Market Snapshot: Packaging


Packaging is undergoing changes in many areas, including size, materials, and recyclability. While both the economic downturn and the cost of resins have put a damper on packaging manufacturers, a rebound is expected in 2010.

Packaging has been largely resistant to the negative economic forces the world experienced in 2008-2009, but the industry has taken some hits. As Graham Packaging Co. Inc.’s CEO Mark Burgess noted in his presentation of the company’s Q4 and full year 2009 financial report, resin costs hit the company, causing slightly lower sales, but unit volumes improved as a result of strong end markets and increased market penetration. Looking ahead at 2010, Burgess said, “We remain cautious about the 2010 sales environment, despite some volume improvements in the last two quarters [of 2009]. We will continue to focus on international growth opportunities and driving market conversions to value-added plastic containers where technology provides differentiation.”

Mesirow Financial noted in its Packaging Perspectives 2009 Year-End Review that it was a year “characterized as one of significant extremes.” The first half of the year was marked by the bottoming out of global markets and bankruptcies, while the second half saw “improving stock markets and thawing credit markets.” However, “significant short-term and long-term economic uncertainty still exists,” said Mesirow’s report.

Given the poor economic environment in 2009, Mesirow noted the resulting decline in merger and acquisition (M&A) volume by a significant margin. The two largest deals in 2009 were in the pharmaceutical industry with Wyeth and Pfizer’s $65 billion combination, and Schering Plough and Merck’s $46 billion deal, Mesirow said. “An additional factor behind the large decline in M&A activity was the contraction of the credit markets that actually began at the onset of the subprime mortgage crisis in mid-2007 but accelerated during 2008 and the first half of 2009.”

The bright spot in all of this, Mesirow noted, is that the downturn in the global packaging M&A volume has not been as severe as in the overall market. “In fact, due to transaction volume in the second half of the year, the full year totals for 2009 are not that different from those of 2008. The second-half total includes Amcor’s acquisition of Alcan’s pharmaceutical and specialty packaging assets and the Bemis acquisition of Alcan’s flexible packaging assets,” among others.

Mesirow’s outlook for 2010 foresees credit market conditions improving, and the company anticipates that private equity investors will become more active in packaging industry transactions. Mesirow also anticipates that purchase price multiples will improve from the average 2009 levels as credit markets continue to recover. Additionally, “strategic buyers in the packaging industry have proven that value can be created from well-structured acquisition,” said the report. “Buyers such as Rock-Tenn, Bemis, Pactiv, International Paper, Greif, PCA, and Amcor have all been able to expand markets, products, and earnings through strategic combinations, synergies, and capacity rationalization. We expect all of these forces to continue to drive additional consolidation in 2010.”

Pharmaceutical packaging gets a new look

New packaging to address changing demographics is a strong area, some of that influenced by the aging Baby Boomer population. One statistic, quoted by Rexam Healthcare, says that more than 125,000 Americans die each year because they don’t take their medications as prescribed. This phenomenon is referred to as “prescription noncompliance” and adds more than $100 billion per year to the healthcare system.



To address that, medical experts believe that larger label instructions are needed, so Rexam partnered with Scriptchek to offer a unique prescription package: a square bottle that has three larger flat sides for additional patient instructions and a label that provides up to four times more printing space for extensive prescription information.

“This is an opportunity for us to drive growth and further market leadership in the pharmaceutical segment by providing a packaging solution that can help improve prescription compliance,” says Tom Ryder, marketing director, North America, Rexam Healthcare. “It’s another example of our ongoing efforts to respond to consumer needs with packages that create value.”

The green movement
According to BMO Capital Markets Packaging Group, green packaging will continue its upward growth spiral as consumers, retailers, and packaging suppliers increasingly “adopt packaging solutions that minimize their impact on the environment.” In BMO’s October newsletter, The Converter, the company noted the large amount of packaging waste by category. In 2007, more than 78.5 million tons of containers and packaging waste was generated in the United States, accounting for 30.9% of total municipal solid waste, said The Converter.

Good news for plastics: Paperboard packaging accounted for the greatest proportion of packaging waste by weight at 50.9% or 39.4 million tons. Corrugated represents the highest proportion of any packaging sector, at 39.8% or 31.2 tons of waste. Plastic packaging doesn’t entirely get off the hook, as it accounts for the second largest proportion of packaging waste, at 13.6 million tons or 17.4% of packaging waste, according to The Converter (Issue 43, October 2009).

The growth of green packaging has been steadily increasing as consumers, retailers, and packaging suppliers adopt packaging solutions that minimize their impact on the environment. Some of the methods of reducing this impact include incorporating recycled content and biodegradable materials into the packaging, and developing reusable packaging. Additionally, many converters, including thermoformers and injection molders of plastic packaging, are decreasing the amount of material used in the packaging through thin-walling and/or light-weighting the package.

