Polymer Comply Europe: Risk of devastating ‘own goals’ in the plastics supply chain

2020 and 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 the beginning of the COVID-19 pandemic, 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.