Raw deal in the material world: manufacturers are in an awkward position as record companies demand lower prices while the rising price of oil is increasing the cost of raw materials.(Manufacturing)

The manufacturing sector of the UK music industry has seen its share of pressures in recent months.

But as if facing demands from record companies to lower the price of manufactured compact discs and DVDs was not giving replicators enough of a headache, the recent hike in the price of oil--thanks to the current conflict in Iraq and general instability elsewhere in the Middle East--has seen considerable pressure being applied at the other end of the manufacturing process.

The cost of the raw material involved in making CDs and DVDs--polycarbonate, an oil-derived product--has risen by up to 40% since the beginning of July, according to some industry observers. This, combined with clients looking for more favourable terms of their own, has done little to ease trading concerns.

Manufacturers can only take so much persuading to reduce prices, however, and it appears some are beginning to resist such calls.

"Like any industrial market, when there's a lack of product or supply the price goes up," says Gareth Whomsley, recently appointed managing director at MPO UK. "We're taking the hit at the raw materials end and then at the other end our clients have been asking us if we can cut the prices we charge to them. That was certainly the case in the summer months, when perhaps demand [for CDs] wasn't so high. I've actually had to go to our customers and say 'I can't decrease the price, in fact I want to increase the price' for a variety of reasons."

Some customers have been understanding, he says, and he is sympathetic towards those who are reluctant to pay more. But Whomsley adds that falling prices have been a factor in the market for some time and are a trend that will soon have to he reversed. "No-one wants to pay more for something, but we've been able to say to a lot of customers that overall prices have come down during the past five years, plus it's a mature market and we're offering a good service, with deliveries on time and of the quality they need. So we think that's worth something. And our material prices have gone up, so a lot of them understand the situation."

Other manufacturers also recognise that the time has come to redress the price question. "Everyone has been holding off from passing increases on to the customers, but I think it's inevitable that situation is going to change," says Paul Bibby, UK sales director of Czech Republic-headquartered GZ Digital Media, which sees around 65% of what it produces end up in the UK. "The market has been waiting for a time when price increases can be passed on to labels across the board and this is the time--the opportunity--to do it. By how much people are increasing their prices is an unknown quantity, but it's also combined with the seasonality. Whether they hold will in a large part be determined by whether oil prices remain high," he says.