Packaging Europe

Whereas mankind has produced packs and containers from minerals, metals and paper for centuries, the mass utilisation of polymers can still be measured in decades. Today plastics are one of the most widespread and fastest growing packaging materials, challenging their venerable competitors in almost every market. Ron Marsh, CEO of RPC, and Soeren Marcussen, regional director at Superfos, relate the industry’s big issues and future direction to Tim Sykes.

“The versatility of plastic – in terms of shape and functions – is what drives its growth," says Ron Marsh. “I don’t know a single packaging market which has converted to plastics and then abandoned them, because once the consumer has got used to its advantages, there is no way back. There are classic examples such as lubricating oil, which used to be sold in an oblong can, something that would be unthinkable to consumers of Castrol GTX today."

The attraction of such versatility has of course been underpinned by cost advantages down the supply chain associated with using relatively cheap and lightweight plastics. In some European markets, rigid and semi-rigid plastics represent as much as 40 per cent of the packaging market. And the share continues to grow.

Pressures

Yet despite this, the last two years have been challenging for plastic converters. Record oil prices in 2008 put unsustainable pressure on margins, before that problem gave way to the deeper crisis in the world economy.

So how has this been experienced on the ground? “The weak European construction market has had a negative impact on the very important paint segment," says Soeren Marcussen. “But as the products for consumer foods have been more independent of the economic climate, Superfos has been able to show a stable development. On the basis of improved gross margins and completed action programmes Superfos has improved earnings in both Europe and the US and increased market shares in 2009."

Mr Marsh paints a similarly benign picture. “There have been some volume issues in packaging, but nothing like as great as the other markets that use plastics," he reveals. “Retailers’ volumes are slightly up on a year-on-year basis, and this is a good indicator. So packaging hasn’t been too severely hit. What has happened is a drop in the input costs, something that was desperately needed. The situation that existed at the end of summer 2008 was completely unsustainable. The costs of polymers, but also outer packaging, haulage and electricity all felt the impact of oil, and at $150 the whole industry was in dire straits. So while there have been pressures on sales over the last year, the cost environment has at least improved. Meanwhile, though polymer prices have gone up in recent weeks, I don’t expect them to increase in the longer term, particularly with a view to the capacity that is coming on stream, which we can expect to bring cost advantages."

Perhaps the greatest pressure of the European recessionary period has been the tendency towards destocking, a process which according to Mr Marsh has already come to an end. In fact, he raises the possibility that “we’ll see some bouncing back of stock levels: although everyone can see the advantage of preserving cash by keeping stocks low, there is a risk of missing out on sales as a result. Therefore, some companies swing back in the other direction after destocking."

Ongoing growth

Throughout these hard months, which have of course impacted on other packaging materials as well as polymer-based solutions, the long-term favourable trends for plastics have remained on course, continuing to win market share.

“Plastic holds several advantages over metal and glass: lighter product weight, easier stacking, lower transportation costs and easier handling in production," points out Mr Marcussen. “Plastic is very hygienic and highly resistant. It reacts very flexibly to impacts, which means low risk of breakage. At the same time, it has a high degree of design possibilities, from transparent to all the colours of the rainbow, and that makes it very attractive to work with. New groundbreaking research has lead to extremely good barrier properties even in injection moulded packaging. As a result rigid plastic packaging has now become a very interesting prospect for conversions from metal or glass and also from other packaging material and production methods such as thermoforming. On top of this add all the freedom of shape, design, convenience and excellent decoration and you have a really good opportunity to stand out and increase sales."

Mr Marsh supports this optimistic longer-term assessment. “I personally take a rather downbeat view of the recession, and don’t foresee a significant recovery in the next 12-18 months, which isn’t marvellous news for volumes in the short term. A significant part of our industry has been suffering severe difficulties, but I’m afraid there is more pain to come. A lot of the private equity groups have yet to refinance, but will have to in the end. However, in the medium to long term rigid plastic will continue to grow as it always has done."

In addition to further building on market share in Western economies, there is considerable scope for growth by ‘catching up’ in emerging markets. For instance, through its subsidiary Superfos has established a new factory in Algiers as part of its growth strategy for the fast growing markets in north and west Africa.

“Plastics have penetrated most of the major markets," concludes Mr Marsh. “The progressive penetration of plastics is the key trend. For example, tomato ketchup has existed in plastic bottles for many years, but only recently has it vastly outgrown glass as a competing material."

