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Europe: PET outlook in packaging bright despite price hikes: consultancy

https://www.chemnet.com   Apr 28,2011 Platts
Polyethylene terephthalate will continue growing in the food and packaging industry, market researchers Pira International said Tuesday, despite recent price hikes.

"Plastic bottles are the strongest performers in the larger packaging sector...PET is the most widely used and fastest-growing polymer for the manufacture of plastic bottles and jars," Pira said in a statement.

The market for rigid plastic packaging for food and drink in Europe is expected to achieve above average volume growth, 3.7% compared with 1.9% for the overall food and drink packaging sector overall for 2010-15, Pira said.

Pira said it expects PET bottles to continue replacing glass, aluminum and other materials in the food and drink industry, citing the clarity, durability, design flexibility, light weight and recyclability as advantages over other materials.

But several converters have in the past few months warned their customers might switch to a different material due to price rises. The spot price of PET in Northwest Europe has risen steeply since last summer from Eur1,085/mt ($1,592/mt) FD NWE on August 25 to a peak of Eur1,620/mt on March 23.

One converter said he is seeing lower demand in April.

"We have seen some business go back into tetra packs and we've also seen the higher priced end of the market softening a bit," the converter said. Pira was not immediately available to comment on the effect of prices. But this month has seen some relief in PET spot pricing, and the expectation for May is for even lower prices moving forward.

"For sure the scenario is that prices will drop in May, we really don't know how low they will go," one trader said.

But the rising prices for PET are starting to show up and have an impact on company earnings. Coca Cola's costs increased significantly during the first quarter of 2011, cutting into profit margins.

"Since our last earnings call, we've also seen our total company commodity costs exposure for this year increase by approximately $250 million to $300 million, primarily driven by continued rise in the price of PET," Coca Cola chief financial officer Gary Fayard said in its Q1 earnings call Tuesday. "While PET is not a commodity that can be hedged, we are actively pursuing and executing plans to mitigate and offset some of this increase."

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