RPC plans to pass on polymer price spike

17-Jun-2010 - Last updated on 18-Jun-2010 at 10:35 GMT

Rigid plastic packaging supplier RPC has warned that significant increases in polymer prices will be passed on to its food and personal care customers.

Announcing its results for the year ending March 31, RPC said polymer prices rose by more than 40 per cent over the 12 month period, albeit from a relatively low level.

As the upward trend continues into the new financial year, RPC said the company plans to pass the majority of these cost increases on to its customer base although some time lag is expected before this can be realised.

The supplier of food trays, margarine tubs, and jars said polymer costs represented about 30 per cent of its turnover over the past year. Substantial changes in the price of polymer products like PP, HDPE and PS can therefore have a big impact on margins.

Price volatility

Recently prices have shot up as oil prices rise sharply from the lows at the end of 2008 and the economic crisis hits the financial stability of suppliers. Although RPC said the trend is continuing into the new financial year, the company said the “underlying dynamics of the polymer market remain favourable” as new suppliers come on stream in areas like the Middle East, Brazil and India.

Over the 2009/2010 financial year, polymer price changes did not have a big impact on margins as the lows at the start of the year balanced out with the spike at the end.

Financial results

Indeed, operating profit increased 15 per cent to reach £40.9m (€49.0) as RPC reaped the benefits of its cost reduction programme. Over the past year, this saw the closure of five production sites in the UK, the Netherlands, the Czech Republic and Italy and a 14 per cent reduction in the size of the workforce to around 5,900 employees.

These cost cutting measures were taken to compensate for the weakness of the top line in the aftermath of the recession. Sales volumes continued to decline last year as reported revenue dropped 6 per cent to £719m (€862m). RPC said the food sector, which accounts for about 59 per cent of the group’s products, proved relatively resilient.

Looking forward, RPC said the main short term uncertainty continues to be volume although recent encouraging trends are continuing for the moment.