High resin costs already are making their impact felt at major retailers and makers of food and consumer goods, leading those companies to raise prices, cut profit expectations or consider alternate materials.
Resin prices were headed up when Hurricanes Katrina and Rita hit, further tightening supplies. Prices for most major commodity resins now have jumped at least 20 percent since Aug. 1, according to the Plastics News resin pricing chart.
The most noteworthy move may have been made by Wal-Mart Stores Inc. The Bentonville, Ark.-based retail behemoth announced last week at an industry conference that it is planning to use corn-based plastic - rather than ones based on oil or natural gas - to make containers for strawberries, cut fruit, herbs and other products.
Wal-Mart will start the project in November and will use the material to make bread bags, donut boxes and gift cards by the end of the year. NatureWorks LLC, a Blair, Neb.-based subsidiary of Cargill Inc., will supply Wal-Mart with the biodegradable material.
Wal-Mart officials said that corn-based plastic's price stability is attractive for companies as the price of oil climbs higher and higher, making it difficult to project packaging costs.
But in an Oct. 21 interview, Wal-Mart spokesperson Tara Stewart said the decision went beyond short-term economics.
``This is the right thing to do where the environment is concerned,'' she said. ``We were working with NatureWorks on this for more than a year. It isn't just a knee-jerk reaction to the price of oil.''
NatureWorks operates a 300 million-pound-capacity plant in Blair, making polylactide resin by harvesting starch stored in corn and converting the starch into natural plant sugars. The sugars are fermented into lactic acid, which is used to make PLA.
NatureWorks' first-half sales in 2005 tripled from the same period a year ago. It has averaged 45 percent sales growth in the last four years. NatureWorks spokeswoman Ann Tucker said the firm already has received interest from other plastic processors since Wal-Mart became involved.
Processors ``had been looking for ways to use this material,'' Tucker said. ``Now because of Wal-Mart's large reach, they can tell the story to the consumer as nobody else can.''
Wal-Mart officials estimate that by using 100 million PLA containers per year, the firm will save the equivalent of 800,000 gallons of gasoline and reduce greenhouse gas emissions by 11 million pounds.
On the profitability front, consumer leaders Kraft Foods Inc. and Clorox Co. each are expecting less-profitable years.
Kraft - the Northfield, Ill.-based firm that ranks as America's largest food maker - has lowered its earnings-per-share expectations for 2005 by 5-7 cents, because of higher commodity and energy costs. The firm now expects EPS of $1.68-$1.71.
``The company expects the higher-cost environment to continue, particularly for energy and packaging,'' Kraft officials said in an Oct. 18 news release. Kraft ``is exploring additional pricing actions [on its own products] to mitigate these cost increases.''
Kraft's commodity costs - for materials ranging from plastics to coffee to energy - were up $200 million the third quarter and $600 million in the first nine months of 2005, compared with those same periods a year ago.
Kraft spokesperson Kris Charles was unsure how much of the commodity increase has come from plastics, but she said her firm ``is always looking to keep costs as low as possible.''
The story was similar at Clorox of Oakland, Calif., where the firm announced Oct. 4 that it would raise prices Jan. 2 on about 40 percent of its products. Clorox officials said the firm ``doesn't expect these pricing actions to fully offset commodity cost increases.''
Clorox also is lowering its full-year EPS range by 14-16 cents, to a level of $2.91-$3.06.
``Although we expect this recent and highly challenging cost environment to negatively impact our original fiscal 2006 plans, I feel very good about the fundamental strengths of our business,'' said Clorox Chairman and Chief Executive Officer Jerry Johnston.
Kraft is a major consumer of PET resin for packaging products, including Planters peanuts and Oreo cookies. Clorox is a big user of high density and linear low density polyethylene, with products ranging from its trademark bleach to Hidden Valley Ranch salad dressing to Glad trash bags, which it makes in a joint venture with Procter & Gamble Co.
Cincinnati-based P&G itself is taking an usual approach to the material situation. The firm's Folger's coffee unit, which switched from metal cans to plastic in recent years, is switching back to metal for a what it's calling a ``Katrina Relief'' can. The outside of the can will feature a letter from Emory Zimmer, manager of Folgers' New Orleans plant, thanking consumers for their support and inviting them to join Folgers in the hurricane relief effort by donating to the American Red Cross.
Industry contacts said the plastic-to-metal move was made because of difficulty in obtaining the HDPE resin needed for the plastic containers. Officials with Folgers could not be reached for comment.
Folgers' largest coffee plant is located in New Orleans, which was affected by Hurricane Katrina. In an Oct. 3 news release, officials said that its products ``may be temporarily unavailable or appear on-shelf in different packaging.''
