- July 01, 2000, Deborah Donberg, Managing Editor
This month we bring you our annual summary of the converting-related industries from the US Industry & Trade Outlook, published by The McGraw-Hill Cos. and the US Dept. of Commerce/International Trade Administration. Although we received the 2000 edition later in the year than we normally do, and are therefore bringing it to you later, we believe it is valuable information that can help you plan for the future. Over the years the report has cut back on the forecast for some segments of our industry. Remaining are paper and allied products; and plastics materials and resins.
Paper and Allied Products
The Outlook begins its discussion of this sector by noting, "Although recognized in many circles as a mature sector, [the global paper and allied products industry] is also one of the world's most dynamic industries in terms of product development, technological improvements, distributions and handling, processing and converting, and environmental protection."
The report cautions, "Leading world producers, especially in the developed industrialized nations, can no longer be contented simply to focus on the domestic market for sales growth."
Factors affecting future growth of the US paper and allied products industry include the dramatic growth of electronic commerce. In the area of profits and earnings, the report explains: "Earnings for domestic paper and paperboard companies are estimated to have improved slowly in 1999 as a result of increasing demand, slightly higher prices, increased operating rates, and the end of a major inventory drawdown cycle."
Environmental issues will continue. Much progress has been made, but more needs to be done, both in improving environmental performance as well as in improving the environmental image of the industry with the public.
Growth of US exports in the paper and allied products area will depend on the improved economies of certain key foreign markets, including Mexico, China, South Korea, and Brazil. "It is still too early to determine the long-term impact of the Asian financial crisis that nearly paralyzed the economies of important paper-consuming markets, including Thailand, Malaysia, the Philippines, Korea, and Indonesia."
The Outlook predicts that product shipments by the US paper and allied products industries should see a 2% increase in 2000.
Over the 2000-2004 forecast period, product shipments in real terms should increase 2.1% annually. The industry is expected to experience improved sales, prices, and earnings over the five-year period, driven by increases in domestic and foreign shipments.
Corrugated and Solid Fiber Boxes
The Outlook reports the US corrugated and solid fiber boxes industry experienced its fourth consecutive year of significant growth in 1999, with product shipments increasing 2.9%. This increase is in line with trend growth for corrugated product shipments for the past ten years (including the 1.5% decline in 1995). "Domestic corrugators experienced record domestic and foreign demand in 1999, which saw the industry ship a record 405.4 billion sq ft of finished corrugated boxes, cartons, and shipping containers."
The reports adds this niche of the industry continued to find excellent export opportunities in 1999.
An increase of 3% in product shipments is foreseen for the year 2000. "If domestic corrugators are to experience an increase in the current dollar value of shipments, they will have to do a better job of monitoring finished product inventories and adjusting operating rates to reflect current domestic and foreign demand patterns."
The report adds that the availability of raw materials may become a problem for this niche in 2000. "The combination of additional linerboard and corrugating medium output coming on-line and the recovery of important containerboard export markets in Asia may lead to difficulty for domestic corrugators in securing adequate boxmaking materials at reasonable prices."
The book adds, "Significant recent mergers in the containerboard sector could affect the availability, flow, and price of linerboard and corrugating medium. As a result, domestic corrugators, especially independent corrugators, will need to monitor their raw material inventories closely to ensure that high production levels are maintained."
Foreign sales are expected to grow in 2000, with exports increasing on a value basis by 5% to $920 million, a record high for US corrugators. Imports are forecast to grow 2% in 2000.
The outlook for the corrugated and solid fiber boxes segment shows that product shipments will likely increase almost 3%/yr over the next five years. This will place the sector first in projected average annual growth among all domestic paperboard packaging sectors.
Folding Paperboard Boxes
The folding paperboard box industry experienced record sales in nearly all end-use markets in 1999. The Outlook adds, however, that the growth was tempered by resin-based alternatives that are gaining favor.
The cost of raw materials (mainly bleached board, recycled board, and kraft paperboard) has not changed very much over the past few years, allowing the industry to control some input costs.
According to the Outlook, the environmental performance record of the US folding paperboard box industry has surpassed that of other domestic paper and paperboard segments as well as that of other packaging materials, including plastics, metals, and glass. However, because many consumers are not aware of this, the industry has formed a council to promote its environmental record with consumers.
"In 1999," says the Outlook, "US exports of finished folding cartons totaled 104,900 metric tons, a 3.4% increase in the volume of exports. The increase in foreign demand, combined with local folding carton shortages in certain Asian and Latin American markets, enabled the industry to pass along several price increases in 1999, boosting the value of those shipments."
In 1999 US imports of finished folding cartons totaled 117.110 metric tons, an increase of 2%.
Product shipments by the US folding paperboard box industry are expected to increase 1.2% in real terms in 2000. The long-term prospects show product shipments increasing about 1.6% annually over the next five years. Exports and imports of folding carton products should increase about 6% and 7%, respectively, on a quantity basis annually over the five-year period.
The Outlook sums up this section: "Competition in the US packaging sector is expected to escalate in the future as makers of plastic packaging and other paperboard packaging products (corrugated and solid fiber boxes) attempt to develop new end-use markets at the expense of the folding paperboard box market's share."
The report adds, however, that continuing improvements in technology, products, and operating efficiencies, along with the industry's promotion of its environmental record, should allow it to secure traditional markets and even expand into new ones.
Plastics Materials and Resins
The global plastics industry is dominated by large, vertically integrated, multinational chemical companies, reports the Outlook. Despite much consolidation, total plastics production remains fragmented because of the number of resins produced and the diversity of the markets served.
Production of larger-volume commodity resins is generally less concentrated than that of smaller, specialty-type products. The report notes that in each of the top four resin sections—polyethylene, polypropylene, polyvinyl chloride, and polystyrene—there are fewer than five companies with significant global positions.
The base of production for many commodity resins has shifted to countries such as Saudi Arabia, China, and South Korea. Plastics producers in highly developed markets, therefore, are emphasizing specialty and higher-value-added products and rationalizing production capacity to improve profits.
Key markets for the global plastics industry include the Chinese Economic Area, Japan, North and South America, Southeast Asia, and Western Europe. Japan, North America, and Western Europe account for about 90% of world polymer consumption.
Asia and South America are the primary areas of significant growth opportunity in the plastics area, according to the Outlook, in both the short and long term.
Domestic trends include consolidation and restructuring of the industry; competition among alternative plastics materials; and the emergence of e-commerce.
Constant dollar shipments of plastics materials and resins are expected to increase only 3% in 2000 (compared to a strong 7% growth in 1999). Factors in the expected weaker showing include the anticipated price and shipment erosion during the first quarter after the inventory buildup of 1999; additional capacity coming on-line without sufficient growth in the domestic economy and the export market to support it; and increased competition from imported materials.
The outlook is favorable for plastics during the period 2000-2004, with constant dollar shipments expected to grow between 3% and 4%.
US plastics exports are expected to grow 4.1% in 2000, and export growth of 4%-5% is expected during the period 2000-2004.
Imports are predicted to continue a positive pattern of growth this year, rising 6.5%. For the next five years, the Outlook predicts import growth of plastics will be 4%-6%.