Can competition help keep prices down?
By Staff -- Purchasing, 8/12/1999 6:00:00 AM
The bulk packaging market is a highly competitive one, and price increases are not taken lightly by manufacturers. Fierce competition is expected to keep prices relatively stable for most forms of packaging, because the slightest shift can cause some users to switch the type of packaging they use. For example: Many plastic drum users switch to fiber drums when rising plastic resin prices increase tags for plastic drums.
With competition so fierce, bulk packaging price tags tend to closely follow fluctuations in raw materials pricing. While new designs and adding "bells and whistles" to containers can lift prices, it's most often rising raw material costs that cause bulk packaging producers to increase prices. Here's where prices may be headed.
- Flexible intermediate bulk containers (fibcs) are under the most price pressure, as imported bags from Asia have flooded the U.S. and cornered a big chunk of the domestic market. Polypropylene (PP) tags, which have been depressed in Asia, allow for the production of cheaper bags. As a result, domestic producers are unable to increase the prices of their bags. In fact, in order to remain competitive, many domestic producers of commodity-type bags have opened factories in Mexico to make the bags cheaper than they could in the U.S. Domestic producers could be facing a further squeeze, as PP prices are forecast to rise into 2000. According to data from Purchasing'S monthy chemical transaction price survey, PP (homopolymer) tags should rise 1¢/lb by the end of the year to 31¢/lb. Rising tags will continue into 2000, moving up to 33¢/lb by the second quarter.
- Steel drums obviously are tied directly to the price of steel. They have a fairly standardized design and, according to one producer, 70% of the cost of making a steel drum comes from the steel itself. So where are steel drum prices going? Watch cold-rolled steel prices. According to Purchasing, prices will rise throughout the rest of 1999 and 2000. Tags should grow from a second-quarter 1999 average of $380/ton to $391/ton by the fourth quarter. Prices will continue up in 2000--rising to $403/ton by the second quarter and $407/ton by the third.
- Plastic drums tend to closely follow polyethylene prices. Blow-molding, high impact grade high-density polyethylene (hdpe) is expected to rise 2¢/lb to 37¢/lb by the fourth quarter of this year. Tags in 2000 will continue to rise-up to 39¢/lb in the first quarter, and 41¢/lb by the fourth.
- Fiber drums prices also are in some jeopardy, with linerboard (East) tags headed way up compared with last year. Prices for Linerboard (East) started 1999 at $363/ton, but will finish the year a whopping $124/ton higher. They are expected to hit $526/ton in the first quarter of 2000, and $545/ton by that year's end.
- Forecasting intermediate bulk container (IBC) prices by tracking raw materials costs is more complicated. An IBC's price often reflects a model's specific attributes. As well, IBCs often are made of several different materials. Depending on the type, IBCs are made from cold-rolled steel sheet, stainless steel type 304 sheet and type 316 plate, high-impact grade hdpe, and corrugated medium. There is also enough competition in the marketplace that prices for most of our standard products will only fluctuate with raw material costs. The standard bottle in a cage would depend on hdpe prices, and to a lesser extent, the price of the cage metal. Other IBCs, such as the all-metal variety, would depend on the material of construction. For example: Stainless steel type 316 is forecast to increase by $55/ton by the end of '99, and rise another $174/ton by the end of 2000. For both steel and poly-IBCs, prices also are impacted by design changes.
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