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European plastics converters feel the pinch of high energy cost

On Thursday, September 22, 2022 at 10:35 IST

High energy costs have put pressure on the survival of several industrial units in Europe and plastics converters are no exception. Several plastics converters primarily belonging to small and medium enterprises (SMEs) are struggling to continue their business as skyrocketing energy bills have multiplied the cost of production and hence, made their final product uncompetitive.

Plastics converters like many other energy-intensive industries are facing a huge upsurge in electricity and gas prices. In fact, the entire European continent went into a deep energy crisis after Russia’s invasion of Ukraine on February 24 this year which invited economic and trade sanctions from the western nations, led by the United States. These sanctioning countries have set a deadline of early December to impose an embargo on Russian energy and stop procurement of Russia-origin oil and gas completely since then.

Most countries in Europe were highly dependent on Russian energy until the beginning of Russia’s invasion of Ukraine with some of them to the tune of 100 percent. So, sanctions on the Russian energy supply affected those countries badly. Since setting up of energy generation facilities either through fossil fuel, nuclear, or solar/wind route could take years to deliver the first unit of electricity, factories and households in several countries across Europe went into darkness on the paucity of energy supply.


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Source: Polymerupdate Research

“We do not need long-term visions towards 2030 or beyond at a time when companies are trying to survive on a daily basis with cash drained on controlled energy prices,” said European Plastic Converters (EuPC) Managing Director Alexandre Dangis. EuPC calls on the European Union Commission, Council of Ministers, and European Parliament to agree and to suggest very short-term impactful actions which are needed at the European level for keeping the industrial value chains operating.

Like several other energy-intensive industries, plastics converters are facing the threat of closure of their factories because of the dramatic increase in electricity and gas prices. Although some companies have so far been able to avoid a cost increase due to current contracts, the industry average has doubled electricity costs since the beginning of the year.

Data compiled by Polymerupdate Research, global energy prices skyrocketed so far this year. The benchmark Brent crude contract for the near-month delivery on the New York Mercantile Exchange (Nymex) jumped to trade currently at US$90.62 a barrel from its level of US$73.92 a barrel a year ago. The Brent crude oil cooled down after hitting the level of US$ 125 a barrel in March this year when the western nations announced the harshest sanctions on Russian trade. Similarly, the benchmark Nymex RBOB Gasoline future softened by around a third since its recent peak to trade currently at US$244.78 a gallon. Moving in tandem with other energy contracts, WTI Cushing also declined to trade currently at US$83.94 a barrel from its recent peak.

But, European consumers are not as fortunate as the rest of the buyers around the world. Although some companies have been so far able to avoid a cost increase due to the current contracts, the industry average has doubled electricity costs since the beginning of the year. The scenario is worrying for those who have to pay 750 percent higher electricity prices than at the beginning of the current year. The situation is going to be even worse during the peak winter season between October and February.

According to EuPC, the additional salary increases on top of the energy costs increase in some countries which have placed converters in front of a dilemma whether to continue production or stop the processing lines. The situation will actually put at risk the supply of essential packaged goods in the EU. For certain industries in some EU countries, there is currently no business case to continue production nor visibility and certainty for investments and further developments. The effects of those closures are also starting to have a severe impact on the European Industrial base.

The impact can be gauged from the fact that the EuPC represents 50,000 plastics converting companies, most of which are family-owned businesses and employ cumulatively over 1.6 million people across Europe. Struggling through winter and hoping that the EU institutions will come forward at the end of September with clear and short-term remedies for keeping an EU industrial basis will be key for the future of the plastics converting sector which at the same time is requesting to invest in circularity.

Moving towards rPET from PET in Australia
A report published by GlobalData on Wednesday finds that the consumer demand for recyclable packaging is on the rise in Australia. Hence, beverage manufacturers are shifting from virgin polyethylene terephthalate (PET) to recycled polyethylene terephthalate (rPET) bottles as recycled material has the potential to reduce carbon emissions. To meet the packaging targets, beverage producers are in a race to adopt rPET bottles and make their packaging portfolio eco-friendly. Major soft drink producers such as Coca-Cola, Pepsi, and Asahi have already adopted 100 percent rPET bottles for their popular brands.

Suneera Joseph, Consumer Analyst at GlobalData said, “Australia has set ambitious targets to build a circular economy. The National Packaging Targets envisages 100 percent of packaging produced in Australia to be reusable, recyclable, or compostable by 2025. PET bottles are one of the major contributors to single-use plastic waste in Australia, as it accounted for 86.9 percent of rigid plastics unit volumes in 2021.”


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