European packaging companies should see steady demand but some may face possible downgrades this year if liquidity issues become more urgent, raw material costs become more volatile or economy weakens, S&P reports

LOS ANGELES , April 10, 2012 () – Liquidity issues could dim the credit outlook for some European packaging companies over the next few months, but steady demand will mean the industry remains stable, a report from Standard & Poor’s Rating Services says.

The report issued Tuesday says that while two-thirds of the European packaging companies rated by Standard & Poor’s carry stable outlooks because of steady demand for food and beverages, some downgrades could be “likely in the year ahead.”

 "We anticipate some possible downgrades in 2012 if liquidity issues become more urgent, raw material costs continue to demonstrate highly volatile trends, or sales volumes are significantly hampered by a weaker economic outlook than we currently forecast," said Standard & Poor's credit analyst Rachel Lion

"In our view, raw material prices and energy costs are likely to remain elevated in 2012, albeit somewhat less volatile than 2011. In our opinion, the companies that will continue to have the most success in protecting their operating margins are those with a substantial portion of revenues under customer contracts,” she wrote.

The analyst said packaging companies should continue to be able to pass through price increases in 2012 to compensate for higher raw material costs. However they remain “somewhat vulnerable” to inflationary pressures, "particularly in Europe, where contract provisions tend not to be as favorable as arrangements in the U.S.”

The report is “Steady Demand Supports Stable Outlook for Europe’s Packaging Firms, But some Face Tight Liquidity.”

The primary source of information for this article is Standard & Poor’s, www.standardandpoors.com


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