After a slow start in early 2002, bulk packaging demand is expanding again and will gain more momentum by the first quarter of next year. Producers say bulk packaging orders will grow slightly during the second half of 2002 as the domestic economy regains strength. However, though tags appear to have bottomed out, there is little upward price pressure as supplies for most bulk packaging products are abundant. Drums are an exception.

"Demand is not as good as last year, but it has been improving in the last couple of months," says Russ Fazio, vice president, sales, Industrial Shipping Containers North America, Greif Brothers, Delaware, Ohio. He expects "slow but steady sales improvements" in bulk packaging demand over the next six months as the manufacturing sector of the economy recovers from its downturn in the second half of 2001.

"We're still seeing some signs of softening" in plastic drum demand, says Ron Aloisio, marketing communications manager, Russell-Stanley, Bridgewater, N.J. He attributes the sluggishness that exists among North American chemical companies to lower exports and industry consolidation.

Other industry sources see a similar lack of market expansion. Doug Silverman, director of marketing at Hoover Materials Handling Group, Alpharetta, Ga., says there are three reasons the "plastic drum market is getting squeezed." For instance, manufacturing activity in the fourth quarter of 2001 and early 2002 was weak. Also, Silverman points out that prices for steel drums have fallen so there is less incentive for customers to use plastic. Lower pricing for intermediate bulk containers (IBCs) has stalled plastic drum demand, too, as more customers take advantage of IBCs' lower filling and handling costs, he says.

Even with limited demand, plastic drum producers will issue price increases in the third quarter. One source estimates the hikes will fall between 3-5% industrywide. A number of bulk packaging suppliers cite higher raw materials tags, such as for HDPE and other petrochemical resins, as the reason for price increases.

Another reason for the price increases in drums is that producers see some indications of a recovery. Aloisio says that volume in the second quarter of this year outpaced the same period in 2001. Drum demand will show limited gains through the year, he says, especially in niche markets, such as electrochemical and certain segments of pharmaceuticals.

Despite early signs of growth in economic activity, ample supply will continue to counter hikes in plastic drum prices until a stronger rebound occurs. For instance, Aloisio expects that supply levels will be more than adequate as there is "excess capacity within North America, which is exerting downward pressure on prices." Producers say leadtimes are still between 1-5 days.

Conversion to IBCs is the bright spot for this segment of bulk packaging. Though most spikes in demand this year can be traced to low inventories, orders for IBCs will expand steadily over the long term as customers move to larger forms of packaging to cut production costs. Hoover's Silverman says he expects 15-20% growth in this market over the next five to eight years.

Overall, IBC demand growth in 2002 will stay under 5%, say a number of sources. Reusable steel and plastic IBCs, for example, will yield level growth as demand is down in several markets including chemical manufacturing and distribution, says David McKenna, vice president, sales, Clawson Container, Clarkston, Mich. In addition, industry sources say that depleted customer supply has driven much of the IBC demand this year as drum and IBC "inventories declined to historic levels" during the fourth quarter of 2001 and the first quarter of this year, according to Silverman.

Though long-term demand is stable, experts forecast that certain IBCs will gain more market share than others. For instance, orders for blow-molded IBCs are expanding 13-20% annually, a pace set over the past five years, due to cost effectiveness and standardized design, says one producer. In contrast, demand for plastic IBCs is "peaking slightly" after six to eight years of growth based on customer conversion from composite IBCs, McKenna says. He also notes steel IBC orders have "ebbed and flowed industrywide," which has "reflected stagnation in the manufacturing sector of the economy."

Despite the economic downturn, a number of IBC producers have implemented price hikes due to "significant increases we are seeing in resins and steel pricing," according to one source. However, he notes that these increases "have been challenged by larger contracts and lower demand." Another source says that prices for commodity blow-molded IBCs will be steady in 2002, but will fall over the long-term.

Deliveries are stretching only slightly as demand begins to recover. Silverman says leadtimes are extending by a day or two while bulk packaging producers wait for more signs of a turnaround before bringing workers back.

As with drums and IBCs, order rates for bags and liners this year are soft, though industry players see long-term growth for their markets.

"Liners could grow 10-20% annually" since they are used in only a small percentage of flexible IBCs ( FIBCS), says Ben Greene, director of sales and marketing, Grayling Industries, Alpharetta, Ga. Expectations for liners this year are similar or slightly higher than for other forms of bulk packaging. Most of the opportunity for market expansion is in petrochemical, which has not used FIBCS as much as industries such as pharmaceuticals and food, says Greene.

For its part, bulk bag demand is "up in 2002 especially from those customers who demanded less last year," says Jodi Simons, marketing director, B.A.G. Corp., Dallas, Texas. She sees "a steady, cautious gain in orders" for the rest of 2002, due in part to inventory replenishment.

With markets showing some activity, bag producers have raised prices. Simons expects a 2-5% industrywide increase in bulk bag prices, which will be fully implemented by the end of the third quarter, to hold. As with plastic-based IBCs and drums, Simons says higher resin costs account for higher bulk bag prices. In addition, she notes that "capacity is decreasing" domestically and in Mexico as demand has dropped over the past two years, which will support higher tags.

In contrast, liner tags won't rise this year, says Greene, as "imports have pushed pricing down." However, he says prices have bottomed out and won't decrease further.

Bulk bag supply is tighter than for liners, though leadtimes are similar. Simons says leadtimes are between three to seven weeks due to reduced capacity in the U.S. and Mexico. Deliveries of imported bags and liners are eight to 12 weeks. Greene says liner supply will be "strong in the next six months," with domestic leadtimes at four weeks.

Though corrugated bulk box demand is down 30-35% from peak levels, buyers can expect two price hikes between now and the end of 2003, says one major producer. As in other bulk packaging market segments, suppliers of corrugated bulk boxes anticipate higher rates of economic growth early next year.

Meanwhile, petrochemical and agricultural demand has plunged, accounting for most of the weakness in corrugated bulk box order levels, says the industry source. He notes the lack of demand in resin end-use markets, such as wiring and cable, housing, and automotive has hurt the whole supply chain. Though there have been sporadic surges in demand this year, they haven't sustained growth, he points out. In addition, supply has been readily available, with leadtimes around five business days.

This industry source says there will be two price increases of at least 2-4% in the next fifteen months. Rising costs for labor and transportation are two factors that will drive price hikes. However, he says increases will be announced no earlier than the end of 2002 when more robust economic expansion is expected to begin.