Consolidations, depressed PET resin prices and modest unit volume growth will continue to characterize U.S. plastic packaging markets this year, much as they did the second half of 1996, say industry analysts.
Corporate consolidation by packaging industry leaders continued last year in the rigid and flexible packaging markets. This year much of the same is expected.
``With consolidation, we're down to three suppliers in the food can industry and three in glass,'' said Tim Burns, packaging analyst for Chagrin Falls, Ohio-based Cranial Capital Inc. ``Plastic has a lot further to go in consolidation. There are many small mom-and-pop businesses in a highly fragmented market and it's hard to survive.''
However, New York-based Goldman Sachs & Co. analyst Cornelius Thornton thinks consolidation is happening as fast as ever, but the opportunities in the United States are limited.
``It's so concentrated; there are only about three or four big players,'' he said.
Several developments from last year that will have an impact on this year's market involve both the rigid and flexible packaging segments.
Johnson Controls Inc.'s plastics container division was purchased by Schmalbach-Lubeca of Ratingen, Germany. And Atlanta-based Printpack Inc.'s purchase of the flexible plastics packaging business from James River Corp. will make Printpack a billion-dollar converting and packaging company.
``How the Germans respond to life in North America will be interesting,'' Burns said in reference to the Schmalbach-Lubeca deal. ``The North American supply of PET needs to be rationalized and consolidated. That will have an impact on the large PET container market.
``And how Printpack consolidates or integrates James River's properties will be significant,'' Burns added.
Other established companies with recent acquisitions include Ball Corp. of Muncie, Ind., and Minneapolis-based Bemis Co. Inc., a flexible packaging firm.
Following the company's recent move into the rigid PET container industry, Ball began construction on four PET container plants and acquired PET bottle assets from Philadelphia-based Honickman Group. That deal involves assuming the properties of Brunswick Container Corp.
As well, Bemis continues to grow its enterprise with the recent acquisition of Paramount Packaging Corp. of Chalfont, Pa.
Large companies such as Bemis and W.R. Grace, located in Boca Raton, Fla., are doing very well, according to Burns.
``Their market share is increasing and they're secure and technically advanced,'' he said. ``The big companies are getting bigger and more profitable. The smaller companies are less financially secure.''
But packaging as a whole is having a very difficult time. Burns estimates that since 1985, packaging profit margins have declined 30-50 percent in earnings before interest and taxes.
Although use of PET continues to grow in the packaging industry, resin prices are expected to be under duress through 1998. However, with the significant drop in virgin resin prices, PET now may be able to grab market share held by glass or metal.
``PET will continue to take market shares from glass and cans in domestic markets,'' said Burns, explaining that while PET prices had fallen, aluminum prices increased last year.
Last year, 2.6 billion pounds of U.S. PET containers were consumed, up from 2.31 billion pounds in 1995. This year, Burns expects 3.12 billion pounds of PET containers to be consumed. Burns said this is modest growth at best because raw material costs are lower and demand is less robust.
Combined with PET's flexibility in design and the cost competitiveness of low-level prices, Burns thinks now is a good time for PET containers to grab previously elusive market share.
``PET penetration into the carbonated drink industry has run its course,'' countered Thornton. ``There's not much else to take from there.''
He had expected PET to take more market share from the carbonated drink industry but instead saw PET move into new-age beverages, hot-filled bottles and the water industry. However, Burns believes industries such as juice and food, carbonated soft drinks and beer have not been infiltrated fully by PET.
Plastic packaging should grow at a premium over all other packaging this year, with PET the fastest grower of all plastic materials. Consumers will continue to benefit from lower packaging costs, but as packaging prices plummet, so do company profits. In fact, this year Burns expects only 2.5 percent gross domestic product growth in the packaging industry, compared with a 2.3 percent GDP last year.