Page 37 - The Inside Scoop Archive

Page 1 of 2

Understanding Stretch Film Price Changes

What great timing! The stretch film industry has just announced a price increase on stretch film of 9 -
10% effective on orders entered on or after June 4th, and shipping on or after June 18th. This increase is
based on increases on the price of resin from Dow and ExxonMobil that go into effect on June 1st. Dow and
ExxonMobil have also announced an additional resin increase to go into effect on July 1st.

With these pending increases on the table, let's see if we can get a handle on what is happening and why.
First of all let me make it clear that I do not have all the answers, neither does anyone else that I know.
Stretch film price movements are a result of the interaction of various components that effect the
movement of price up and down. The law of supply and demand is the primary component, but there a
number of other drivers that are in play with the law of supply and demand. Some of these are:

A limited number of resin manufacturers. In recent years there has been a consolidation of the resin
manufacturers who supply the stretch film industry. At one time there were four major resin producers:
Dow, Exxon, Mobil, and Union Carbide. These four have merged into two. Exxon and Mobil united, and Dow
and Union Carbide did also. As we all know when there is less competition in any market segment, pricing
tends to go up, not down. In addition it now only takes two companies to move the price as before it took
four companies to move the price.

Ethylene: This is the key material in the production of polyethylene resin. It can be produced from the
refinement of oil, and also from natural gas. In the US somewhere around 70% of the ethylene produced
comes from natural gas. Ethylene is sold on contract and also on the spot market.

Oil Pricing: With gasoline pricing over $ 3.00 a gallon for regular on the national average, we all know what
upward pressure oil pricing can have on anything that is made from oil such as plastic. Oil pricing can be
effected by a lot factors that are not associated with the basic cost of production and transportation of
oil. Things such as the threat of war, terrorism, and weather can have a tremendous effect on oil pricing.

Natural gas: Our abundant resouces of natural gas have helped to keep our resin prices lower than those in
many parts of the world. However, our resources of gas are under constant pressure ,and have increased in
value and cost significantly over the past years. There are a number of things that than can drive up the
price of natural gas, but the number one answer for us is a cold winter. During a cold winter we can use
more than is currently being produced. This depletes our stored resouces and drives up pricing.

Exports of resin: Historically when China was in the market to buy resin, pricing pressure could result in
price increases in the US. Currently because of the devalued dollar, the resin industry can export resin to
Europe and South America at prices that are higher than those currently in play in the US. Think of it this
way. If you were selling candy at $ 0.60 a pound to your regular customers, but the guy across the street is
willing to pay you $ 0.75 a pound for it, you just might decide to sell at least part of your candy to the guy
across the street unless your regular customers were willing to pay a price closer to what he is offering. I
hope you get the message here because this is part of what is happening on the current resin increases.

file://C:\Documents and Settings\William Jackson\My Documents\Northwoods Software\... 5/14/2007