What is driving up cost of recyclable flexible packaging films in 2022?
So you want to know why the cost of recyclable flexible packaging films and pouches are increasing. Across Europe, rose substantially during 2021 and so far, show no sign of slowing down.
The price hike is affecting both plastic and paper materials. The rise is down to several global factors, from US power outages to a shift in sustainable habits and more recently the Russian invasion of Ukraine.
In this article, you will find out about a few of the key driving forces behind higher recyclable packaging prices and what the rise means for you. You will also discover a few tips on how your business can weather the storm of challenging cost increases.
Before you start, it is important to remember that these same factors are driving up costs of conventional, non-recyclable flexible packaging too.
The Covid lockdown effect
The year 2020 and the covid lockdowns brought many changes for both better and worse. Amidst a global pandemic, a lot of us re-evaluated our priorities and aims and enjoyed more time at home. More cars were parked on the drive rather than on the roads and filling up at petrol stations. The demand for petroleum plummeted as commutes became largely non-existent.
Unfortunately for industry suppliers, plastic packaging is a byproduct of petroleum production and this drop in demand resulted in less availability to produce PE and PP resins. This, coupled with high demand for plastic packaging films and combined with many other factors, resulted in huge, unprecedented raw material cost increases during 2021.
The EVOH crises
Another key component of manufacturing recyclable flexible plastic packaging is ethylene-vinyl alcohol (EVOH), a copolymer with superior barrier properties. Its high resistance makes EVOH a popular material for use in recyclable high barrier films as it helps extend the shelf life of perishable items.
One of the major players in the chemical industries is the US state of Texas. Its process plants are key in the packaging production supply chain, particularly in the stage of refining petroleum.
In February 2021, the Great Texas Freeze hit America’s second largest state, causing billions of dollars’ worth of damage. The deadly storms triggered the worst energy infrastructure crisis that Texas has ever seen as residents across the state suffered from shortages of water, food, and heat.
A freak storm in one US state may not sound like a global industry disruptor, but EVOH is only produced by a very small number of companies globally. As such, the entire European market was largely unable to source EVOH at the end of 2021 and so prices and lead times soared.
The additive is now available again, but supply remains challenging and the proven importance of this recyclable material has led to significantly increased costs.
It is safe to say that this small additive had a big impact. But EVOH isn’t the only sundry to rise in price. Ink has also been hit by a cost surge, adding to the overall value of recyclable food packaging.
Energy cost hikes
Closer to home, countries across the EU market saw rising energy costs throughout 2021 and into 2022. French and German power contracts have more than doubled, whilst the threat of and ultimately the imposition of sanctions on Russia have caused significant disruption to Europe’s energy supply.
Huge rises and increased tensions are affecting the flexible packaging production plants which consume massive amounts of energy in the manufacturing of packaging products.
The Sustainability Drive
The unavailability of plastic materials is an understandable driver of price increase. What may be more surprising is how making sustainable choices is affecting the market.
Increasingly, companies are making the switch to paper and cardboard packaging as it is easily recycled and far more biodegradable than plastic. Such a sudden uptake in paper-based packaging has put a strain on pulp availability, driving up costs. The surge in demand has forced the market to react and build in extra supply capacity, so prices may fluctuate throughout this year.
The biggest impact looks to be on natural brown kraft and cobbled grades of paper, while bleached materials such as SPP’s heat-sealable papers have not yet seen such a significant increase.
The Russo-Ukrainian War
Just as you may have hoped that costs could start to stabilize a little, the Russian invasion of Ukraine has added a massive strain to the market.
Energy costs have surged again for European flexible packaging converters, and high energy costs look set to remain high. It is important to remember that both plastic film extrusion, and paper milling are very energy intensive processes.
Raw materials have also been hit hard by the invasion. For paper, a lot of pulp came out of Russia, and the restriction of this supply may have long term impacts in further increasing pulp costs in Europe. For recyclable plastic, the surge in oil costs is already driving significant increases in the costs of flexible packaging resins.
The outlook for 2022 and beyond
In the current environment nobody can be sure how the market equilibrium will change during the balance of 2022. However, unfortunately, the increased energy costs, the supply chain constraints for paper pulp, and the effects of the Ukrainian crisis look set to continue for the foreseeable future.
While there are many unknown factors that can affect the cost of recyclable flexible packaging, there are also changes that you can plan for. Coming into force in April 2022 is the Plastic Packaging Tax that will affect UK plastic packaging manufacturers, importers, and consumers. The £200 per tonne levy will apply to packaging both manufactured in or imported into the UK.
With the aim to incentivise the use of recycled material in packaging production, the tax will be chargeable on plastic packaging that does not contain at least 30% qualifying recycled plastic (see [insert hyperlink] for more information).
What can I do to mitigate cost increases?
Cost increases are unwelcomed at the best of times, and much more challenging for you against the backdrop of a global pandemic and energy crisis. Despite the external factors influencing price hikes, there are actions you can take to secure the best deals for your business.
- Engage with proactive supportive flexible packaging converting partners to find out how they can help. The right converter will be empathetic to the ongoing price rises and will work to provide you with the best solutions.
- Consider cutting down the weight of your packaging by reducing the thickness and size where possible. It is important to prioritize quality here as high-performance films will lend themselves well to thinner packaging with great results.
- Review whether another material substrate is more cost effective. The factors above may have changed the cost comparison dynamics between different recyclable film options. For example our heat-sealable papers have seen the least cost increase, and have obvious recyclability advantages.
- Above all, work with dependable high-performance materials. Securing high quality products will pay dividends. There are substantial hidden costs you will experience with unreliable films: packing line wastage and pack failures, as well as slower processing speeds. Focusing on performance and true value brings benefits in overall cost efficiency, with better throughput speeds, and less wastage.
If you would like to discuss the cost factors effecting your specific flexible packaging requirements in more detail, please be free to reach out and contact one of our packaging specialists – we would be glad to share any insights we can to help you.