Milk processors are warning their profits will be hit by the sharp rise in milk bottle production costs.
The cost of the high-density polyethylene (HDPE) used to make milk polybottles has shot up 42% since the start of the year as the price of crude oil rose from $40 to $70 a barrel, pushing up the cost of two key components of HDPE resin and ethylene.
Some HDPE producers have consequently been forced to cut production because of weak margins and general economic pressure, putting further upward pressure on prices, according to energy information specialist Platts.
Industry sources say the cost of resin has rocketed by £140/tonne to £980/tonne in recent months, and the leading UK processors each use as much as 30,000 tonnes of resin per year. This would equate to an additional £4.2m in production costs if prices remain at their current level.
In a trading update last week, Robert Wiseman said the situation could affect its ongoing profitability. "There have been some sharp upward moves in recent weeks in the Platts resin index for HDPE, and it remains to be seen what direction these costs will take in the second half of the financial year," it said.
Arla said the price hikes were an issue the whole industry was facing. Another source said processors were monitoring the situation closely, but that it was too early to say whether costs would be passed on to retailers.
The long-term outlook for input costs remains uncertain, according to Platts. Although the next few weeks would see an easing of prices as a result of reduced Chinese demand during the country's holiday period, once Chinese buying levels increased again prices could rise.
China's consumption levels are fundamental to manufacturing costs across the globe. As the country develops, world demand for crude oil becomes stretched. Industry analysts say the OPEC production cartel is keen to keep oil prices high, with little prospect of a return to the days of cheap prices.
The cost of the high-density polyethylene (HDPE) used to make milk polybottles has shot up 42% since the start of the year as the price of crude oil rose from $40 to $70 a barrel, pushing up the cost of two key components of HDPE resin and ethylene.
Some HDPE producers have consequently been forced to cut production because of weak margins and general economic pressure, putting further upward pressure on prices, according to energy information specialist Platts.
Industry sources say the cost of resin has rocketed by £140/tonne to £980/tonne in recent months, and the leading UK processors each use as much as 30,000 tonnes of resin per year. This would equate to an additional £4.2m in production costs if prices remain at their current level.
In a trading update last week, Robert Wiseman said the situation could affect its ongoing profitability. "There have been some sharp upward moves in recent weeks in the Platts resin index for HDPE, and it remains to be seen what direction these costs will take in the second half of the financial year," it said.
Arla said the price hikes were an issue the whole industry was facing. Another source said processors were monitoring the situation closely, but that it was too early to say whether costs would be passed on to retailers.
The long-term outlook for input costs remains uncertain, according to Platts. Although the next few weeks would see an easing of prices as a result of reduced Chinese demand during the country's holiday period, once Chinese buying levels increased again prices could rise.
China's consumption levels are fundamental to manufacturing costs across the globe. As the country develops, world demand for crude oil becomes stretched. Industry analysts say the OPEC production cartel is keen to keep oil prices high, with little prospect of a return to the days of cheap prices.
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