Bemis, Pactiv, Sealed Air and Avery Dennison have generally been more successful in implementing price increases, the rating agency said in its latest analysis of the globalpackaging industry.
The three companies have also increased their productivity and made cost savings to offset increased raw-material costs. Smaller packaging companies have not been so successful inadjusting to the tougher market conditions, S&P said.
The trends over the past year have become more pronounced in the past three months, putting further pressure on the market.
"Overall, 2004 operating performance for rated packaging companies was mixed with higher year-over-year volume growth offset in many instances by higher raw-materialprices and increased energy costs," S&P said. "Most plastic packaging companies have reported lower earnings for the first quarter of 2005 as compared with the corresponding period in 2004,owing to significantly elevated plastic resin costs, sluggish volume trends and downguaging by customers to lower priced products."
Lower than expected economic growth in the first quarter of 2005 and weaker consumer confidence and industrial production have contributed to lower volume growth for severalpackaging companies.
The prices of certain plastic resins, including polypropylene and polyethylene declined in April as customers seek to reduce inventory levels and demand from China has slowed,said S&P analyst Vanessa Brathwaite.
Higher oil and natural gas prices and efforts by petrochemical companies to implement price increases could lead to further increases in plastic resin prices in the second half of2005.
The increases would mean flexible plastic packaging companies might have to boost prices further or make savings to keep their profit margins. In contrast, companies producingrigid plastic containers are less vulnerable to the forecast price increases because they generally operate under contractual arrangements with most customers.
The contracts allow for pass through of raw material price fluctuations to customers, though with a few months' time lag.
The metal food and aerosol can segments have also faced steep increases in steel prices in early 2005, which are generally being passed through to customers, S&P said. Mostcompanies in the sector also have similar contracts with their customers.
"The US glass container segment is also affected by higher natural gas prices and increased soda ash prices, although producers are expected to gradually recoup higher energycosts through the price adjustment formulas, generally on an annual basis, contained in many of their supply agreements with customers," S&P said.
In other notes S&P noted that Ardagh Glass' main market remains under threat from proposed capacity additions by Quinn Glass.
"If volatility in energy prices continues, the group's profitability and cash flows could be reduced," S&P said.
