Bengaluru: A sharp rise in crude oil-linked raw material prices is unsettling India’s plastic packaging industry, but a bigger disruption is being caused by companies securing and stockpiling their supplies, tightening availability and pushing up prices.
This is directly impacting packaged food and beverage companies that are preparing for peak summer demand. Most plastics are derived from crude oil and natural gas liquids that are refined to make the raw material for plastic.
Prices of key inputs such as PET resin (used for plastic bottles) and polyolefins (used for bottle caps, labels and pouches) have surged by 40% to 80% in weeks, driven by the West Asia conflict that started on 28 February and subsequent global crude oil volatility. Industry executives said the disruption is not just a result of rising costs, but in how supply has been affected.
“Prices have gone up sharply, but availability has also become an issue,” said Thimmaiah Napanda, managing director and chief executive officer (CEO) of Alternicq Ltd (formerly Manjushree Technopack Ltd), which supplies companies in the food, beverages, liquor and pharmaceutical sectors. “Businesses are willing to pay more because they can’t afford to run out of packaging.”
Companies in fast-moving categories such as food and beverages are now stretching procurement timelines to almost double their usual levels of 2-3 weeks as they build additional buffers, and this is tightening availability further.
Makers of personal care products such as creams and shampoos typically have half-yearly or yearly sourcing cycles and are protected at the moment. Some industry executives said the shortages are not entirely organic.
"There was some hoarding by dealers initially, who held back inventory in anticipation of price increases, leading to an initial tightening in availability,” said Mayank Shah, vice-president at packaged goods firm Parle Products. This pushed prices up even where supply wasn’t truly tight.
Temporary cushion
“The unexpected shortages are also creating an artificial demand,” said Ravindra P. V., co-founder and managing director of plastic waste management firm Srichakra Polyplast, a supplier to food and beverage retailers including Coca-Cola India. “People are trying to buy more than what they need, while suppliers are controlling supply to push prices up.”
For now, the disruption remains largely within the supply chains, with enough inventory in the system to prevent immediate shortages at the consumer level. But that cushion may be temporary, according to Arvind Singhal, chairman and managing director of The Knowledge Company, a consultancy firm.
“Most industries are still drawing down existing stocks and any prolonged disruption in crude-linked inputs could affect availability of final goods over the next few weeks,” Singhal said.
The situation has shifted the industry’s focus from margins to continuity.
“We are telling our teams to secure material irrespective of price,” said Alternicq’s Napanda. “Not having inventory could mean losing much larger revenue.”
Such prioritization is creating clear winners and losers. Companies with long-term supplier relationships are better positioned to secure allocations in a tight market. Smaller manufacturers dependent on spot purchases are struggling to access material at viable prices.
“For small players, the impact is too huge to pass on. Some are even cancelling orders to keep up,” Srichakra Polyplast’s Ravindra said.
Ripple effect
The impact is already visible for sectors like beverages and dairy. Packaging accounts for almost half of the input costs and current price levels could cut gross margins by 6-7% for companies like beverage maker Lahori Zeera, which are entering peak summer demand.
“At this point, we can’t pass on the increase. Price hikes are almost impossible in this environment,” said Nikhil Doda, co-founder and COO of Lahori Zeera, adding that the company is absorbing most of the cost pressure for now. However, price hikes may become unavoidable.
“A price increase was anyway long overdue. This may accelerate that decision,” Doda said.
The pressure is building in dairy as well.
“Milk procurement prices have already increased by 7-10%, and this is now being compounded by rising packaging and fuel costs,” said K. Rathnam, chief executive officer and whole-time director of Milky Mist Dairy Food Ltd. “Given the price sensitivity of dairy products, immediate pass-through is challenging and we have to take a calibrated approach.”
The full impact across much of the consumer sector is yet to play out as packaging operates on long lead cycles. Materials used today were ordered one to two months ago, meaning the current price surge will only start reflecting in production costs in the coming months.
“You will see the real impact somewhere around May or June,” said Parle Products’ Shah.