Durban - The high price of oil has increased production costs in the plastics industry, which could announce its second 15 percent price increase this year by the end of November.
Annabe Pretorius, the technical manager of the Plastics Federation of SA, said this week that the oil price had a direct impact on the industry as 4 percent of every barrel of crude oil was used to produce plastics.
"Once a hike is announced, there is a battle to procure enough oil for energy generation, - mainly from diesels - which accounts for 70 percent of each barrel, and petrol, which uses 13 percent," she said.
"As a result, supply and demand dictate a price increase."
Harry Todd, the financial director of Astrapak, the largest listed dedicated plastics manufacturer, said the company, which has 3 200 employees, generally passed on raw material price increases and decreases to its customers.
"However, it is usually easier to implement a big rise as we are expected to absorb small increases."
Although this will squeeze margins, it is not expected to affect the bottom line of plastic manufacturers.
Prices are negotiated on a quarterly basis, and supply and demand have become the most important determinants over the past three years as China has industrialised.
Pretorius said the industry was quite flexible and price was determined by about 10 different factors, including labour costs, but cheap foreign imports from Pacific rim countries were having the biggest impact on the domesticware industry.
Supply and demand have become even more of an issue since an explosion damaged Sasol's Secunda ethylene plant during a routine maintenance shutdown last week.
Johann van Rheede, Sasol's media manager, said that the damage was being assessed and investigations indicated that the start-up would be delayed.
"The duration of this delay is not yet known and the extent to which the situation will affect our polymer supply capability is also being assessed."
Manley Diedloff, Astrapak's group commercial manager, said most plastics companies had stockpiled raw material ahead of the shutdown and this would cushion the impact of the explosion.
According to Pretorius, the higher oil price would not be significant enough to close or sell companies, although it could contribute to job losses.
"On the other hand, the price is unlikely to come down when the price of oil falls as converters feel the effect of the exchange rate before the impact of reduced oil prices," she said.
Nampak's communications manager, Graham Hayward, said quarterly negotiations were written into the packaging group's contracts with its customers.
The third increase will come into effect from October 1.
Plastics production accounts for about 20 percent of Nampak's manufacturing in South Africa and 25 percent of group turnover worldwide. Metals and paper manufacture account for the balance. The group employs 12 000 people locally and 20 000 globally.
Pretorius said the biggest impact of the high oil price would be on the packaging sector, in which polymers account for about 50 percent of manufacturing costs.
The effect on the non-packaging sector, such as Kreepy Kraulies, garden furniture and kitchenware, is about 1 percent.
Noelani King-Conradie, an NKC economist, said the price was being driven by a relatively strong world demand for oil, especially from China.