The margins for plastic film packaging companies are expected to remain healthy over the next two years, driven by the combination of a strong demand, limited capacity additions and a benign raw material price outlook, India Ratings and Research said on Friday.
Accordingly, the agency estimates global BOPET (biaxially oriented polyethylene terephthalate) capacity utilisation to sustain at a 10-year high of 80 per cent over the next two years, while that for BOPP (biaxially oriented polypropylene) to rise to near 80 per cent over the next three years, from a 10-year low of 70 per cent currently.
Lastly, raw material prices are expected to remain soft, amid a weak oil demand and ample supply of ethylene globally, with new gas-crackers beginning operations in the US between 2022-2024, the agency said.
“Given strong profitability so far in FY21 and robust margin outlook for FY21-FY22, Ind-Ra expects the median net leverage for its rated plastic film companies to decline to 1.7x in FY22 (FY21 (estimate): 2.0x).”
“Indian plastic film manufacturers, which are already operating at a high capacity utilisation level, continue to announce new projects and as such, capex for capacity expansion projects remains a key rating monitorable in FY22-FY23.”
According to the report, Covid-19 driven lockdown has boosted packaging films demand.
“Social distancing measures introduced around the globe have enabled a shift in consumer behaviour by changing consumption patterns from bulk quantities to individual consumer packets. Packaging film demand has also been boosted by a higher demand for frozen foods, shelf-stable and comfort foods.”
“Also, e-commerce has received a solid boost since the Covid-19 outbreak, strengthening demand for plastic films. Ind-Ra expects packaging demand to remain elevated in the near term with some tempering 2HFY22 onwards, especially as vaccination picks up globally and social distancing measures are eased.”
As per the statement, historically, BOPET and BOPP demand globally has grown at 5-7 per cent over the last 10 years.
“Demand in developing countries such as India and China has grown at a faster rate of 10-14 per cent as a result of improving standards of living, rising per capita consumption of plastic and urbanisation.”
“Ind-Ra estimates the plastic film demand to rise close to 9 per cent in 2020 before tapering off to 6-6.5 per cent by 2023.”