Looking forward, we expect some packaging polymer prices (such as polypropylene) to remain stubbornly high, despite the shale gas revolution in the U.S., which has driven increased natural gas production and lower gas prices. As a result, companies need to prepare for this likely scenario and consider strategies for mitigating these high prices, and evaluate opportunities to use less exposed materials.

The explosive growth of U.S. natural gas production, thanks to new production technologies like hydraulic fracturing ("fracking"), is enabling massive supply growth and keeping feedstock prices low. Along with finding bountiful supplies of natural gas, the industry has uncovered a trove of natural gas liquids (NGL's), such as ethane, propane and butane (light feeds)-and the increased supply has reduced their prices.

The breakdown in the historical price relationship between natural gas and oil has led to seismic changes in feedstock dynamics. With low NGL (light feeds) prices, crackers have shifted feedstocks from oil-based naphtha products to lower cost ethane. Major producers (Exxon, Chevron Phillips, Dow, LyondellBasell) have announced new cracker projects that will take advantage of low-cost ethane feedstocks, which is positive for chemical producers, but not so good for the supply market for key packaging materials like polypropylene, acrylonitrile butadiene styrene (ABS) and polycarbonates because ethane based crackers produce smaller quantities of propylene and butadiene (C3 and C4 olefins), resulting in upward price pressure for these critical building blocks.

PP's multi-decade reign as the polymer with the lowest cost is ending due to increased prices. Similarly, polycarbonates and ABS are also seeing sustained increases in price levels partially tempered by weak global demand, while hot-melt adhesives, widely used in packaging, are being impacted by the shift to lighter feedstocks because they use chemicals produced in greater quantity during the cracking of heavy feedstocks.

These cost challenges are here to stay until new technologies alleviate the supply situation. As a result, it is a business imperative to find innovative ways of minimizing the impact of these direct materials cost increases.

Procurian has worked with its clients to confront this new market reality. Here are some key implications to consider:

• Real-time market intelligence: Develop deep understanding of market trends, and real-time visibility into global and local pricing dynamics.

• Next-gen supply chain redesign: With the U.S. awash in abundant natural gas, while European facilities are mostly stuck with naphtha-based crackers, what is your company's strategic response? Shorter-term, examine your supply chain's capability to take advantage of market opportunities such as exploiting short term supply/demand imbalances to reduce cost or exploit pricing arbitrage opportunities based on feedstock price differences or constraints across regions.

• Material substitution opportunities: PP has had remarkable past success in substituting for other polymers as well as traditional materials such as steel and wood. This trend is slowing or even reversing with the rise of PP prices. Evaluate or test the use of alternative polymers or blends as replacements to counter the new raw material price environment.

The impact of the new reality of raw material price trends cannot be ignored.