Post-Katrina prices put pinch on plastic products
The Associated Press
Decades before the invention of plastic, Italian pasta makers wrapped their hand-stuffed ravioli in paper tied with a coarse string.
Jay Beattie, a Seattle gourmet-pasta manufacturer, jokes he may have to revert to his ancestors' choice of packaging. It would be cheaper than plastic, the material he has used for years to package his line of hand-cut fettuccine, potato gnocchi and pumpkin ravioli.
Of all the raw materials that have seen prices rise since hurricanes ravaged the Gulf Coast — including plywood, drywall and metal — few have been hit as hard as plastic.
Prices for the three most common resins used to make plastic have jumped between 20 and 30 percent since August — compared with post-Katrina increases of 1.8 percent in cement, 2 percent in plywood and 6.5 percent in structural steel, according to analysts and trade publications.
The increases are being felt everywhere, from public-works projects to grocery-store shelves.
"Plastic is a huge part of our business. And we're seeing an increase in every single plastic thing," said Beattie, rattling off the types of containers he uses to package his gourmet goods at Cucina Fresca, the pasta business he owns.
Raw materials of all kinds have been hurt by the cost of oil, which soared past $70 a barrel after the hurricane; and natural gas, which went from $10 per million British thermal units to over $14 per million British thermal units.
But plastic suffered from a triple whammy. The first blow came to resin factories, the majority of which are based in the Gulf Coast and were forced to shut down during the storms, creating a backlog.
Second and third is the fact that plastic — unlike wood, cement and other raw materials — uses natural gas twice: once to generate the power needed to run the factory and a second time as the key ingredient used to make the resin.
Hit by all three, the Dow Chemical factory outside New Orleans was forced to cancel more than 1,000 contracts to customers ranging from Rubbermaid to Clorox, which rely on it for the raw polyethylene and propylene pellets used to make their wares and jugs.
They were far from alone: One by one, resin factories run by Exxon Mobil, Chevron Phillips, Shintech and Formosa Plastics invoked their act-of-God clauses to get out of their contracts, raising prices and delivering weeks off schedule.
The result is that three of the most common types of plastic resins have risen from 55 to 64 cents per pound in July, to between 70 and 80 cents a pound last week — with an additional 8-cent rise projected by the end of November, according to Plastic News, an Akron, Ohio-based trade publication.
The ripple effect is being felt across the country in the cost of everything from plastic knives and forks to Styrofoam cups to polyethylene (PVC) pipes used in sewer and water projects.
"We haven't seen any plastics spared," said Mike Levy, executive director of the Polystyrene Packaging Council.
On Tuesday, Kraft Foods announced immediate price increases of an average 3.9 percent on many of its products because of rising energy and packaging costs, a spokeswoman for the nation's largest food manufacturer said.
Both Clorox and Kraft have slashed their earnings-per-share expectation for the year, citing rising commodity and fuel prices.
The food and consumer-products industries have long been dependent on plastic, and during the last decade the construction sector has shifted toward plastic — with PVC pipes replacing concrete ones.
Now in cities including Riverside, Calif. and Prineville, Ore., municipal water projects are being put on hold because of a near-doubling of PVC pipe prices.
In desperation, some contractors are returning to outdated technologies, such as fashioning the pipe out of cement — a cheaper but far more labor-intensive technique.
For small, niche businesses — like Beattie's high-end pasta — the increase has created an economic drama.
Industry research has shown even in a gourmet grocery store, consumers shy away from pasta products priced above the $5 ceiling, he said.
Even a 10 percent increase in the plastic tubs for his marinara and tomato vodka sauces will easily put Beattie above that mark, forcing him to consider a painful alternative: "If we want it to stay under $5, we need to eat the plastic cost ourselves," he said.
Copyright © 2005 The Seattle Times Company