Originally Published MDDI July 2003
|Use of all medical plastics is expected to top 2.6 billion pounds by 2004. At more than 1.2 billion pounds, thermoplastics dominate the market, accounting for nearly 50% of total consumption.
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The plastics industry, including the medical sector, has been feeling the impact of substantially higher raw- material prices this year. Estimates within the industry suggest that, since January, the cost of resins used for injection molding has increased 15%, film-grade resins are up 30%, and high-density polyethylenes have increased 40%.
According to Cary Clubb, marketing communications director at Eastman Chemical Co. (Kingsport, TN), "January, February, March, and April were months when prices for raw materials that Eastman and similar companies were using were rising in price beyond what was forecast essentially. So there was a series of price increase announcements from all of the major plastics suppliers."
Clubb says the increases affected all of the plastics lines--polycarbonates, polyethylenes, polypropylenes, copolyesters, and acrylics. He adds, "It's fairly accurate to say that there wasn't just one round of price increases, but two rounds of price increases. Ours were March first and May first. Some raw materials that Eastman purchased 12 months earlier, for example, had gone up in excess of 100%. So there was a need across all plastics lines for price increases to be passed through the value system."
Speculation over the cause of the increases has centered on the influence of higher oil prices. Reports suggest that uncertainty over the Iraq war and how it would affect the world's oil supply, in addition to the civil unrest in Venezuela, has contributed to making resins a scarce commodity. The reports have also resulted in a volatile market for the raw materials used in medical plastics. Says Rick Noller, medical industry manager at Eastman, "It's pretty much across the entire plastics industry. Everybody got hit by significant increases in costs."
The increased resin prices have prompted companies such as Eastman to implement serious cost-cutting measures. Says Noller, "I believe if you monitored the press releases from plastics companies, and the chemicals industry in general, cost-cutting was announced virtually everywhere. And that was essentially the plastics companies trying to protect their customer bases as best they could." He adds, however, that "the cost increases were more than could be accommodated by normal cost-cutting measures."
Clubb says some of the company's cost-cutting measures were fairly common. "Some of the more standard ones I know are limiting travel and making sure you're traveling smart--things of that nature," he says. Nevertheless, Clubb says, "The employees at Eastman also underwent a salary cut--at least what is hoped to be a temporary one."
Other firms are using traditional strategies to address the issue. Says Ken Baker, president and CEO of NewAge Technologies (Southampton, PA), "One is just good old-fashioned negotiations with our raw-materials people, and trying to stave off some of the increases or making them go into effect over a longer period of time." He adds, "We're also seeing customers that are looking at different materials and may change materials based on the raw-material cost. Some people just can't because it's all specified, but others actually will change to another compound based on that raw material's cost."
Despite cost-cutting efforts, price increases have nevertheless been necessary to some extent. "It's very difficult to pass on price increases in this low inflationary time," says Baker. He adds, "We try to stave them off with good negotiations, as I mentioned. And at the end of the day, it is difficult to raise the prices to the customer. Then you have to say, 'This is the cost of the raw material, but we have these other options. Maybe you should move to this if economics is that important to you and your product.' And you give them options, because customers like options."
Although Eastman has tried to control costs as much as possible through internal cost-cutting measures, the material price increases could not be completely offset. The result has been increases for its customers. Clubb believes that most major suppliers have had the same problem.
How have customers reacted? Noller explains that "there's a significant cost to being a stable supplier to the medical industry. And the medical industry recognizes that." He adds, "When the case is properly made, as we said, people will not necessarily be happy, but they will at least understand."
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