LONDON — Western Europe was looking up in 1997, as the sunshine of economic recovery penetrated even those nations slow to return to the path of sustained growth after years of recession.
Facing up to the daunting challenges of European monetary union, just ahead, and further expansion of their club eastward, the European Union states seem newly confident of strong economic growth during 1998.
Plastics processors generally have enjoyed the fruits of buoyant demand. Many saw sales volume grow strongly in 1997, but margins still suffered.
Now, processors anticipate similar growth of as much as 6 percent this year, although some sectors with special problems still foresee a harder time ahead.
Economic recovery has accelerated in France and Germany, which saw gross domestic product grow 2.3 percent and more than 2.5 percent, respectively, in 1997. Each expects its GDP to rise by more than 3 percent in 1998.
Britain, which should achieve a healthy 3.5 percent GDP growth for 1997, has set itself a more modest aim for 1998 of 2.5-2.75 percent. Italy saw a hesitant recovery, with demand up at home and abroad, and GDP is set to rise just 1.2 percent in 1997, with a target hike this year of 2 percent.
This year will be a significant one for EU nations, as the member states finally resolve which of them will be first to dip a toe in the unknown waters of monetary union in January 1999.
Most expect to be ready to adopt one currency, with all the uncertainties and change for business that will bring.
With the millennium in sight, the plastics industry in Europe is facing challenges of its own, including increasing environmental regulation, global market pressures, overcapacity and demands for technical innovation and lower cost.
The past year has seen major changes among plastics suppliers in Europe. Reorganization among resin suppliers was driven by an incentive for greater new technology sharing, said Fred Mader, retiring deputy director general of the Brussels, Belgium-based Association of Plastics Manufacturers in Europe.
The wave of restructuring is set to continue this year, he said.
During 1997, processors felt the pinch of higher raw material costs, and some found it difficult to pass the increases through to customers quickly, said Joachim Eckstein, president of the Brussels-based European Plastics Converters.
``We do not expect any dramatic price increases in the next year,'' Eckstein said, adding that EuPC believes producers are in a position to cover their costs and make a profit.
European processors outstripped predictions for 1997 with overall growth of 5-6 percent, against a modest forecast of less than 3 percent, Eckstein said. In addition to his EuPC post, he is director of the plastics and film division of Hoechst AG of Frankfurt am Main, Germany.
The best results were apparent in countries such as Finland, Italy, the Netherlands, and in Britain, where the sustained upsurge in the economy was reflected in plastics processing, Eckstein said.
Meanwhile, Germany was slower and the French industry was ``more or less stagnating,'' he said.
The upward trend was led by the European automotive industry, which has shown steady expansion since the recession of 1993. Plastics consumption in the sector was due to rise by about 132 million pounds in 1997, from the 1996 total of 2.97 billion pounds, according to figures issued by Mavel SA, a Paris-based consultancy specializing in materials for vehicles.
Other end-use sectors contributing to last year's market expansion were electrical/electronic, which enjoyed a good year, and packaging, for which 1997 turned out ``not bad,'' Eckstein said.
However, the construction market, which represents about 20 percent of the European plastics market by sales volume, remained sluggish, Eckstein said.
Eckstein predicts strong growth for plastics in Europe in 1998. The market should expand another 5-6 percent, based on swelling confidence among processors.
``Converters are more positive in their expectations for the business in 1998,'' he said.
Their optimism is based partly on a belief that most member states of the EU will opt to go through with monetary union, thus setting a firm course for future economic development in the region.
The forward thrust of Europe's powerful auto industry once more will set the pace for plastics in 1998. German car output will surge 5.3 percent, but French output will rise only 1.8 percent, said Michael Costes, Mavel chief executive officer.
Markets in Italy, France and Spain have benefited from government incentives to replace old cars with new, more-efficient, small models. Mavel also predicts the number of vehicles in Eastern Europe will jump from 1.8 million in 1996 to 2.6 million by 2001.
Meanwhile, the construction sector is due to recover, reflecting the success of more government programs designed to reduce the cost of buildings, Eckstein said.
In Britain, the boom in new-home construction and remodeling has lifted prospects for extruders of pipe, profiles and trim products, said Vic Roberts, marketing director of Polypipe plc of Doncaster, England. He also mentioned Poland and the Czech Republic as hot markets.
Harmonization of European standards for building products, due in a couple of years' time, should boost business, Roberts said.
Processors in the huge packaging sector feel confident about 1998, Eckstein said.
``The environmental pressure of the past is gone and people believe again in plastics for packaging,'' he said, citing the positive image of PET today.
Enormous market potential still awaits PET in Europe. In Germany, for example, PET still holds a small share of the beverage packaging market.
Even PVC use in packaging is growing again. Eckstein said that, after PVC saw a decrease in its packaging market share from 1992-95, sales leveled off in 1996. In 1997, PVC achieved 5 percent growth.
Difficulties still face some packaging sectors, especially blow molded containers and polyethylene film. A big shake-up can be expected among northern Europe's packaging blow molders in the face of continuing overcapacity, predicts Stephen Nobbs, finance director of blow molder Plysu plc of Milton Keynes, England.
Market growth has been insufficient to absorb overcapacity in a sector that has been in desperate need of significant consolidation for more than two years, Nobbs said. Plysu has units in England, Belgium, France, Germany, Spain and the Netherlands.
Tight employment laws so far have inhibited restructuring. Two manufacturers — one each in Germany and the Netherlands — went out of business in 1997, and a third may be headed in the same direction, Nobbs said.
Plysu has set its sights on expansion in southern Europe, but also has been approached to buy out more than one ailing blow molder in northern Europe.
Meanwhile, PE film producers in Europe are feeling the pressure of import competition from Asia, particularly in the retail bag area. Far Eastern converters benefit particularly from lower raw material and labor costs, Eckstein said.
The top player in the market, British Polythene Industries plc of Greenock, Scotland, laid off about 100 workers at two English plants in 1997. Even so, it has continued an aggressive acquisition program in Europe and has launched its own extrusion and bag plant in China.