European plastics suppliers responding to change, says report
their margins, European plastic providers are changing the way they
operate by improving technical innovation and product branding;
adopting new price-management techniques, and increasing
integration across their supply chains, according to a new market
research report.
The Economist Intelligence Unit briefing paper, released this month, provides an insight for processors into possible strategies their plastic packing suppliers may take to adjust to market conditions in Europe.
That market is ripe for consolidation, states the report's author, Eric Johnson. Although demand is still climbing, growth rates are falling in a number of plastics markets, forcing companies to respond.
"The crowded European plastics market offers plenty of room for consolidation, both for converters and producers," he writes. "Firms will merge with and acquire each other to create greater economies of scale and to gain pricing power."
Increasing amounts of private equity is flowing into the market, changing the way many companies operate, partly by making it easier to take a longer-term outlook, he stated.
He identifies a mix of strategies plastics suppliers are taking, including a drive toward greater efficiency; improved technical innovation and product branding; new price-management technique, and increasing integration across their supply chains.
"Others are testing as yet unproven strategies,such as no-frills distribution," he stated. "However, it is far from clear right now which of these differing approaches will succeed in the long-run."
The European plastics industry is a mature industry with thousands of suppliers. Many are under threat by increasingly powerful competitors in the Middle East and East Asia long with the significant oil price instability.
Low-cost converters in East Asia and the Middle East are becoming increasingly tough rivals to the European plastics industry. Both the rising demand in China and uncertainty in the Middle East are exacerbating the problems of dealing with the oil price instability currently buffeting the plastics business.
"The enormous volatility and uncertainty surrounding crude oil prices is forcing firms to adopt new, as yet unproven strategies, such as price hedging on commodity exchanges," Johnson stated.
Most plastics are derived from oil or gas. The main types of plastics produced for a variety of industries are polyethylene, polypropylene, polyvinyl chloride and polystyrene. Producers usually manufacture bulk loads of plastic, mainly in the form of pellets, which range in size.
Pellets are purchased by converters who process them along with additives into end products, such as PET bottles or other food packaging containers, for example.
The report is based on interviews with executives from 20 plastics producers, converters and industry analysts and was sponsored by by Alastian, a company that sells PE and PP resins.
A major trend in the beverage packaging sector is the replacement of glass bottles by PET containers, according to AMI research in a report released last year.
Another report last year, from Freedonia, forecast above-average growth in plastic containers made for the food sector based on the improved heat resistance of resins such as polyethylene terephthalate (PET).
