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Do Falling Oil Prices Affect the Price of Bale Wrap?


The sharp decline in the global oil price over the past six months has been welcomed by many who look forward to paying less for winter heating and filling up at petrol stations. Whilst the effect of the diminishing oil price has led to a direct, highly visible, reduction in fuel and transport costs (contributing to slowing consumer prices and reduced headline inflation), it should be remembered that the production costs associated with many oil-derivative products have not yet benefited from significant reductions.


One such product is balewrap. As a polythene product, it is made from oil-derivatives so, whilst the cost of oil has fallen, the costs associated with extracting and processing the various oil by-products required to make a premium balewrap have largely increased even when oil prices have been falling. 


A premium balewrap film is manufactured from a blend of polymers (such as Octene) and compounds that are required to give the film the necessary stretch, flexibility and cling needed to create good ensiling conditions. Balewrap is not made directly from crude oil but from the careful blending and extrusion of several oil-based products that have been extracted from crude oil through sophisticated ‘cracking’ plants. The cost of balewrap is directly affected by the processing and production costs of these ingredients but it is also worth noting that the ‘supply and demand’ situation for these raw materials has also created cost pressures. For several years, there has been limited processing capacity across Europe’s ‘cracking’ plants. The subsequent limitation of supplies, compared with the ongoing and increasing demand for sophisticated polymers, has significantly impacted raw materials costs for balewrap manufacturers.


The table below illustrates the movement of oil, Octene and balewrap prices from January 2011 to December 2014.  Whilst the average price of balewrap has remained flat during this period, the price of Octene, a polymer used in premium quality balewrap, rose considerably. Whilst the oil price reduced by 11% during this period, the price of Octene, which is significantly more expensive than oil, increased by 8.5%.

Year
Brent Oil $ (Per Barrel)
Octene €
(Per Tonne)
Bale wrap £
(750mm Black)
 
 
 
 
2011
111
1680
£67.00
2012
111
1732
£68.00
2013
109
1825
£68.00
2014
99
1822
£68.00


 

In addition to managing such raw material price fluctuations, manufacturers have been exposed to high energy and transport costs as balewrap is manufactured, stored and distributed all year round to meet market demand globally. 


The falling oil price has enabled consumers to save on everyday items and household running costs but the manufacturers and processors of many products in the agricultural supply chain have been affected to a much lesser extent. Looking ahead to the 2015 silage season, a softening in the price of plastic products is expected.
However, as the raw material prices affecting balewrap are not directly linked to the oil price but rather, are impacted by an ongoing supply and demand, the price of balewrap and other plastic based products such as silage sheets will not see reductions on the scale of those seen for the oil price in recent weeks.
 


Click for more detailed information on bale wrap or contact your local MVF branch who will have details of availability, prices and sizes. Please call for details.



Source Details

John Ovenell



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