compliance, Association Management and Projects & Studies.
Due to the increasing complexity of EU legislation, companies can benefit from more legal and technical advice. Companies involved in the plastics industry can get support on how to cope with this burden and our experts can provide you with the best expertise. You will receive informed advice from our best EU experts. For this we decided to develop a pool of EU plastics experts under our service company Polymer Comply Europe, based in Brussels.