Packaging Industry Outlook: Glass vs Aluminum and Paper-Based Packaging

Wells Fargo downgraded O-I Glass from "Overweight" to "Equal Weight", citing excess capacity in Europe, weak volumes in North America, and uncertainty around tariffs. This highlights a divide in the packaging sector, with glass producers facing challenges while aluminium and paper-based packaging companies show resilience. The downgrade is not a red flag for the entire industry, but it highlights different forces shaping sub-sectors.

On July 18, 2025, Wells Fargo downgraded O-I Glass from "Overweight" to "Equal Weight," signaling a change in the financial outlook for the leading glass container producer [1]. This move by the investment bank highlights the mixed performance within the packaging sector, where some segments are thriving while others face significant challenges.

O-I Glass's downgrade was driven by three primary concerns: excess capacity in Europe, weak volumes in North America, and uncertainty around tariffs. In Europe, O-I is producing more than the market demands, leading to the need to reduce inventory and temporarily cut back production. This indicates that supply is outpacing demand, which can negatively impact profitability [1]. In North America, volume growth has remained soft despite a significant rise in the company's share price this year. Analysts argue that without stronger demand, maintaining this stock performance is difficult [1]. Additionally, tariff risks, particularly in US–Europe trade, pose a potential threat. Although only around 4.5% of O-I’s global sales are currently affected, future tariffs on glass containers could impact competitiveness, especially given that glass costs 25–30% more than aluminium cans [1].

The downgrade is not a red flag for the entire packaging sector but rather underscores the growing divide within it. While companies tied to glass packaging face operational and trade-related headwinds, others, such as those producing aluminium beverage cans or paper-based packaging, are showing more resilience. For instance, makers of aluminium beverage cans like Ball, Crown Holdings, and Ardagh Metal Packaging are benefiting from strong promotional activity and robust demand [1].

The overall message is that the packaging sector is no longer moving in one direction. Sub-sectors are being shaped by different forces, from regional demand shifts and supply chain pressures to changing consumer habits and geopolitical uncertainty. O-I’s struggles offer a useful lens through which to understand where the weak spots and strengths may lie. The company is responding to these challenges through its ongoing "Fit to Win" turnaround strategy, which has already secured US$61 million in savings in the first quarter of 2025 and forecasts up to US$200 million in free cash flow for the year [1].

In conclusion, Wells Fargo’s downgrade of O-I Glass should be seen as a reflection of the company's specific challenges rather than a judgment on the entire packaging sector. The industry's outlook will become more dependent on sector-specific and even company-specific factors as packaging firms continue to navigate regional differences, shifting consumer habits, and trade uncertainty. Investors, suppliers, and brand owners alike will need to assess which types of packaging are best suited to weather the next phase of market change.

References:
[1] https://www.packaging-gateway.com/analyst-comment/packaging-outlook-mixed-as-o-i-glass-downgraded/
[2] https://www.gurufocus.com/news/2985590/wells-fargo-wfc-downgraded-by-phillip-securities-despite-raised-target-wfc-stock-news
[3] https://www.openpr.com/news/4109950/converting-paper-market-research-highlights-new-growth