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Costs of packaging reduce flotation gains in food industries - Daily News Egypt

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Costs of packaging reduce flotation gains in food industries

Prices increase by 14-60%, manufacturers suffer from the market's randomness

The costs of packaging materials have continued to increase since the pound flotation decision.

The recent hike ranged between 14-60% after the price increase of locally manufactured materials, which increases production costs of food industries.

Medium-quality plastic prices have increased to EGP 37,000 per tonne, compared to EGP 30,000 last week—a 23% increase. The price of high-quality plastic increased to EGP 57,000 per tonne, compared to EGP 50,000 last week—a 14% increase.

The prices of plastic bags produced from local materials have increased to EGP 31,000 per tonne, compared to EGP 25,000 last week—a 24% increase.

The prices of bags produced from imported materials reached EGP 34,000 per tonne for Turkish bags, instead of EGP 27,000—a 25% increase—whereas Saudi bags’ prices increased from EGP 25,000 to EGP 32,000—a 28% increase.

Fathy Helal, the chairman of El Fath Plast for packaging materials, said that Sidi Kerir Petrochemicals (Sidpec) has increased the prices of crude polyethylene—used in plastic production—to EGP 20,500 compared to EGP 16,000 per tonne over the past period—a 28% increase.

Helal explained that the market is going through a phase of randomness that makes prices differ from one place to another in short periods of time. As Sidpec offers crude polyethylene for EGP 20,500 per tonne, factories buy crude polyethylene from traders for EGP 25,000.

He added that traders exaggerate the selling price to plastic production factories and use the excuse of the increased transportation costs, whereas the container’s tonnage ranges between 20 to 30 tonnes, and the transportation cost does not exceed EGP 5,000, so there is no justification for the increased prices.

With the randomness, the price of a single tonne of plastic bags taken from the factory is worth EGP 28,000; however, it reaches retailers for EGP 31,000, even though wholesalers do not bear costs like labour, operation, electricity, and water.

Helal pointed out that the turmoil in the market prompted the company to distribute its products through sales representatives only. Packaging and plastic bags materials overlap with all economic activities, which means they are subject to recession.

“A factory works with a production capacity of 23 tonnes per month, where the company allocates 10 tonnes for exporting to Palestine, Algeria, and Dubai, with an average of $1,380 per tonne,” Helal added.

He explained that medium capitals can compete easily in the market, whereas the factory’s operation cost is only EGP 1m.

Mahmoud Youness, owner of El Nada Foundation for Packaging, said that the prices of all imported polyethylene plastic materials have increased this week by EGP 7,000 per tonne, to range between EGP 29,500 and EGP 31,500.

He added that the plastic market is still attractive for investment; however, it does not suit the small capitals, which is different from the situation before the exchange rate liberalisation.

Mohamed Ramadan, head of the United Company for Manufacturing of Carton and Packaging Material, said that a tonne of flute would cost EGP 7,000 before manufacturing, compared to only EGP 6,400 last week—a 9% increase—and EGP 3,000 compared to the price right before flotation.

Ramadan added that the prices of “craft” have also increased to reach EGP 9,000 per tonne this week, compared to EGP 8,300 last week—an 8% increase—and EGP 3,500 to the pre-flotation price.

The prices of ribbed carton have also increased, where duplex carton costs EGP 15,000 per tonne this week, compared to EGP 13,500 last week, and EGP 6,000 before flotation.

White carton prices also increased from EGP 6,500 per tonne to EGP 7,200, while craft increased from EGP 6,000 to EGP 6,750, and flute from EGP 5,400 to EGP 6,100 per tonne.

Traders in the market attributed the increase of prices to the increase of the prices of “dasht paper” as a main crude material for the industry, in addition to the increase of other production costs, including wages, transportation, and electricity and water bills.

Dasht prices have increased by EGP 500 per tonne after the pound flotation, where the lowest quality of dasht recorded EGP 1,900, medium quality EGP 2,500, and high quality EGP 3,300.

Total Egyptian production of paper and carton is estimated at EGP 3.1bn, and more than $130m for plastic, according to the reports of the Chamber of Chemical Industries in the Federation of Egyptian Industries.

Rafaat Razeka, chairman of Golden Foods, said that packaging represents a large percentage of the cost of production as it is part of all phases, even in crude materials. The increase of the packaging costs certainly affects the sector.

Razeka explained that the increase of energy prices was the main reason behind the price increase of packaging materials, where the final cost of production increases the price of products and reduces export opportunities.

He pointed out that the company cannot use low-quality packaging materials because the quality of packaging is a main element in the marketing process of products. There are also standard specifications, which cannot be violated.

Hassan El Fandy, chairman of El Horreya 2000 for food industries, said that every time the size of the product is reduced, its production cost increases.

El Fandy noted that the recent decline of the dollar price may reduce packaging materials prices, and this can help the sector reduce production costs; however, this all depends on the decline of exchange rates or their stability at the current levels.



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