Europe's plastics processors expect to enjoy the fruits of continued national growth in 1999, albeit in most cases at a slower pace than that of 1998. But some sectors still face the stubborn pressures of a world slowdown and recession.
Western Europe was preoccupied in 1998 with the birth of its new currency, the euro, and the launch in 1999 of a giant, single economy fit to challenge the might of the United States.
On Jan. 1, the euro-zone began to take shape. It embraces 11 of the 15 European Union member states and forms a single-currency market with a population of 290 million.
Plastics processors in the region welcomed the euro. Processors feel the euro will make the region more competitive, simplify cross-border transactions and expand industry production as new markets open up and confidence boosts demand.
Britain, Sweden and Denmark remain skeptically on the sidelines of what has been dubbed Euroland, while Greece hopes to qualify to join in 2001.
In 1998, the main European Union national economies enjoyed firm growth, though some still lagged behind.
``It was not such a bad year for the converters. We saw growth of between 3-4 percent during 1998,'' said Joachim Eckstein, vice president of the region's plastics processors' federation, the European Plastics Converters (EuPC).
A year ago, Eckstein had predicted rosier growth of 5-6 percent for 1998. He blamed the slower, actual rate on a variety of factors: more imports from Asia and fewer exports to that region, and high unemployment in Europe. Also, the region's construction sector did not display the long-awaited recovery in 1998, he said.
European processors also felt the effects of a mid-year Russian financial crisis.
``We were surprised to hear that, for example, yogurt was exported to Russia, and fillers [of plastics containers] lost business because of the crisis,'' said Eckstein, the immediate past president of Brussels, Belgium-based EuPC. He also is director of Infraserve Hoechst GmbH, a unit responsible for environmental and product safety for Hoechst AG's film and plastics operations.
Plastics processors are looking forward to a reasonably vibrant year ahead. Eckstein predicted industry expansion of 3-4 percent.
He believes the euro promises a boost for processors.
``We have realized that the euro will help the industry to become more competitive. There will be more export business inside the EU. Historically, it was not easy for a German company to export to Italy. Now it will be easier because there will be no exchange-rate influence on prices,'' he said.
``It is easy to calculate and trust in the price you get. There is no difference between the invoice and payment stage for the converter,'' he said.
The common currency will make converters more competitive, allowing many to shift from being domestic to euro-market players. This will mean new investment in bigger, higher-capacity processing machines, he predicted.
In the past year, the region's plastics industry saw continued consolidation and restructuring, most notably in the resin business. Europe's 30,000 plastics processing companies enjoyed the very low cost of oil, reflected in sustained basement prices for polymers.
In packaging, Eckstein predicted plastics will gain 4 percent in volume in 1999, despite efforts at source reduction. Plastics will continue to gain ground on other materials. In Germany, for example, PET will invade the one-way bottle market for colas and mineral water. PET also is entering the beer sector.
Still, the European packaging industry is suffering from overcapacity and remains ripe for consolidation, said Ron Marsh, former British Plastics Federation president and chief executive officer at RPC Group plc, a Raunds, England, packaging company.
``The plastics packaging industry is having a tough time as far as the level of performance it is achieving is concerned. One must question if, as an industry, it is attracting sufficient return on capital expenditure,'' he said.
RPC, which does thermoforming, blow and injection molding at sites across Europe, will continue to contribute to consolidation.
``There are some players whose performance is so bad, you wonder whether they want to stay in [packaging] or whether they are looking for a way out,'' he said.
Greenock, Scotland, polyethylene film extruder and converter British Polythene Industries plc Chairman and CEO Cameron McLatchie agrees 1999 will see a shake-up.
``It's going to be a very difficult year for the sector. We are working in an industry that has thought tonnage, but the new material is thinner and of higher standard. That is going to shake the tree again in 1999 and some [players] will fall down while some will grow bigger,'' McLatchie said.
He also pointed to the need for new machinery to meet demands of the unified European market.
In 1998, BPI underwent radical restructuring, laying off 500 and selling or closing five plants to deal with underperforming operations and tumbling profits. McLatchie is skeptical that the euro, ``even if it flies,'' will compensate for overcapacity and film downgauging. But BPI expects to acquire new strength in mainland Europe this year.
Europe's packaging industry still is wrestling with the implications of the EU's Packaging & Packaging Waste directive, which was designed to harmonize recycling laws across the union.
``They are already starting to review the directive in Brussels. The critical focus is now on what is going to follow it in 2001. It will be catastrophic if they simply ... ratchet up the targets [for recycling],'' Marsh said.
The major driving force in plastics' 1998 progress was the automotive sector, representing about 10 percent of plastics consumption, which reported record expansion. The fragmented plastics parts industry showed signs of consolidation, reflecting a restructuring among vehicle builders and their increasingly global demands.
``Consumption was very strong in Europe during 1998. There was new consumption because confidence had returned. It was an all-time record year,'' said Michel Costes, CEO of Mavel SA of Paris, a European consulting firm specializing in materials for vehicles.
Mavel estimates annual automotive sector consumption of plastics rose in 1998 by 4.5 percent to 3.26 billion pounds. But the firm predicts a slight drop in 1999, back to 3.23 billion pounds, and then a rise to more than 3.33 billion pounds in 2000.
Headliner and surface material supplier Benecke Kaliko AG in Hanover, Germany, benefited from record growth in 1998 with a 20 percent sales-volume rise, said General Manager Ulrich Kepper.
He doesn't expect to match that jump in 1999, with some car companies talking about trimming production at some plants. Kepper concedes plastic auto parts in Europe may see growth of 1-2 percent this year, but his firm has budgeted for a drop of 5 percent. He foresees problems for Fiat, now that Italy has ceased an incentive scheme to boost sales of smaller, modern cars.
In Britain, component suppliers faced a wretched year, partly the result of the strong pound sterling. One supplier claimed the exchange-rate disadvantage hit its competitiveness by 10-15 percent last year.
In the electrical/electronics sector, 1999 should see growth of between 5-6 percent with huge demand in the mobile telephone manufacturing area, according to Eckstein.
He is less sanguine on the construction industry, which still is unlikely to expand much despite the need for government programs to build infrastructure and an expected kick start for confidence with the euro's arrival.