Low cost Chinese plastics bags are increasing their share in the US markets

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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