LONDON (Jan. 13, 10:30 a.m. EST) — Recovery showed few signs of emerging in Europe in 2002, and fewer plastics commentators now predict a solid industry revival before the end of 2003.
Bullish forecasts from late 2001 proved more vain hope than substance as Europeans awaited the expected lead from North America that never came.
The region's plastics processors had anticipated 2 percent growth in 2002 and 5 percent in 2003, according to a study last year by the European Plastics Converters (EuPC) trade group. But both predictions look rosy in the light of 2002 performance, which, on the best estimate, has the sector up by less than 1.5 percent.
“With the stock market disaster in 2002, we were too optimistic in last year's report,” admitted Frank Wittendal, who compiled the report for Brussels, Belgium-based EuPC.
There were few bright spots. A normally buoyant packaging market could manage to grow only an estimated 1.5 percent against the EuPC report's bold forecast of 3 percent.
Construction remained in the doldrums, mainly held down by a crippled German industry. Even so, some brighter spots appeared including Spain, where annual construction growth rates are staying around 5 percent. Overall, the profiles segment saw a further decline of more than 2 percent across the region, while Germany experienced a fall of 6-7 percent.
Confidence, or lack of it, played a crucial role. The aftermath of Sept. 11, additional acts of terrorism around the world and a string of U.S. corporate scandals helped deepen uncertainty in Europe.
Germany, which represents a third of total euro-zone output, turned in a paltry 0.4 percent gross domestic product growth in 2002. The switch to the euro currency apparently contributed to the regional slowdown. Consumers in a number of countries slowed spending, deterred by a perceived rise in prices following the switch from their local currencies. Taken together, the euro zone's 12 national economies achieved a paltry 0.8 percent economic growth last year.
Growth is healthier in Central and Eastern Europe. Poland is set to achieve GDP growth of some 3.4 percent, while Hungary is expected to grow more than 4.1 percent and Turkey should increase its GDP by 3.5 percent.
After last year's crises and disappointments, forecasters are wary of making firm predictions for 2003. Initial cautious expectations see the euro zone as a whole managing growth of 1.1 -2.1 percent.
The economic gloom in 2002 had a generally dampening effect on most markets for plastics. Even the resilient packaging segment felt the slowdown, despite the continuing bonus of plastics substitution.
“We certainly suffered from the economic downturn both in food and nonfood packaging areas,” said Bernhard Borgardt, chairman of the EuPC's packaging division.
Nonfood packaging producers felt a direct hit from lower demand due to the economic slump. Food packaging proved more positive, but both areas were influenced by increases in raw material prices, according to Borghardt, who is sales director of RPC Packaging Holdings GmbH, a Kutenholz, Germany, subsidiary of European rigid packaging leader RPC Group plc.
“The fluctuation of prices is the greatest concern to converters,” Borgardt said.
He is cautious about 2003. If maximum economic growth turns out to be around 2.5 percent, a 2003 packaging figure of 3 percent would be “brilliant,” he said.
Faced with fiercer competition, and squeezed between powerful resin suppliers and customer groups, packaging producers are being forced down the road of consolidation, he said.
“We are squeezed in the middle of a powerful sandwich. Pressure from the customer side, particularly in food packaging, is growing on converters. In Germany, 10 companies now dominate with 90 percent of the food retail market.
“There is still a need for consolidation [in the European converting sector], but mergers and acquisitions have suffered in general from the dullness of the market,” Borgardt said.
Most key acquisitions in 2002 were aimed at taking out volume capacity, said David Williams, newly elected president of EuPC, which represents 30,000 European processors.
He is concerned about a slowdown in capital investment by processors.
“It is worrying that investment in new equipment is just not taking place now,” said Williams, a former president of the British Plastics Federation and current managing director of Linpac Group Ltd., an international packaging, auto parts and materials-handling company in Louth, England.
Foreign companies may become bigger players in the region, including South African packaging firm Nampak Ltd. and Australian giant Amcor Ltd. But there are signs too that some U.S. groups may be eyeing fresh opportunities across the Atlantic.
“We could see companies like Tyco [International Ltd.] and Pliant [Corp.] coming back into Europe,” said Nicholas Spoliar, London-based packaging analyst at brokerage house West LB Panmure.
Still, Spoliar sees some European companies like RPC in a stronger position to succeed. The British group established production on the continent and successfully is “feeding back sales” into Britain, he said.
In 2003, packaging producers in Europe hope to settle the long-delayed revision of European Union regulations for recycling packaging waste. Processors' greatest concern is whether legislation setting higher targets for recycling will acknowledge the tons of plastic waste currently exported to the Far East.
In the electrical and electronics segment, many European suppliers have been climbing back out of the hole left by the global telecommunications crash. Some have diversified to focus on the automotive, electronics and medical-device markets. Those firms include Finland's Perlos Corp. and United Kingdom molder Carclo plc, both now investing in new clean room facilities.
The tough times have prompted a number of electronics component molders to move work to new plants in low-cost central Europe or Asia, chiefly in China.
For most European processors supplying the automotive sector, the market was stagnating during 2002 with little or no growth. In France and Britain some car industry growth was visible but, like the rest of the region's processing industry, the result was patchy, according to EuPC's Williams.
The past year has seen further consolidation in the auto component supply business. Capacity has been reduced as supplier plants, notably in Britain and France, have pulled out or simply closed down. Restructuring injection molder Moll Industries Inc. of Davie, Fla., was among parts suppliers that closed loss-making operations in Britain.
Despite the lack of growth and tight margins, there still are those in the industry who see business for the taking. British entrepreneur Jeremy Stoke, chairman and owner of Stadium Plastics Ltd., was one of the rare buyers of a plastics processing company in the tight 2002 market.
“We're increasing our focus on automotive. Now the balance is about 50 percent automotive, but by the end of 2003 we expect this area to represent 95 percent of our business,” Stoke said. Stadium Plastics of Hartlepool, England, has benefited from new work resulting from the introduction of new car models including the BMW Mini.
But, success in the competitive market depends to a great extent on operating efficiency. Stoke forecasts further consolidation during the next two or three years, eventually resulting in the dominance of two or three volume players.
Plastics processors readily admit that their business will remain tough. Certainly, 2003 is not going to be an easy ride, but is a full recovery likely by year's end?
“I wouldn't hold your breath for it,” Williams said. But most leaders believe processors have held up well under difficult circumstances.
“We are still very strong in Europe. The industry is doing a far better job than many would say it is. Too often, we see the cup as half empty and not as half full,” Williams said. A key to achieving growth is fresh innovation.
“What we need is innovative products and those that give customers added value benefits. If we do not do that, there is just not the scope for new growth in a well-developed economy like Europe,” he said.