The polythene industry, it's risky business..

The higher the price volatility, the riskier the business, and when considering the inevitable price volatility of raw materials within the polythene industry, I'm sure BPI would give Tom Cruise's dance moves a run for their money when they celebrate their continual above satisfactory profit margins each year. 

Despite prices of raw materials sitting at an all time high at the end of 2013, BPI were able to achieve a total equity of 68.2 £'m, this being an increase of 10.3£'m from the balance date of the previous year. BPI has identified that there is a clear differential in profits among polymer producers, with oil-based producers making low margins or a loss, and those producers with access to cheap gas are making substantial gains. In reaction to these findings, BPI has increased their interest in North America with investment in polymer plants based on shale gas extraction. It is anticipated that by making North America a major exporter of polymer within the next few years, the industry will see a downward price pressure on polymers made from oil in many global markets. 

This is an example of a company which has been able to invest in the security of their future, despite uncertain conditions. But what actions have they also been taking at present time to maintain their current margins? Of course, with prices of raw materials being so volatile, there is a risk of reduction in margins if they are unable to immediately pass through increases to customers. In mitigation, BPI have ensured the coordinated instruction to sales teams on forward pricing. Additionally, there has been strong management on stock levels depending on anticipated price movements. 

The particularly volatile pricing of raw materials within the polymer industry is just one of the risk factors which BPI has been exposed to. I wanted to highlight and discuss it in particular with you as I felt it was specifically relevant to the polymer industry and could provide a further insight into the industry itself, more so than if I were to highlight more generic issues such as poor economic conditions, energy costs and credit risks which are common across the majority of industries. So I hope as we dig further into this tub which is BPI, you have begun to acquire a taste for the polymer 'flavor' as I have. Stay tuned, because it only becomes increasingly moreish from here.