RISING DEMAND HERALDS BETTER TIMES FOR PACKAGING INDUSTRY

Stocks of India’s flexible packaging companies have gained substantially over the past few months outpacing the broader market by a wide margin. A sudden spurt in global demand has boosted the BOPET film prices, which appears long-lasting. The industry players are expecting a couple of years of supernormal profits ahead of them before the supply finally catches up with the growing demand.

The market capitalisation of companies such as Jindal Poly Films , Garware Polyester , Ester Industries and Polyplex Corporation have all jumped up between 1.6 and 2.8 times in the past three months, while Sensex rose by 23%. The prices of biaxially- oriented polyester (BOPET) film, which is the main product of these companies, have more than doubled thanks to its increasing usage.

“BOPET film prices, which stood at around `98/kg in April, are currently ruling around `225/kg,” said an official from a leading company. The jump in BOPET film prices has come after years of range-bound movement. The global demand for BOPET film jumped due to its usage in solar power cells, touch-screen panels of mobile phones and flat screen TVs. “An installation to produce 1 MW of solar power requires nearly 30 tonne of BOPET film,” said another official.

Along with the usage in solar power and touch-screen panels, other innovative applications too have driven the demand. For example, in India nearly 35,000 tonne of BOPET film is used annually by garment embroiders. The traditional demand for packaged food is also growing rapidly. India has emerged as the third largest consumer of BOPET with 330,000 tonne of annual demand. Industry sources estimate that there is nearly 10% gap between demand and supply, which is unlikely to fill in too quickly.

Last couple of years’ recession led to the closure of around 125,000 TPA capacity globally, out of the total capacity of around 3 million TPA.

The high prices of BOPET film are making some users to shift to alternate packaging materials such as BOPP film (biaxially-oriented polypropylene films). Since BOPP film prices have not matched the rally seen in BOPET prices, companies such as Cosmo Films which manufacture only BOPP, have not seen any run up on the bourses.

The jump in the BOPET film prices is yet to reflect in the financials of these companies. The September quarter numbers, which will be announced over next few weeks, will be the first quarter when investors will get to see expanded margins and profit growth.

Courtesy: Economic Times, 6th October 2101. (The image is for representational purposes only)