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From separate reports written by PCI Films Consulting Ltd. and Applied Market Information Ltd.
According to a recently published study by Applied Market Information Ltd, one of the key factors that will significantly impact the growth of PE film usage as well as the level of global trade in finished film will be the continued shale gas developments in the U.S. AMI’s study says that this will lead to major reduction in the cost of PE resin in addition to reducing the energy cost of subsequent film production. It predicts a high probability that North America will have a polymer cost base on a par with that in the Middle East, leading to PE film exports from North America overtaking those of the Middle East.
Other factors that will have an impact on the growth of PE film production will be the continuing investment in export-oriented regions such as the Middle East and Southeast Asia, and the growth of middle classes in less developed global regions. A detailed cost comparator is included in the study covering each of the ten global regions.
In 2013 Northeast Asia (including China) was the highest production region with one-third of global production of PE film, followed by NAFTA with a 17% share and Western Europe accounting for 15% of global production. By 2018 it is forecast that Northeast Asia will have increased market share of global production to over 35%, while NAFTA's share will remain unchanged and Western Europe's share will fall significantly, largely as a result of continuing economic difficulties in some of the member states combined with high costs of raw materials, energy, labour and freight. AMI predicts that Western Europe will continue to grow in terms of tonnage however, because it remains one of the cradles of technical development of PE films (the other being NAFTA) and continued success will depend on a shift of business towards higher added value film products.
Meanwhile the Middle East will increase its market share by growing production at over 10% per annum, making it the fastest-growing global region in percentage terms. Inter-regional traded volume has grown significantly over the past few years to reach over three million tonnes per annum, with Northeast Asia and Southeast Asia jointly accounting for over half this traded volume. An additional half million tonnes per year is forecast to be traded by 2018, driven by increased volumes of film on the reel rather than bags and sacks, which will decline as a result of environmental initiatives in several global regions.
Looking at market applications, the highest growth rate is forecast for stretch films on the back of increased usage is less well-developed countries as the proportion of sales through large retail outlets increases. Demand for bags and sacks is also forecast to grow appreciably, as is growth of technical films, agricultural films, heavy duty sacks and shrink films. In terms of individual resin types, AMI predicts that LDPE will continue to decline in market share as processors adopt usage of more sophisticated linear resins in increasingly complex formulations, resulting in market growth of metallocene and higher alpha-olefin LLDPE grades.
Two million tonnes of new BOPET film capacity, but is it enough?
After the supply shortages of commodity bi-oriented polyester (BOPET) thin films in 2010, the global BOPET film industry has done its best to ensure global supplies will not dry up again – or has it? PCI Films Consulting published a review last year which stated that the commodity BOPET thin film market notes a significant increase in film extrusion capacity in recent years, with more planned for the next three years. However, PCI claims that two million tonnes won't necessarily guarantee supplies to Western markets.
Since the supply shortages of 2010, demand in the global thin (i.e. less than 50 micron in thickness) BOPET film market has grown by 250,000 tonnes (5% p.a.), awaiting the expected global recovery. But this growth has been more than matched by the installation of 700,000 tonnes of new film extrusion capacity.
By 2017, PCI states that the global market is expected to use another 900,000 tonnes of thin film and suppliers are gearing up for this with investments in an additional 1.3 million tonnes of new capacity.
PCI believes that westernised regions, such as Europe and North America, continue to be major importers of BOPET thin films because their local industries are not large enough or competitive enough to meet local demand. The report acknowledged new capacities in Turkey and Poland and two new plants in the US, but believes that these will do little to absorb the current volume of imports into these regions, let alone meet future demand.
Europe’s flexible packaging industry
More recently, towards the end of 2013, PCI reported weaker demand across a number of national markets and lower raw material inflationary pressures, which it claims were the two main factors slowing value growth in Europe’s flexible packaging market as a whole in 2012.
PCI found that in 2012, annual value growth in flexible packaging slowed to 2.1%, down from over 5% in 2011. Weaker demand from flexible packaging buyers as they responded to static sales of packaged food by reducing stock levels was one contributory factor. Another was that the industry was able to avoid a repeat of the inflationary pressures experienced in 2011 when the cost of plastic films, foils and papers, inks and adhesives rose significantly and in order to maintain margins converters had to pass these increases on to customers.
Report author Paul Gaster said: “While value growth has slowed, European consumption of flexible packaging in volume terms approached 2% in 2012, confirming that flexible packaging continues to perform better than many other industries in the current economic climate”.
The report details some significant regional and national differences in demand trends. While there was modest expansion in Europe’s largest market, Germany, little or no growth was seen in the UK and France and there were real declines across Southern Europe in Italy, Spain, Greece and Portugal. On the other hand, the market in Turkey, Russia and Poland increased in value at more than twice the European average.
Consolidation continues to be another important factor changing the structure of the industry with Mondi Packaging’s acquisition of Nordenia International and the enlargement of Schur Flexible via a series of medium-sized acquisitions, being significant developments in recent years. As in past years, private equity firms played a prominent role in flexible packaging and one firm, Sun Capital, has made a series of acquisitions in Europe and North America to form Exopack Holdings. This company is now ranked amongst the top 10 players in Europe. Mr Gaster said: “Twenty percent of the flexible packaging industry’s sales in Europe are currently generated by private equity portfolio companies”.
