Plastics Technology

MAY 2012

Plastics Technology - Dedicated to improving Plastics Processing.

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wood on plastics bill wood Pressure Building in Packaging The price of crude oil on world markets has been on a relentless upswing in recent months, and this is having a profound impact on both suppliers and consumers of plastics packaging. The bad news is that this trend of rising oil prices is not expected to reverse in any significant way for the foreseeable future. The good news is that the high cost of crude oil and its distillates (i.e. gasoline) should raise demand for many types of plastics packag- ing over the long run. Looking first at the short-term prospects, the net result of rising oil prices on packaging processors is largely negative. First, resin prices are closely correlated to that of crude oil, and the fact that oil prices are at or near record high levels means that resin prices are also at record highs. However, the cost of oil has generated a sharp increase in natural gas production in the U.S., and at some point in the not-too-distant future, resin prices will be more affected by the price of natural gas than by the price of crude oil. But this is not the case right now, so processors are still caught in the vice of high materials prices. Another negative effect of high crude oil prices is that gaso- line and diesel fuel prices are also quite high. High gasoline prices diminish the discretionary spending power of consumers and suppress consumer confidence. The high price of diesel fuel raises shipping costs for all types of goods, including consumer non-durables such as food, cosmetics, and health aids. But not all of the effects of higher energy costs are bad for producers of plastics packaging. In an increasing number of cases, plastics products are far less energy intensive to manufacture than products made from glass, metal, or paper. Plastics products are lighter to ship and easier to fill and process. Technological ad- vances have recently created plastics packaging that extends shelf life of the package contents, is easier to use for consumers, and requires less refrigeration. Disposal and/or recyclability of plas- tics are also easier much of the time. All of these issues are made more acute by the continuing increase in oil prices. Innovation in plastics packaging has accelerated rapidly over the past 10 years, and while this is far from over, it may hit some headwinds in the next few quarters. This is because innovation is directly affected by the amount of research and development in the industry, and these R&D activities are directly affected by profit levels. And as we mentioned earlier, profits are currently experiencing a bit of a squeeze. But this will only slow the inno- 64 MAY 2012 PLASTICS TECHNOLOGY CORPORATE PROFITS -FOOD & KINDRED PRODUCTS 10 20 30 40 50 0 Data source: Bureau of Economic Analysis vation cycle, not stop it. This brings us back full circle to the effects of high energy prices on consumers. As noted, they inhibit consumer spending in the short term. But over the long run it makes consumers far more conscious of issues pertaining to products that are more sustainable, recyclable, and biodegradable. As most processors know, these are tricky issues because at the very least they involve a complicated three-step process. First, can a material or product be developed that solves all of the problems that are required of a package and still meet one or more of these sustainability objectives? Second, can this new material or product be manufactured on a viable scale? Finally (and perhaps most importantly), will it garner market accep- tance? These are complicated issues, but the incentives for solv- ing them increase with each uptick in the price of crude oil. WHAT THIS MEANS TO YOU r.BOZ UZQFT PG QMBTUJDT QBDLBHJOH BSF DVSSFOUMZ VOEFS BUUBDL (such as bags and water bottles) and are actively being regulated or de-selected. This will continue for the foreseeable future. r5IFSF BSF NBOZ QBDLBHJOH SFMBUFE JTTVFT UIBU BSF CFTU solved, or can only be solved, by plastics products. This is where processors should concentrate their efforts. r%FWFMPQJOH FDPOPNJFT JO "TJB BOE 4PVUI "NFSJDB SFQSFTFOU huge and largely untapped markets for the next generation of plastics packaging. ABOUT THE AUTHOR Bill Wood, an economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. Contact BillWood@PlasticsEconomics.com. Future Forecast Billions of $ 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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