Blow molding's steady growth will continue.

* The most important trend in the plastics industry this year has been the rapid rise in resin prices, but recent developments indicate a reversal may be coming. In the first three quarters of 2004, the average cost of a pound of resin rose 10% to 15% from the already elevated price levels in 2003. More than a few processors have reported paying as much as 25% to 40% increases for some grades. However, the recent trend in the cost of resins is tightly correlated with petroleum prices, and oil and gas prices have peaked and are now heading lower.

The highest prices for natural gas this year were posted in May and have steadily declined since then. The price of gas is still high by historical standards, but industry data suggest that supply is currently growing faster than demand. Inventory levels are about 15% higher than at this time last year, and they are well above the five-year average for this time of year. So barring some unexpected disaster, there is plenty of natural gas to supply our needs for the foreseeable future.

Geopolitical instability kept crude oil prices rising for several months after the peak in natural gas prices, but this market also peaked last August and now appears poised for a downtrend. Again, the trends in the market for crude oil indicate that supply is expanding faster than demand and that the recent run-up in price was primarily due to fear. Unless there is a significant supply disruption, the price of crude should moderate in the coming months. Lower petroleum prices should result in lower resin prices.

Our latest Blow Molding Business Index forecasts an increase of 6% in total domestic blow molding output this year, followed by another 6% gain in 2005. This is based on a continuing economic recovery in the U.S. and on the established consumption patterns for packaging in America. Most blow molded products end up as packaging for consumer goods, and the best indicator of demand for these types of goods is the retail sales data compiled and reported by the U.S. Commerce Dept. For the year to date, total retail sales (minus autos) in the U.S. are up more than 9%. Food and beverage sales are up a solid 5% and business at food-service and drinking places is up nearly 11%. These growth rates are expected to decelerate only moderately in 2005.

These increases augur well for plastic bottles and containers in the coming months. And since bottles are too light to ship economically and too bulky to store, they are not likely to suffer competition from low-cost imports.

By far, the largest segment of the blow molding market is bottles, and demand for these products has risen steadily through the years. In 2004, the production levels for liquid food bottles, household chemical bottles, and blow molded containers for cosmetics and pharmaceuticals will be equal to or higher than the year before. The single-serve beverage segment has benefited from a surge in demand for sports drinks and bottled water. And market penetration in the beer, wine, and liquor sectors is also increasing. Though the market growth for these products has expanded, it has not kept pace with the jump in materials costs in recent months.

This situation will improve next year, and blow molders of these products will enjoy the double benefit of a continued gradual increase in market demand and a gradual decrease in the cost of materials. This will generate rising profits, and as profits rise, so too will the demand for blow molding machinery and tooling. Blow molders who are contemplating a substantial capital investment in the coming months would be well advised to act quickly in order to avoid the likely increases in delivery times.

The high costs of materials notwithstanding, there are a few sectors of blow molding that have expanded quite rapidly this year and will continue to do well in 2005. The total volume of blow molded gas tanks has increased at an average annual rate of nearly 20% during the past nine years. This segment is on track to expand another 20% this year and the forecast for 2005 is for an expansion of at least 15%. Demand for blow molded industrial drums is very cyclical and is affected by the price of steel. This segment declined sharply in the last recession, but since then, demand for industrial drums has recovered. The outlook is for a 15% rise in drum production this year and a gain of 10% next year.

Bill Wood, an independent economist specializing in the plastics industry, heads his own firm, Mountaintop Economics & Research, Inc. in Greenfield, Mass. He may be contacted by e-mail: [e-mail]