Across-the-board soft demand for beverage containers has affected even the current growth champion, PET. The less-than-dynamic marketplace raises questions about recent increases in plant capacity, particularly at Ball Corp.
Tim Burns, packaging industry analyst with Cranial Capital Inc. in Chagrin Falls, Ohio, said three trends affect the longer-term market positively: ongoing excess PET resin capacity; more-productive bottle-making equipment; and senior-level selling to end users.
``The playing field has changed dramatically,'' Burns said. ``Traditional blow molding facilities built around the `old template' of local and regional supply systems cannot compete with highly dedicated carbonated-soft-drink-container facilities making the three or four major container sizes on state-of-the-art Husky/Sidel lines.''
The self-manufacturing trend could be lethal to the older guard of PET bottle makers. New operations eschew swing machinery or other business that might detract from their focus and optimum configurations.
Burns sees a PET buyers' market continuing for at least three years with probable excess capacities of 700 million pounds this year, 1.3 billion pounds in 1997 and 1.1 billion pounds in 1998.
``Things on the pricing-and-return front won't turn positive until 1999 at the earliest,'' he said.
Lower-than-anticipated aluminum prices have kept a cap on conversions from cans to PET despite the near-term resin glut, Burns said.
``Nonetheless, the can has its work cut out for it,'' he said.
What he termed ``scary'' new offerings - from Husky Injection Molding Systems Ltd. of Bolton, Ontario, and Paris-based blow molding machinery maker Groupe Sidel - make equipment bought a few years ago obsolete, and older equipment no longer is competitive, Burns said.
``Also, newer systems for higher barrier, hot filling and greater flexibility are on the way.''
Resin companies and equipment manufacturers have used ``fairly senior-level selling'' to ``go directly to Pepsi, Coke, Quaker Oats or General Foods,'' Burns said.
``At Coke, they believe the technology has changed enough for them to recapitalize blow molding and bottle-making operations'' and do more work internally, he said.
Johnson Controls Inc. lost PET soft drink container volume last year as Atlanta-based Coca-Cola Co. and its cooperatives increased in-house capacity beyond 80 percent.
``We knew years in advance they would take the business in-house, and we planned for it,'' said Shelley Steele, manager of marketing and business planning for JCI's plastics technology group in Manchester, Mich.
Johnson Controls is a traditional PET bottle manufacturer and one of the world's largest, blow molding billions of containers each year. By 2000, JCI expects the tea, juice and sports drink market for PET containers to grow 150 percent and the water, food and household market to grow by less than 70 percent.
For the quarter ended June 30, Johnson Controls' plastics business segment reported significantly lower operating profit reflecting ``the decline in unit sales, coupled with the costs associated with excess manufacturing capacity.''
Steele termed it an adjustment period primarily involving soft drinks.
Among the segment's businesses, Johnson Controls blow molds beverage bottles at 15 domestic plants, makes plastic preforms in North America and Europe and is the largest U.S.-based manufacturer of blow molding machinery. The plastics segment reported operating profit of $74.6 million on sales of $1.2 billion for the fiscal year ended Sept. 30, 1995; all of Milwaukee-based Johnson Controls had sales of $8.3 billion.
Another major player, Crown Cork & Seal Co. Inc. of Philadel-phia, broadened its metal and plastics packaging business with the Feb. 26 acquisition of Paris-based giant Carnaud-Metalbox SA with 175 plants in 38 countries.
Plastics represented 22 percent of CMB's 1995 sales. Before the acquisition, Crown Cork had 21 U.S. and eight foreign plastic packaging facilities. The company said future restructuring or consolidation of combined operations could impact profits.
Crown Cork said PET volume was flat in its Americas Division for the quarter ended June 30, although sales of 20-ounce beverage bottles increased 20 percent. Crown Cork's plastic packaging segment reported operating profit of $74.9 million on sales of $1.2 billion for the year ended Dec. 31. The firm had sales of $5.1 billion.
Muncie, Ind.-based Ball's ``entry is still in the show-me mode,'' Burns said.
``Ball has invested $175 million to $200 million and, basically, is being sponsored by Pepsi as a way of countering Coke's thrust in self-made'' operations.
Ball has long-term contracts for PET output with separate bottlers affiliated with Purchase, N.Y.-based PepsiCo Inc.
Ball began investing in polymer technology in 1994 in a strategic redirection from its historical metal and glass lines. Ball built a pilot line and research and development center in Atlanta in 1995 and began operations in three newly constructed PET-container manufacturing facilities with self-directed work teams.
The firm began shipments from its 228,000-square-foot facility in Chino, Calif., in December, the 240,000-square-foot Baldwins-ville, N.Y., site in March, and the 52,000-square-foot Reading, Pa., plant in July.
Production at Ball's fourth PET site, a 250,000-square-foot plant under construction in Ames, Iowa, should begin in January. Construction and start-up costs on the Iowa project caused Ball to record a loss in its plastic packaging business for the quarter ended Sept. 29. Ball reported a profit of $19.4 million on sales of $622.2 million for the quarter.
``We expect to produce in 1996 more than 1 billion PET containers, primarily for soft drinks,'' George A. Sissel, Ball president and chief executive officer, said in the company's annual report, ``while we continue to develop the numerous other business opportunities available to us in the PET container business.''
Market growth has slowed.
``The bottle industry has grown between 5 percent and 10 percent for the first nine months this year,'' said George Staphos, packaging analyst with PaineWebber in New York. ``That could be the lowest growth since the late 1980s.''
Staphos said making plastic bottles is capital-intensive and that sectorwide returns have to come down.
The majority of PET growth for soft drinks in the past five years has come at the expense of glass, but there is ``little soft-drink glass left,'' Staphos said. ``There is incrementally some new capacity at a time the industry is slowing down.''
The transition of soda bottles to PET from glass is ``about done'' and growth in carbonated beverages is less than 10 percent this year, agreed Dean Hebb, vice president of sales and marketing for Containers Northwest Corp. in Tumwater, Wash., a Pepsi supplier.
``If you throw in [sports drinks] and new-age beverages, there's some aggressive growth.''
Cornelius Thornton, an analyst with Goldman Sachs in New York, expects that 1996 shipments of PET containers ``could be flat or in the low single-digit range,'' but he noted the 20-ounce bottle is an exception.
``I haven't lost confidence that the PET bottle will be the most dynamic package,'' Thornton said. ``The consumer likes its flexibility, sizes and shapes. I think it will continue to do well, but its performance this year is below expectations.''
Additional capacity, such as Ball's, ``raises questions about soft demand in a fairly concentrated market,'' Thornton said.