The price of white

March 13, 2011
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A warning from Swiss scientists about the health hazard caused by the amount of oil in the recycled board used by some food companies has led many producers to switch to plastic polymers. The demand for white fibres, however, exceeds supply and that means higher prices for everyone including the home media packaging industry.

Coral Products is one of the largest UK suppliers of jewel boxes and DVD library cases for disc media. Sales Director Martin Watson has charted the price of the plastic polymers used in packaging since January 2007. He says that prices have never been as high as they are now.

“At the start of 2009, a tonne of the raw polypropylene (PP) material used in DVD boxes cost £660. In February 2010, it had reached £1,000 a tonne and by the first two months of this year the price had risen to £1,200 or more,” Watson says.

With input prices doubled, the cost of the finished product has to go up too no matter how painful that might be for everyone in the supply chain, he says.

EDC Country Manager UK Paul Murphy agrees that rising input prices are a concern. “We have seen poly prices grow by 25%-30% since the end of 2009 and the uncertainty on cost has increased. Because of the continued pressure on manufacturing prices from customers and consumers, EDC has developed a number of cost-saving strategies,” he says. “For several years we have recycled our jewel cases. The current level of polycarbonate recycling, from both internal waste and returns, now represents around 10% of our yearly usage.”

Faced with the spectre of ever rising costs, the industry makes great efforts to re-use scrap material provided it comes from a known source. AGI Amaray warns of the dangers of the contaminants it found in low-cost cases including product supplied by some of the major studios. The firm identified illegal levels of heavy metals in around 25% of the black cases it tested: “The packaging supply chain is under heavy financial pressure with the rise of PP costs. These cases have a cost advantage and therefore they seem attractive.”

Where broken and damaged cases might once have gone to a landfill, they are now recycled whenever possible. Watson says, “If a film pans in the high street and returns for destruction, we will take all the packaging back, shred it and remould it. You have to wait until you have a full load to make it cost-effective but we handled about 80 pallets just after Christmas. Whenever we deliver new product, we check to see whether we can bring back the scrap. The vehicles collect around 30 tonnes a time; that’s over £35,000 at raw material prices.”

An agreed percentage of the shredded material is mixed with virgin PP and fed back into the moulding machines. Replicators may consequently offer their clients recycled cases at a lower price than those made from 100% new granules. “Instead of the replicator paying to take waste away, we shred it and reuse it. Clearly, we take into account the transport costs and the labour involved in running the shredding machines, but because we are not paying £1,200 or more for that source material, we can offer a cheaper price for the finished box,” says Watson.

One of Coral’s major customers in the UK is the VDC Group, a leading independent replicator and distributor. The company offers a complete fulfilment service for CD and DVD and has just become the first UK supplier of Blu-ray discs.

Managing Director Ashwin Bedi says that raw materials and energy costs have escalated at an alarming rate and there is a monthly battle on price with polycarbonate and case suppliers. He says, “There is no stability in price, which is constantly fluctuating. We are told that the increases are due to energy and oil price increases and the global demand for the material in all areas of manufacturing but that doesn’t help our customers.”

Suppliers of packaged media on fixed-price contracts had to take a view on the likely oil price increase in 2010/11. Few anticipated that PP costs would climb above the £1,000 a tonne mark and stay there, let alone rise to £1,200 and beyond. Distributors and retail buyers have been unsympathetic to what they see as “special pleading” by DVD and case manufacturers at a time when other producers, from farmers to garment manufacturers, also are subject to the rising cost of fuel.

The difference is that oil derivatives are the main constituents of the discs and boxes that make up packaged media; the cost of the raw materials rises in direct correlation to the price at the pump. One harassed executive says, “It is no use burying our heads in the sand, the fiscal expectations of some studios and distributors are frankly unreasonable.”

Most companies juggle with rising energy costs throughout their organisation. Bedi saysm “It is more expensive to run the plant, transportation costs are higher, raw material prices continue to rise. We are working hard with all our suppliers to find ways of working together to mitigate some of these increases.”

Coral says it has virtually eliminated in-house waste with every ounce of unused PP returning to the top of the chain. Watson says there is no room for further savings unless customers accept a lower box weight. “When DVD first appeared, a box weighed 100 grams. Over the years it dropped to today’s standard weight, which is around 65 grams,” he notes.

The “eco-box”, which is 10-15 grams lighter and consequently cheaper to make, is Coral’s response to the energy crisis but this has met with opposition from publishers who say it does not reflect the value of the product it holds. This point of view conflicts with the “pile ’em high, sell ’em cheap” retail concept that puts DVDs in a value bin at the end of an aisle at £2.99 a copy. If the DVD is to be a commodity then lower-cost eco packaging could meet the demand for reduced prices, though it would require a change of heart by the content owners.

At the new-release end of the market, consumers’ perception of value for money at point-of-sale relates directly to the look and feel of the box and not to the disc inside. Despite this, distributors continue to haggle over packaging costs and might look elsewhere, Watson says. Although suppliers in other parts of the world offer competitive FOB prices, higher oil costs mean increased shipping charges for a product that is largely “boxed air” and there will always be a doubt about the purity of the polymer.

Murphy says that EDC is keen to increase the proportion of recycled plastics that the company uses and it seeks partners to develop its capacity to turn recycled CDs into high-grade polycarbonate. “We consider this to be one area that the industry as a whole should look at, in order to identify potential benefits,” he says.

The plastic CD and DVD package remains exceptionally cheap given the important role it plays in getting contents safely to the consumer, says Watson: “The gap between our raw material cost and the price we can get for the finished product is very narrow. At 2009 prices, there was a margin to be had. Today, you can keep the machines running but that is where it begins and ends.”

He does have one suggestion that might keep the customers happy while the packaging producers make money – pre peak-season planning. Watson has written about the topic before but he says the current oil crisis makes advance planning for Q4 an even better bet than usual.

“We have spare capacity for 9 months of the year and then orders come rolling in during September. This year will no doubt follow the same pattern but the raw materials cost for the packaging industry will only go in one direction – much higher! Advance planning can go some way to mitigate this inevitable increase,” he says,

The “packaged cereal scare” could lead to a surfeit of recycled board on the market as the food industry demands virgin white paperboard. Maybe the time has come for the re-introduction of the infamous Warner “snapper” case, which was arguably ahead of its time in its use of card and black plastic.

If the price of crude oil continues to rise at its present rate, all that contaminated cardboard could make its way to the video home entertainment industry. 

It might not be safe for food products but it is still good enough to hold packaged serials.