BPI faces 50% surge in costs of polymer

BRITISH Polythene Industries, the packaging company, is facing a rise in raw material prices of more than 50 per cent, writes Robert Cole. The company said that the cost of polymer, the base material for polythene, surged by 25 per cent in August.

Producers - which include the big petrochemical companies Shell, BP and Exxon - are attempting to impose another 10 per cent hike this month, and BPI expects more increases in October of 20 per cent.

Cameron McLatchie, BPI's chairman and chief executive, said the price of a tonne of polymer was set to rise to pounds 660, compared to pounds 400 a tonne two months ago.

Supermarket chains such as Tesco and Sainsbury are important customers for BPI. Mr McLatchie said the rises were being driven by a shortage in supply and added that the scarcity of polymer made it relatively easy to pass on rises.

He added: 'We are applying the September increase now, and further increases look likely for October. In the short term, these further raw material cost increases present our customers and ourselves with pricing problems.'

Mr McLatchie's comments came as BPI published a 30 per cent rise in profits for the half-year to 30 June. The period under review ended before the round of raw material price rises.

BPI made taxable profits of pounds 8.6m, compared to pounds 6.6m. Earnings per share rose more modestly because the company has issued new shares to pay for acquisitions. Earnings rose 20 per cent to 14.8p and the dividend was increased at the same rate to 4.5p.

BPI has grown with the help of acquisitions. Total turnover was 20 per cent up at pounds 116m but most came from newly acquired companies.

Mr McLatchie said organic sales growth was between 4 per cent and 5 per cent but profits from established operations grew at 10 per cent.

Shares jumped from 481p to 500p in early trading yesterday but fell back to close at 488p.