Editorial: PET pricing formula
In writing this month’s packaging feature, I had a conversation on PET pricing with John Maddox, president of Strategic Business Analysis Ltd. â€” Container Consulting Inc., Jacksonville, Fla. It’s not news that the price of PET, aluminum and glass is increasing as raw materials and energy costs to produce these materials are increasing. But how much packaging costs increase does not directly multiply at the same rate as the growing raw material and energy costs.
“The exact amount doesn’t match a nice, neat formula because each step along the way has its own supply and demand dynamics and cost dynamics, and their own internal problems within their own industry,” Maddox says.
For example, if a packaging material has only three suppliers, it would make sense that if the three suppliers’ raw material costs went up that they could pass the price increase on to their customers. This is not the case. Some suppliers are large companies and must maintain volume, and keeping plants running at full production often is a bigger consideration than price fluctuations.
“People love to ask me, ‘If the price of a barrel of crude oil goes up $1 a barrel, how much is that going to affect PET?’” Maddox says. “It’s not a one-to-one … It’s always just a typical fair market situation where there is negotiation, where there is cost structure, where there is supply and demand, and new technology improvements.”
What the numbers are showing is that since the early ’90s, the price of PET has increased from around 60 cents a pound to 80 cents, and it’s getting ready to go up even more, Maddox says.
“The volatility of raw materials is certainly having its impact and causes people to constantly re-evaluate the competitive material alternatives, especially between glass, metal and plastic,” he adds.