Look out, plastic packaging: Metal and paper are coming for you

Austin, Texas — Aluminum and fiber products will increasingly take a bite out of plastic's share of global packaging markets in the years ahead, according to a long-time packaging sector analyst.

Aluminum can producers are dramatically increasing production as society continues to wrestle with plastics' role in sustainability.

And aluminum's gains will come at plastic's expense, said Tim Burns, senior advisor in the packaging practice at Perella Weinberg Partners, a financial advisory firm.

"In terms of consumer-driven trends, there's a shift away from glass and plastic and into fiber-based products. There's a shift away from glass and plastic into metal-based packaging," Burns said Feb. 14 on the first day of The Packaging Conference in Austin "The bottom line — you don't have to be a brilliant person, even I can do this — is that paper and metal are going to be the winners and they will continue to garner market share from the other substrates."

Aluminum can production, he said, is in the midst of an unprecedented increase in capacity as demand continues to grow.

• Aluminum can production is slated to increase from 185 billion in 2016 to 294 billion by 2025 for the United States, Europe and Brazil combined, Burns told the crowd. "Cans continue to garner their share of new introductions and aluminum cans continue to grow in traditional end markets like beer and beverage," Burns said.

• "Glass and plastic could be displaced by metal beverage cans. Plastic is to be displaced by recycled paperboard," he said. "It's hard to believe how many cans have been added to the system."

Despite headwinds being forecast by Burns for plastics, he did indicate there are certain product areas that will survive changes in the market and continue to succeed. They include dispensing systems, high-barrier films, PET bottles made from recycled PET and stand-up pouches.

"The outlook for the packaging sector is multifold," Burns said. "We're looking at a couple different things. If I look at innovation development, monomaterial structures are really a hot place to be. Ultrathin-gauge materials are also certainly very , very hot. We're seeing this used in the in the protective and flexible packaging industry sectors."

• Merger and acquisition interest continues to be strong in the packaging sector, he said.

Purchase prices are commonly based on a multiple of a company's annual earnings, and 2021 featured deals averaging sale prices of 11.5 times earnings before interest, taxes, depreciation and amortization, which is a common gauge of a company's health.

That compares with 9.7 times EBITDA in 2020 and 15.4 times in 2019, a significant increase from 2018's nine times multiple.

"There's still a lot of activity going on in the M&A environment and the multiples are going to creep up," he said.

Burns, who is known on the conference circuit for his entertaining and often blunt assessments, also told the audience to focus a critical eye on companies and their environmental efforts.

"He's very outspoken. He's quite blunt. He doesn't sugarcoat much," said John Maddox, president and organizer of the conference.

"As far as sustainability and circularity, are we really being realistic about our sustainability goals? Is it not just that easy to sign up to the Ellen MacArthur roundtable and then pick a very conservative, squishy objective date. It's like an artificial achievement, quite frankly. I know people don't want to hear that, but there's a lot of goals out there that are never going to be met. And we ought to be thinking about them," Maddox said.

He estimates total global packaging sales will reach $1.2 trillion by 2026 for an average annual growth rate of 4.9 percent between 2021 and 2026. That compares to growth rates of 0.7 percent between 2019 and 2021, a period of time impacted by COVID-19, and 2.7 percent annually between 2016 and 2021. Global packaging sales were $845 billion in 2016 and reached an estimated $968 billion last year, steady with 2020 numbers, Burns told the conference audience.

The 2016 global packaging market consisted of 34 percent paper, 24 percent flexible, 19 percent rigid plastics, 12 percent metal, 5 percent glass and 6 percent other materials. Those numbers, according to 2021 estimates, changed to 33 percent paperboard, 25 percent flexible, 21 percent rigid plastic, 12 percent metal, 4 percent glass and 5 percent other.

Burns also estimated that 44 percent of the 2021 global packaging sales were in Asia, 23 percent in North America and 18 percent in Western Europe. Eastern Europe accounted for 6 percent, South and Central America 3 percent and other locations 6 percent. "Asia continues to gobble up market share," he said.