The effects of industry consolidation
By Staff -- Purchasing, 2/12/1998
Certain trends in the plastic drum industry have solidified over the past couple of months. The increasing emphasis on diversified container suppliers means companies offer more than one type of container, and many different styles of each container. But even more important for container buyers may be the trend of suppliers to provide container management services.There's been a recent flurry of changes among manufacturers of plastic drums. In late 1997, Russell-Stanley acquired the plastic industrial containers business of Smurfit Plastic Packaging, including five U.S. plants. In addition, Russell-Stanley merged with Hunter Drums Ltd., a Canadian industrial container manufacturer.
Then in December, Greif Bros. acquired Sonoco Plastic Drum, along with the businesses of Fibro Tambor, KMI Continental Fiber Drum, and an interest in Total Packaging Systems--all from Sonoco Corp. This agreement includes twelve fiber drum and five plastic drum plants. Grief expects the move to aid its vendor management and packaging services, and also provide them with a market-accepted IBC product.
But these consolidations mask a real shift in the way containers will be sourced, and what comes with them. Last fall, Russell-Stanley formed a new company bringing in the services of Container Management Services (CMS). This move allows the company to offer buyers a system where a drum is managed for its entire lifespan. This is still a relatively new idea for drums, but has worked with impressive success for IBCs.
When sourcing from some suppliers, buyers can lease drums for non-hazardous materials with the guarantee that the drums will be picked up from end users. No longer would it be the responsibility of the end user or shipper to get the drums to a reconditioner or landfill. Instead, the drums are picked up by the supplier, cleaned, and retested. Suppliers of these logistics services also can track containers throughout the entire cycle.
Chemical companies are looking to outsource more and more services, so allowing a supplier to handle container logistics could be an attractive way to reduce costs, as well as headaches. While many container suppliers offer arrangements with an outside company, expect more to either bring that part of the business in-house, or to affiliate themselves in some official way with these service providers.
Outlook good for plastic
The outlook for plastic drums remains very good. While plastic drums are still only less than 20% of the total market, their numbers continue to grow. Most suppliers say that demand will push up at slightly under 10%/yr for tight-head plastic drums, and at over 10% for open-head containers. Expectations are high for plastic drum use in industries such as foods and beverages, plastic resins, and pigments.
Although many other market factors come into play, prices for plastic drums tend to follow polyethylene prices. According to Purchasing's transaction price survey, blow-molding grade high-density polyethylene (hdpe ) prices ended up down in 1997. Contract prices started last year at 43cents/lb in the first quarter, rising to 46cents/lb in the second. But contracts fell in the second half of '97, dipping to 43cents/lb in the third quarter and 42cents/lb in the fourth quarter.
Polyethylene buyers say prices will fall even more in 1998, with contracts hitting 38cents/lb and spot tags 37cents/lb by the second quarter of this year. Many plastic drums are made from a high-impact grade of hdpe. These materials usually follow general hdpe pricing trends closely, but have slightly higher tags.
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