European plastic packaging firms are likely to see their credit quality come under pressure in 2019, as efforts to reduce plastic waste are ratcheted up, a new report by Moody's Investors Service has found.
The report, Plastic waste reduction efforts will pressure packaging firms' credit quality in 2019, said that pressure to substitute other materials and focus on recycled plastic rather than virgin material will shrink the growth potential of existing plastic packaging products.
This, in turn, will leave newer, more sustainable packaging solutions to drive volume growth.
Cost Increases
"Packaging companies' profits face pressure as rising demand for recycled materials and looming clean-up charges drive up costs," commented Tobias Wagner, vice president - senior analyst at Moody's Investors Service. "Successfully passing these added expenses on to customers will be crucial if companies hope to avoid sustained damage to profits."
The report also found that industry consolidation could be set to accelerate as smaller companies with potentially limited financial flexibility could end it harder to adapt to ongoing changes, instead choosing to team up.
Larger companies, the report notes, tend to have more bargaining power with customers and suppliers, and therefore have greater capacity and flexibility to adapt their production footprints and make investments.
Reliable access to high-quality recycled raw materials will also be 'critical', Moody's said.
Plastic Reduction Initiatives
From an environmental standpoint, a number of packaging firms have signed up to plastic reduction initiatives, such as the New Plastics Economy Global Commitment led by The Ellen MacArthur Foundation, which seeks to ensure 100% of plastic packaging can be easily and safely reused, recycled, or composted by 2025.
Twist Beauty International Holdings S.A., Amcor Limited, Sealed Air Corp have signed up to this commitment, Moodys noted, while a number of operators have also joined the UK Plastics Pact, which includes more specific targets and a detailed roadmap for members, including Faerch, Klöckner Pentaplast and RPC Group.
The UK Plastics Pact has also attracted members from across the retail and consumer goods sectors, including Asda, Aldi, Lidl, M&S, Sainsbury's, Coca-Cola European Partners, Danone, Procter & Gamble and PepsiCo.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
