Some plastic materials are experiencing cost increases across the supply chain

Polyethylene resin, a major component of several types of plastic that Packnet purchases, has been increasing in cost throughout 2013.  In September, prices for the resin jumped 5 cents per pound.  They have increased a total 16 cents per pound since the first of the year.

Several manufacturers of plastic products have recently announced price increases such as Sealed Air announcing plans to increase prices by 4 to 6%.

The main culprit for price increases is a short supply of a major component of polyethylene resin known as ethylene.   The overall supply has been tight for over a year and the shortage was exasperated this year when a major processor shut down twice for several weeks due to a fire.   Overall demand in the US for this resin has seen moderate increases while foreign demand in Asia and South America has seen much sharper increases.

The raw material costs are related to oil prices which are hovering around $105.00 per barrel.  While slightly up, this cost would not account for the price increases seen in the supply chain.  The main effect is supply and demand economics.  “It’s going to be a seller’s market until new ethylene and polyethylene production capacity is started in North America,” Nick Vafiadis,  senior director of global polyolefin’s and plastics of IHS said. “While production costs might be quite low, producers of these products can raise the price because of supply-demand dynamics.”  – Cited from Northjersey.com

Several PE makers have announced plans to add capacity, but it is doubtful that any of these additions would come into effect before 2016.   In other words, the polyethylene situation will be tight for a couple more years unless something major happens to demand.

Packnet has already seen price increase announcements for November from its plastic suppliers and is currently evaluating its pricing strategy.