Packaging makers challenged by energy costs, says ratings agency

The increase in inflationary cost pressures resulting from high and unstable raw material prices as well as high energy costs continues to challenge numerous companies in the global packaging sector a…

The increase in inflationary cost pressures resulting from high and unstable raw material prices as well as high energy costs continues to challenge numerous companies in the global packaging sector according to ratings agency Standard & Poor“s in a recent report by analyst Liley Mehta. “For many packaging companies, 2006 will remain a challenging year and various factors, including the movement in natural gas and oil prices, resin price trends, and the pace of consumer spending will determine the degree of pressure on several issuers”, S&P said. As of May 2006, the proportion of negative outlooks in the sector remains high at 39%, S&P said. Glass packaging companies are suffering from high natural gas prices in the US and Europe, and from the cost inflation of freight and raw materials, particularly soda ash, S&P reported. Owens-Illinois reported a 60% decline in earnings in the 1Q 2006 compared with the previous year. Nevertheless, the company expects to recover 75% to 80% of the cost increases during the rest of 2006, S&P reported. Owens-Illinois is currently rated BB- with a negative outlook.