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The last few years have seen a distinct shift in
market supplies of Polyethene bags, particularly for grocery, in
the USA. Asian, notably Chinese bags, are increasingly grabbing
higher share of the market. It is estimated that more than 25-30%
of the total US requirement is fulfilled by imports from the Asian
countries. China, of course, has dominated the imports in this market.
What are the key reasons for such an increasing
demand of bags from China?
The bags from China are priced at least 15% lower than those from
the US suppliers. First of all, polymer prices in China are lower
than those in North America as China sources most of its requirement
from the Middle eastern region, enjoying the benefit of lower feedstock
costs. Besides the Chinese film producers do not have to pay any
import duty on the material meant for exports of the converted products
like PE bags. The stable Chinese currency also helps in saving raw
material costs.
The US manufacturers have to utilize economic scales of production
to be cost-competitive, due to higher fixed cost arising from expensive
labour. On the other hand, China has very low labour cost and very
high labour productivity, helping the bag manufacturers to use smalller
film plants in large numbers. This provides flexibility in producing
different sized bags directly from the extrusion equipment. The
steps of slitting and extra sealing are completely avoided. The
capital cost of the smaller plants made indigeneously in China is
very low. Interestingly, these smaller plants running at lower speeds,
provide better thickness control compared to the large machines
in USA, which to be economical, have to run at very high speeds.
The smaller plants also have no sophisticated process controls that
are absolutely essential for the larger machines.The savings in
capital costs contribute significantly in the cost of bags. More
uniform thickness enables the Chinese producers to make the film
thinner and save further in the material cost.
Of course the Chinese film producers have razor
thin profits and have to depend upon volumes to achieve sizeable
profitability in business. How long will the trend of cheaper labour
continue in China? As the Chinese manufacturing industry has become
formidable only since the early 90s, making predictions is difficult.
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