The Rising Price of Plastic
29 July 2010
It is a wide misconception that the price of plastic correlates directly with the price of oil, instead it is the price of Ethylene (the ‘feedstock’ that is the building block of common types of plastic) that has the bigger impact.
Plastic is derived from recuperated (or ‘cracked’) naptha, a simple refining residue which was once flared off into the atmosphere. Ethylene is therefore a by-product of oil, essentially putting a waste product to good use.
These ‘feedstocks’ have their own supply and demand and therefore their own market price unrelated to the cost of a barrel of crude oil. It is this market price that more directly affects the price of plastic as the feedstock price is the largest cost in producing plastic raw materials.
Although Tubex continually strives to keep raw materials and manufacturing costs under control we have, over the past 12 months, experienced very significant price rises in raw material cost as feedstock production has been reduced due to ‘cracker’ production shutdowns, and market demand is significantly outstripping supply. The price of feedstock has therefore been rising and is forcing plastic prices higher.
This situation has been created by a rapid reduction in feedstock manufacturing capacity following the 2008 crash in the global economy.
It is easy to understand why the oil-plastic-pricing assumption exists when 99% of all plastics are derived from crude oil (yet only 4% of all crude oil produced is used to make plastics). So, although the price at the pump does have an effect on transportation costs it is not the significant price pressure.
We hope this explains the current impact of feedstock prices on Tubex products, at the same time as breaking the myth that the price of plastic relates directly to the price of crude oil.