North American output of blow molded products is up about 4% for the year to date compared with the first three quarters of 2005. This is according to our Blow Molding Business Index, which measures business activity for non-PET products. During the past 10 years, the growth rate for blow molding production has averaged a steady 3%/yr. But our forecast calls for annual gains in the range of 4% to 5% both this year and next.
Though the growth in the overall Blow Molding Index has been very steady, there are some segments of blow molding that are doing much better. The fastest-growing segment in recent years has been polypropylene bottles. So far this year, demand for PP bottles is running about 10% ahead of last year, and annual growth in this market has been 6% to 7% for the past decade. Activity in this segment stumbled just a little bit in 2005 during the hurricane-induced resin shortage, but it rebounded strongly in 2006. PP bottles will continue to penetrate the single-serve beverage market as a substitute for glass.
Liquid food bottles dominate
Blow molding markets are dominated by HDPE products, and here the news is mixed. The largest blow molding category is bottles for liquid food, and so far in 2006, this sector has expanded by a hearty 5%. The long-term growth rate for this market has been 2% to 3%, but output levels hit a plateau in recent years. This market segment is poised for accelerating growth as new bottling technology allows dairy products to be stored in bottles unrefrigerated for several months.
One important indicator for future demand in liquid food bottles made from PP and HDPE is the profit levels for food processors. Resin costs for these bottles have skyrocketed during the past two years, but so has consumer demand for all types of single-serve beverages. The array of flavored coffees, iced teas, and juice drinks offered in plastic bottles continues to increase, and so do profits for the food industry. According to data from the U. S. Commerce Dept., corporate profits in that industry jumped 27% in 2005 and are up further in 2006. So despite the high costs of materials and energy, demand for these blow molded bottles remains robust.
The next largest HDPE segment in terms of volume is bottles for household chemicals, and here too the news is good. Annual production has changed little since 2001, but this year output is up 3% to 4%. This growth in household chemical bottles will not be sustained very long, but it has been enough this year to offset the decline in the much smaller market segments of motor oil bottles and cosmetics bottles. Motor oil and cosmetics are mature markets that have been in long-term decline for several years.
Drums up, fuel tanks down
Two other significant blow molded HDPE products are industrial drums and motor-vehicle fuel tanks. Industrial drums are another mature market, but it has enjoyed a strong resurgence in recent years. After a sharp downturn at the beginning of this decade, output of industrial drums registered double-digit growth the past couple of years and is up 10% so far in 2006. This growth will moderate in the coming quarters, but output will remain high by historical standards.
The growth trend for fuel tanks has been just the opposite. Demand for these products was growing at double-digit rates at the start of this decade, but has fallen off during the past couple of years. These tanks may yet find a role in the lighter, more energy-efficient vehicles of the future, but for the year to date, 2006 output is down 6% to 8% and this trend is not expected to improve much in the next few quarters.
Finally, there are miscellaneous blow molded HDPE or LDPE products such as toys, playhouses, household and garden products, home furnishings, and other sundry products. All of these combined make up a relatively small market, and production levels are very sensitive to materials and other costs. Blow molding production of these goods is way down from the levels in the 1990s, but it is currently at the highest levels of this decade. Through the first three quarters of 2006, output of these products is up 5%, which is our forecasted annual growth rate for this year and next.