Suited to innovation

Given its unparalleled versatility, plastic packaging is often the beneficiary – and sometimes the instigator – when a market takes a big step forward. Mr Marsh brings up the example of its inroads into the coffee market, which has traditionally been dominated by glass jars. “Although glass jars have not been displaced for instant coffee, more and more coffee is consumed using closed loop systems, such as the ones we supply to the ‘Dolce Gusto’ and ‘Tassimo’ brands," he points out. “These inevitably use plastic, because the disks or pods require such a high level of performance. This isn’t a case of like-for-like replacement, but we have a market moving towards consumer habits which require plastic because they demand something more sophisticated than a glass jar."

According to Mr Marcussen, innovation is a key driver in product development and the ongoing relationship with the customers. “In addition to developing new product solutions, Superfos carries out a lot of testing for its customers as well," he says. One such example is featured in this edition’s headline news pages: tests that show that the right combination of components increases the barrier properties and keep products such as cabbage and jam fresh for a long period in plastic containers. “The improved oxygen barriers can be used to either increase shelf life significantly - up to two years - or simply to secure a better product quality at the existing shelf life. The trend is clear in Europe. The combination of barrier properties and convenience in plastic is highly desired."

Convenience is – as ever – one major feature about rigid plastic packaging that constantly drives new innovations. “We have had great success with out patented SuperSeal design which eliminates the need for a membrane sealing foil and yet offers the convenience of a re-closable snap-on lid," remarks Mr Marcussen.

“Most of our packaging is customised – normally we are working with brands," says Mr Marsh. “Closed loop coffee systems. Billion unit launches from a standing start. Innovation is the key to achieving these sorts of breakthroughs. Because the industry has been facing straitened times recently, there are not so many groups offering that level of innovation. The availability of innovation within our industry – and the willingness of players to invest in it – is much less than it was three or four years ago. It is very unusual at this moment to encounter rigid plastic packaging companies that are investing in capital equipment and innovation. Not many of them have a financial structure to enable them to do it. Our share price has indicated that there is widespread recognition of what’s going on at RPC at present, and in particular that we are unusual in being financially robust and willing to invest, and the trading statements we have made up till now suggest the forward prospects are good."

Responding to the green challenge

“Plastic packaging is adapting to a changing world, in which containers are generally becoming smaller, thinner, more economical and sustainable," says Mr Marcussen. “Superfos only uses PP due to innovations, which can transform collected mixed plastic into perfectly usable recycled plastic. The use of recycled plastic brings massive reductions in the CO2 emissions of a packaging product. Generally speaking, it is possible to reduce the carbon footprint significantly through the use of post consume raw materials. A good example on these savings is Superfos’ first packaging solution produced from 100 per cent recycled material, UniPak Eco™. The solution is used by Aquados for laundry detergents. As Aquados use around 1,960,000 containers per year, the yearly savings add up to 92 tonnes of CO2 – equivalent to the emissions from an average car going around the world 14 times.

“Growing demand for sustainable products calls for closer cooperation between companies with green ambitions. The reduction of CO2 emissions is very important to both Superfos and our customers’ green ambitions. Within our plastic products, we are doing a lot of research into further weight reduction – without compromising the quality or design of our packaging solution. Superfos also focus on reducing CO2 emissions in our production processes and on raw material we continuously look into new methods for easier recycling."

We have also seen a growth in carbon measurement within the plastics industry, as it takes steps to reduce (and be seen to reduce) adverse effects on the environment. Superfos, for instance, has developed a CO2 calculator, which can work out the total CO2 emissions – from raw materials to factory gates, encompassing all processes in the production flow. The strain on the environment can then be estimated for different product solutions, so that every customer can make an informed choice about their carbon footprint.

Meanwhile, Mr Marsh predicts a much greater role for biopolymers, which are derived from renewable biomass sources rather than fossil fuels, therefore offering carbon neutrality and biodegradability. “They will come, there’s no doubt about it," he states. “I doubt whether they’ll appear in large volumes in the next three to five years, but in five to ten years they will be a substantial source of material for the industry."

…and if and when bioplastics arrive in sufficient volumes to present a viable alternative to oil-based polymers, they will remove the only question marks that hang over projections of continued long-term growth: plastic’s present dependence on a depleting resource that contributes to global warming.

Marden Edwards

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