Your Business Outlook - May 2007

While many sectors of plastics have experienced weaker market demand over the past few quarters, the overall market for plastic bottles has continued its trend of moderate growth. This trend will continue for the foreseeable future, and growth could even accelerate a bit in 2007 if the price of resins declines faster than expected. Our new Plastic Bottle Index (see chart) measures market demand and illustrates the prevailing growth trend. After expanding about 2% in 2006, total demand for plastics bottles will advance 4% in 2007.
The largest segment in this market is PET bottles, used primarily for carbonated soft drinks and single-serve bottled water. The bottled water industry has grown rapidly in the past few years, and though its growth will decelerate gradually in the future, this will remain a strong market.

Growth of carbonated soft drinks has stagnated in recent years and the major bottlers have developed other product lines such as sports and energy drinks to reignite growth. For many of these new drinks, the manufacturers have chosen to use non-PET bottle materials such as polypropylene. The total number of PP bottles used is still quite small compared with those of PET and HDPE bottles, but PP bottles are the fastest growing segment of plastic bottles. Market demand for PP bottles jumped an estimated 12% in 2006, and it is expected to gain another 10% in 2007.

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Liquid foods spur growth

Along with PET, the other large plastic bottle segment is HDPE bottles. Their use has expanded at a moderate rate in recent years, but some market segments are currently performing much better than others. The hottest area recently has been liquid-food bottles. In 2006, use of HDPE liquid-food bottles hit an all-time high and surpassed household chemicals as the largest segment of the HDPE bottle market. Dairy products still account for most of the volume, but growth is being driven by other single-serving beverages such as iced teas and juices. The number of liquid food bottles grew 5% in 2006 and another 5% gain is anticipated for 2007.

Household chemicals are still a large market for plastic bottles, but the growth will be only about 2%. While the number of bottles in this market has gradually expanded in this decade, the amount of resin used has been very steady. This trend toward using less material per bottle may not have much farther to go. Barring some unexpected technical breakthrough, bottles are now about as light as they can get.

One remaining large end-market for plastics bottles is pharmaceuticals, cosmetics, and toiletries. The size of this segment has been steady for the past few years.

The macroeconomic factor that has the strongest impact on North American bottle demand is corporate profits at manufacturers of food and kindred products. Here the news was quite good in 2006. Last year, U.S. corporate profits for food and kindred products grew by a hearty 12%. Profit growth will moderate this year, but profit levels in the food industry will remain robust. Higher profits drive spending on development of new products and the technologies for bottling and marketing them. The plethora of single-serving flavored coffees and teas, waters, juice drinks, yogurt drinks, and today’s other beverage choices were all developed and introduced as the result of rising profits in the beverage market. And who knows? A viable plastic beer bottle may yet be discovered.

Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at BillWood@PlasticsEconomics.com. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.