Increase food packaging explained

From the 2nd quarter of 2021, the prices of plastic packaging have increased enormously. The main cause of this price increase is the unusual increase in raw material and energy prices. Never before have costs increased so quickly, but how is that possible? In this article you will find the price increase food packaging explained.

Exceptional situation

The Pack-Store food containers are made of 100% recyclable polypropylene. Because polypropylene is produced from residual waste from fossil fuel production, raw material prices depend on oil production. That in itself is nothing new, but why is it different compared to previous years?

Market analysts and producers speak of a unique combination of factors that made the price increase exceptional. There are several reasons why the price rises or falls. But never before has so much happened at once.

5 main causes of price increase food packaging

1. COVID-19

In the first quarter of 2020, the world largely came to a standstill. Planes were grounded and everyone had to stay home, which resulted in much less fuel consumption. As a result of lower oil consumption, the price fell and that has led the refineries to decide to scale down oil production at a rapid pace.
Polypropylene is a residual product from this oil production, so by scaling down oil production, much less raw material came onto the market. And that was exactly the problem: the demand for fuel decreased, but not the demand for the residual product.

2. Unexpected production disruptions

Due to the lower availability of raw materials in combination with the decreased demand, it was necessary to phase out production by the polymer producers. Consequently this provided the opportunity to perform maintenance before restarting. In various production locations in Europe, including in the port of Rotterdam, production locations experienced unexpected restart problems after maintenance work.

Several production locations in the United States had to deal with long-term power cuts during extreme frost, as a result of which the product lines there too came to a standstill for a long time.

3. Increase in demand in Asia vs. stable demand Europe

Due to an early recovery from COVID in China, the need for primary raw materials in Asia started earlier. Before the COVID crisis, Asia was already struggling with a shortage of primary raw materials and was prepared to pay well. It was very interesting for exporting countries to supply available raw materials to China (and other Asian countries) at attractive prices. At the same time, demand in the West remained stable. However, a shift was visible due to the change in consumer behaviour, among other things due to the higher demand for food packaging (more was eaten at home and therefore more shopping).

4. Increase in energy prices

Due to the closure of nuclear power stations (safety reasons) and coal-fired power stations (CO2 targets), we have become more dependent on gas-fired power stations, solar and wind energy. Nuclear power plants are also closed in countries around us (Germany) and nuclear reactors temporarily closed (France). Due to the decreasing supply and the dependence on Russian gas, gas prices are therefore rising sharply.

5. War in Ukraine

The tragedy in Ukraine does not give the global economy a chance to recover after the corona pandemic. As for many other sectors, the war in Ukraine also has consequences for the Rubber and Plastics industry. Implemented sanctions ensure that raw materials from Russia are not available and due to the disappearance of raw materials from Russia (in certain sectors up to 20 percent of PE and PP comes from Russia) the shortage of materials is increasing and prices are rising again.

Forecast for 2021/2022

Nobody can see into the future and it remains difficult to predict the developments. At the end of August 2021, we saw the commodities market stabilizing. We now know that the raw materials market has unfortunately stabilized at an unprecedented high level. In March 2022, the raw material price even rose again.

The effects of the scarcity of materials in various other chains will also result in cost-increasing effects in October 2021. Apart from the raw material prices, the other suppliers also implement price increases from that moment on (think of energy (!), cardboard, pallets and transport). We therefore do not expect these prices to fall any time soon.

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