The outlook for packaging in 2007 is as diversified as the sector itself, but market watchers say some things are clear: Resin pricing remains a key concern, U.S.-based companies are getting more and more global, and green products are on the upswing.
Pushing green is none other than retail giant Wal-Mart Stores Inc., which created a buzz in 2006 when it released plans for a score card for suppliers' packaging. On Feb. 1, Wal-Mart will share the packaging score card with its global supply chain and will begin grading suppliers in 2008. Ratings will be based on innovation, environmental standards, energy efficiency and material use.
One packaging expert predicts the effort may not go smoothly.
``Again, Wal-Mart has the big stick out there, and they will certainly get people jumping through hoops to comply, but there will be those that can't,'' said JoAnn Hines, a packaging consultant in Kennesaw, Ga. ``The time frame is not good. I think the dust hasn't settled on this issue at all.''
Stores like Whole Foods Market also are driving the green theme, said Robb Zurek, business development manager with Continental Packaging Solutions Inc. in Chicago. Continental, for one, is moving into polylactide for packaging products like cosmetics compacts, he said Dec. 11 by telephone.
``I think it will be a tremendous growth area, but it needs to be approached with care,'' Zurek said. ``There is still a long way to go with it. I think the obvious transition would be from PET. We've had no detrimental issues with makeup that's been put into these cases.''
PLA can be run in molds designed for PET containers and has worked successfully in tools designed for polypropylene, according to Continental.
``It's a low cost of entry because of the ability to use molds that you already have,'' Zurek said. PLA also is good for short-shelf-life dairy products, juice and water bottles and for trays for deli meats, salads and single-serve meals, the company said.
But, according to at least one source, resin pricing will be the major issue in 2007.
``I don't think availability will be an issue,'' said Ken Stufko, sales vice president for container blow molder Novapak Corp. in Eatontown, N.J. Although pricing stabilized in 2006, ``we all know that won't last forever,'' he added.
Novapak used to be largely dedicated to making PVC bottles, but that has changed in recent years. As of November, more than 55 percent of its sales were in PET. The company recently has grown into hot-fill PET.
``Our feeling there is that there is a certain strata of business that cannot be gotten for companies the size of Graham [Packaging Co. LP]'' of York, Pa., Stufko said. ``So we said, `Let's get our equipment converted to handle the small to medium-sized customer.' Hot-fill, we feel, is going to be significant.''
Spartech Corp. sees packaging as a medium-growth market, at least through its first quarter of 2007.
``Certainly, for the year, we anticipate some nice growth,'' said George Abd, president and chief executive officer of the Clayton, Mo.-based firm. ``We have significant growth opportunity for one customer, and we have new equipment coming in January for thermoforming applications.''
That includes a new printer and a new thermoforming machine at Spartech's plant in Muncie, Ind. The firm also has hired Michael Marcum to oversee international expansion.
``The first cut of that plan is to be delivered in January,'' Abd said. ``We'll be fleshing out our action plan after that. We'll be identifying through our existing customers in North America where opportunities lie.''
Analyst Ghansham Panjabi of Wachovia Capital Markets LLC in New York said the focus on sustainable packaging creates an attractive growth opportunity for packagers over the medium to long term.
``In fact, a recent industry report noted that sustainable plastic packaging has been growing at a 5-plus percent clip between 2001 and 2005, with the forecast for a modest acceleration through 2010 - conservative if a cost-effective commercial product is found,'' Panjabi wrote in a Dec. 14 report. ``More importantly, we believe that biodegradable plastic packaging represents an opportunity for margin expansion.''
In flexible packaging, print-registered shrink film is expected to do well as an alternative to paperboard, especially with the growth of warehouse stores. The packages build brand recognition and impulse buying, said John Marker, director of new product development, applications and systems engineering for shrink packaging equipment maker Arpac Group in Schiller Park, Ill.
As for problems facing the industry, Standard & Poor's Rating Services highlighted volatile raw material prices in its Dec. 19 global packaging outlook - to which it gave a negative rating.
``The impact of inflationary cost pressures arising from high and volatile raw material prices in the U.S. and Europe and elevated energy costs are ongoing challenges for packaging companies,'' said S&P analyst Liley Mehta.
Another factor, Mehta said: significant debt leverage among rated packaging firms that makes them vulnerable to unexpected operational challenges and inflationary cost and liquidity pressures.