Falling crude oil prices have already brought relief to motorists and buyers of plastic packaging, but they also spell good news for infant care manufacturers as the cost of producing nappies comes down.
The raw material cost of producing a disposable nappy rose by about 10% from January to May to an average of 3.5p per 50g nappy, as the price of all the main constituents - fluff pulp, polyethylene and polypropylene - climbed. Polyethylene and polypropylene prices rose following the rise in crude oil in the first few months of the year, driven by instability in the Middle East and higher demand in Europe because of freezing weather. Meanwhile, European pulp prices rose despite weak demand in Europe as import demand from China grew.
However, the price of producing a disposable nappy started to fall in June as plastic prices came down due to ongoing concerns over economic growth in the eurozone and lower global demand. Pulp prices also fell as inventories rose, demand in Europe remained low and exports to China declined.
Commodity risers and fallers 4 August 2012
Grains continue to dominate the key commodity risers, but there has also been significant movement in coffee and cocoa over the past month. Both are cheaper year-on-year, but cocoa butter is now 23.1% more expensive than last month, and Arabica coffee is up 20.1%.
The Arabica market has perked up following several months of price drops as rain in Brazil has slowed down the local coffee harvest, while cocoa butter prices have risen as processors have opted to use up existing butter stocks instead of grinding fresh beans.
US orange concentrate has fallen a further 5.1% in the past month and is now nearly 40% cheaper than in 2011 in the wake of eased concerns about pesticide contamination and low consumer demand.
Manufacturers of reusable nappies - made from cotton as well as polyvinyl chloride (PVC), ethylene vinyl acetate (EVA) and polypropylene - are also enjoying lower production costs, as the price of plastics components has come down in line with crude oil. But they are also benefiting from lower cotton prices, which have fallen by 12% year-on-year due to oversupply and falling demand. The average cost of producing a 50g reusable nappy is now 10p, versus 11p in January.
Whether production savings will be reflected in retail pricing, time will tell. Cash-strapped parents, for whom the cost of nappies is one of the biggest spend in bringing up a baby, will certainly hope so.