According to The Converter (Issue 44, November 2009), the $37.2 billion North American green packaging market is growing at a compounded annual growth rate (CAGR) of 4%-5%. However, it is important to note that corrugated packaging accounts for a majority of the green packaging because corrugated already has high penetration. But because of that, other sectors are expected to experience meaningfully higher growth rates, said The Converter.

The use of postconsumer recycled PET (RPET) and HDPE plastic in packaging is currently experiencing strong growth. The Converter reports that, of the 915 million lb of recycled PET consumed by U.S. converters, 38% or 349 million lb was used in packaging. Rigid food and beverage containers accounted for the second largest use at 15% of RPET, the largest being film at 17%. Since 2003, RPET consumption for packaging applications has grown at a CAGR of 17% from 162 million tons. Packaging accounts for 51% of recycled HDPE usage, with non-food products accounting for the largest use, at 43% of HDPE demand.

The growth of biopolymers in packaging (derived from plant and/or animal sources), continues picking up steam, accounting for $237 million in demand or 7.7% of the natural polymer market, and growing at a CAGR of 23% compared to 7.6% for the overall natural polymer market, noted The Converter. Thermoformed containers account for $88 million or 37% of demand, and use of biopolymers in thermoforming is growing at a CAGR of over 27%.

Overall, plastic packaging currently has the lowest proportion of its waste recycled of any sector. According to The Converter, in 2007 11.7% of plastic packaging waste was recycled. Plastic bottles have a much higher recycling rate (32.8%), but other plastics and flexible plastics have significantly lower recycling rates. “However, the amount of plastic packaging recovered is steadily increasing,” The Converter noted. “In 1990, only 3.8% of plastic packaging waste was recovered for recycling compared to 11.7% today.”

Additives for eco-responsible PP
Because reducing waste in packaging has become an important environmental focus for major corporations, Milliken Chemical, a division of Milliken & Co., is playing an important role in the growing use of polypropylene as a replacement for less-sustainable plastics and other materials. PP is a preferred choice for plastics in packaging applications due to its low density, which reduces the amount of material required and the weight of shipments, lowers greenhouse gas emissions during manufacture, and offers full recyclability, according to Milliken. Milliken’s Hyperform hyper-nucleating agent simplifies PP recycling while its Millad clarifying additives enable PP to be substituted for clear materials such as polyethylene terephthalate (PET), polyvinyl chloride (PVC), polycarbonate (PC), polystyrene (PS), styrene acrylonitrile (SAN), acrylic, and glass.

“Sustainability is a core value for Milliken and we have pursued environmental initiatives business-wide for decades,” says Brian Burkhart, global marketing manager for Millad clarifying agents. “In addition to reducing waste and resource consumption in our own operations, we take pride in producing additives that can help other companies address the eco-challenges of plastic packaging, which threatens to overwhelm landfills and litters the oceans and other natural areas. Our Millad and Hyperform additives simplify and expand the use of sustainable, recyclable polypropylene, helping to phase out materials with a heavier environmental footprint.”

While many packaging manufacturers want to incorporate regrind and recycled materials into the mix to reduce costs and support sustainability, additives such as colorants and nucleators in mixed batches of PP can cause processing issues, including shrinkage and warpage, explained Burkhart. These variables can discourage use of recycled PP. Milliken’s Hyperform HPN-68L hyper-nucleating agent addresses this problem by enhancing process stability and part quality, ultimately leveling different recycle streams.

Interrupters to IM packaging
Competing processes to the injection molding segment of rigid plastic packaging include thermoformed containers, which will account for more use of biopolymers because of the lower heats required by the process. Thermoforming has evolved into high-speed and deep-draw forming technology that allows for greater volumes, particularly in applications such as deli containers and containers for margarine and dairy products such as cottage cheese and sour cream. Other interrupters will include pouches, for which U.S. demand is projected to climb 6.1% per year to $7.9 billion in 2012, according to The Freedonia Group. Stand-up pouches will exhibit “robust growth,” while flat pouches will post healthy gains in a number of markets, with the largest being food and beverage.

Plastic packaging continues to represent some fair opportunities for injection molders, and greater business for moldmakers. Many packaging converters are large companies that do their molding in-house, but the demand for molds continues to be strong, say moldmakers who serve this industry. Because plastic packaging is ubiquitous for all types of products from food to consumer products to medical and pharmaceutical packaging, this market segment should remain a strong one for molders far into the future. Clare Goldsberry

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