How to pass on resin price increases

Molders have their differences, but all agree on one thing: Price increases for most resins have grown steeper and faster in the last six months than almost any time since the oil crisis in the 1970s.

One custom injection molder that IMM spoke with had just visited one of his primary customers to discuss new pricing for the contract year 2000. The new pricing reflected an increase in cost for the polycarbonate from which the customer’s components are molded. But as soon as the coo returned from his visit with the new contract agreement in hand, he received a visit from his PC sales rep. Another price increase was on the way and yet another was expected a month later. 

The molder was livid. "I’ve just agreed to new pricing on one increase," he said angrily. "Now, I’ve got to go back to my customer and get him to agree to two more increases? I can’t do that. But I can’t absorb these increases either." 

With prices for some resins up as much as 60 percent, molders are in a quandary as to how—or even if—they can pass along these increases to customers. 

Kip Carter, sales manager for Distinctive Plastics Inc. in Vista, CA, says that in general, the price increases have only been problematic for customers with annual contract pricing. "Other [customers] have been accepting, although somewhat reluctantly," says Carter. 

Price instability makes many molders reluctant to commit to annual pricing contracts with customers, unless of course their resin supplier will commit to an annual pricing contract with the molder. And that is happening less often in today’s business climate, except with extremely large users of resin. 

Some History
Mike Friend, president of UPT Plastics Inc., a custom and proprietary molder in Tempe, AZ, explains that it’s more difficult to pass along price increases today because customers have grown used to many years of relatively stable pricing. "In the 1970s, every time they issued a purchase order they automatically asked for their new price," says Friend. "The assumption then was that higher prices were a given." 

However, in the 1980s prices stabilized and customers were conditioned to believe prices would remain the same, says Friend. "By the 1990s, customers sent us a PO and didn’t even discuss price, assuming the price was the same," he notes. "Customers are so used to having prices stable that it’s more difficult to raise our prices. We go to them with a price increase and they say, ‘Too bad, you’ll have to absorb it.’" 

This time Friend says he’s been passing along price increases "selectively." To maintain competitiveness, he continues to look internally on a job-specific basis to see what can be done to absorb some or all of the increase without impacting margins. 

However, whether to absorb increases or pass them along is not even an issue currently, notes Friend. "At this point we’ve used up what we’d picked up in productivity gains and technology," says Friend, pointing out that the company’s new facility is equipped with robots and other labor- and time-saving equipment. "We can’t absorb any more [increases], and going forward we’ll have to pass along price increases." 

No Surprises
Dave Hanna, sales manager for Webster Plastics in Fairport, NY, says that given what’s happened to the price of crude oil, resin price increases shouldn’t be a surprise to anyone. Still, passing along increases hasn’t been easy. "When you get one increase, OK," says Hanna. "But when you get two, then three increases back to back, that’s tough." 

Like most molders, Webster Plastics has made every effort to absorb some costs, and works hard with its material suppliers to hold the line as close as possible. 

"We’re willing to participate slightly with our customers [to absorb some of the price increase] but only very slightly," says Hanna. "We have lean manufacturing and have reduced our costs, but we can’t absorb these huge price increases." 

Betsy Hall, purchasing and customer service manager for Admiral Plastics Corp. in Los Angeles, CA, says that as a small custom molder, she has no choice but to pass along increases. 

"We just explain that prices for materials have gone up," says Hall. "If we graduate them little by little, they accept it better. If it’s a large increase, they balk at it, but so far we haven’t lost any work." 

That’s where proprietary products differ from custom products, notes Friend, whose company molds proprietary caps and closures. "In our packaging business, our contracts state that increases in raw material prices automatically result in a price increase to the customer," he explains. 

The Alternatives
There are few alternatives for molders. Glenn C. Anderson of Anderson Technologies Inc. in Grand Haven, MI deals with the automotive industry. "Automotive customers are saying they won’t accept price increases, and by the way, you owe us 5 percent," says Anderson. "That makes life very difficult. They’re telling us to find an alternate material." 

That’s one option at which molders are taking a long, hard look. Alternate materials from different suppliers are one way to help use competitive leverage to get better pricing. 

However, Anderson explains that getting an alternate material specified isn’t easy or fast. "Sometimes it takes a while to get a new material approved," he says. "Sometimes [customers] are willing to listen to an alternative if you put it in their lap. 

"Our material costs on some jobs are over 50 percent, so if I can give them a new material that will help them and give us a cost reduction as well, that’s good, but it doesn’t happen overnight." 

Webster’s Hanna agrees. "There is an opportunity to do some material selection changing with the new materials coming out," he says. "But it takes re-engineering and re-evaluating of these new materials, and that takes time." 

Admiral’s Hall says that some materials pricing is all over the map. However, she gets much of her material requirements filled from Northern Polymer, a local distributor that can offer her alternatives. "I just got a quote on material that I currently buy from GE," says Hall. "I have to sample it and get approval from the customer, but I can save 45 cents per pound. GE will have to wait." 

Steve St. Martin, Hall’s sales rep for Northern Polymers, says many molders are price shopping. "It’s a good time for me to get in the door with alternative materials," says St. Martin. "I’ve been calling on some of them for years, and then all of a sudden they call and want an equivalent [material] to what they’re using from GE or Dow." 

St. Martin notes that regrind is selling at the high end, particularly polycarbonate, "which indicates these molders are fighting off the increases," he adds. 

Anderson concedes that the "material suppliers are all bigger than I am, so they can do what they want," he says. "We’ll help our customers find alternates and take a proactive position wherever we can to help hold the line on costs." He adds that some of his customers are willing to accept the price increase if Anderson is willing to do all he can to fight it. However, getting increases remains difficult. 

"Part of it is how much leverage you have with [the customers]," says Anderson. "With some you have walk-away power if they refuse to accept the increase, and with some you don’t."