Reflecting on the Early Effect of Brexit on Material Prices
It has not been long since Article 50 was triggered on 29th March 2017, however as a UK plastics manufacturing business, Pentagon Plastics are already starting to feel its effects when it comes to the purchasing of thermoplastic materials.
Trade Price increase up to 8%
On average we purchase around 5.5 tonnes of various thermoplastics (including LDPE, HDPE, PEEK and ABS) a month in order to meet the production requirements of our diverse customer base. Since the triggering of Article 50, we have seen the majority of our preferred material suppliers increase their prices from between 3-5%. However, from January some prices for high engineering grades have increased by a whopping 8%!
The EU is the UK’s single most important trading partner for plastics materials and the driving force behind this increase in material cost seems to have followed the trigger of Brexit as buying in from the EU has become more expensive as the value of the pound drops. The other main factor is the fluctuation of oil costs, although crude oil itself makes up a very small percentage of the raw material (less than 5% of the petroleum barrel is used for polymers- The National Academies of Sciences Engineering Medicine, chapter 3).
As a UK Manufacturing business, these are costs that we have little option other than to accept. The question for us is, how and at what point do we reflect these price increases back to our loyal and valued customer base?
Will an increase be permanent?
As we hang in the balance with trade deals and with negotiations ongoing, we’re not yet at a point where we can say whether these material increases are permanent or not. So, do we reflect these current increases to our customers now or do we ‘ride the storm’ and see what we will happen?
Our production runs vary from as little as 10 (or less) through to volumes of 150,000 for certain industry sectors. If we were to initiate price increases for the medium volume runs this would likely equate out to only a small increase to the customer as the material is often a low proportion of the overall manufacturing cost. This then leads us to wonder whether is it worth putting the manpower to price reviewing all of our products and potentially disappointing some of our customers if these increases are not set to stay.
Pentagon Plastics strong enough to absorb costs
Thankfully our business is in a fortunate position meaning that we can absorb some of these initial price increases while we wait for the market to steady itself and fully understand the impact before having to push any potential price changes down the line. However there are many companies who are not in such a strong position and these percentage increases, however, small will have a real effect on their business and may call their future trading potential into question if reasonable negotiations cannot be made.
There is no question that this is only the beginning of the challenges that lay ahead for the industry as we begin our journey out of the EU.
As other companies pass the increased costs onto their clients, get in touch with us today about your requirements and you won’t take on this additional fee. Call us on 01403 264397.
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