S&P forecasts higher costs for packaging

Higher raw-material costs in the US and to a lesser extent in Europe has put pressure on the operating profits of most plastic packing companies and has led to price increases for their customers, according to the latest credit report by Standards & Poor. Bemis, Pactiv, Sealed Air and Avery Dennison have generally been more successful in implementing price increases, the rating agency said in its latest analysis of the global packaging industry.

Higher raw-material costs in the US and to a lesser extent in Europe has put pressure on the operating profits of most plastic packing companies and has led to price increases for their customers, according to the latest credit report by Standards & Poor. Bemis, Pactiv, Sealed Air and Avery Dennison have generally been more successful in implementing price increases, the rating agency said in its latest analysis of the global packaging industry.

The three companies have also increased their productivity and made cost savings to offset increased raw-material costs. Smaller packaging companies have not been so successful in adjusting to the tougher market conditions, S&P said. The trends over the past year have become more pronounced in the past three months, putting further pressure on the market. Lower than expected economic growth in the first quarter of 2005 and weaker consumer confidence and industrial production have contributed to lower volume growth for several packaging companies.

The prices of certain plastic resins, including polypropylene and polyethylene declined in April as customers seek to reduce inventory levels and demand from China has slowed, said S&P analyst Vanessa Brathwaite. Higher oil and natural gas prices and efforts by petrochemical companies to implement price increases could lead to further increases in plastic resin prices in the second half of 2005.