Tariffs Raise Consumer Demand and Industrial Production Risks for Packaging Producers

On April 2, President Donald Trump announced a wide array of tariffs on all US imports. For packaging producers, we see heightened risks in demand, driven by a potential slowdown in consumer spending and further softening of industrial production. While packaging companies have different degrees of exposure to tariffs, and many will be able to offset the direct impact by passing through cost increases, a slowdown in demand could have a significant impact on their near-term results. Given the uncertainty around the duration of new tariffs and potential industry or regional exclusions, we are maintaining our fair value estimates.

Some packaging producers, such as the containerboard manufacturers, source a majority of their inputs from the US, limiting their direct exposure to tariffs. Conversely, aluminum can manufacturers source much of their aluminum from China, which has direct exposure to the new tariffs. That said, many of their contracts include pass-throughs for aluminum costs. We expect Ball and Crown will be able to pass through these costs but could face near-term demand challenges if consumers opt to slow beverage consumption amid heightened economic uncertainty.

Across our packaging coverage, Sealed Air fared worst following the market’s reaction to the tariff announcements. This is likely due to Sealed Air’s exposure to industrial end markets, which account for roughly 40% of sales and have remained constrained for much of the past two years. While we think this could be an overreaction, a prolonged downturn in industrial markets could have a significant impact on Sealed Air’s operations, although the full effect of tariffs on industrial production won’t be known for some time.