AWA Label Study:

By Jack Kenny | May 24, 2011

A qualified recovery through 2010

The label industry is recovering. Judging from reports from individual companies, that recovery could be considered strong and perhaps ahead of the pace of rebuilding in other manufacturing industries. For some converters the impact of the recession was minimal. For most, however, it was measurable. Many companies were able to get by without a reduction – or much of a reduction – in the labor force. Others, of course, suffered.

But the packaging industry is strong. Among segments in the overall print industry, it maintains an enviable health, even growth. Packaging and labels are critical to the life of a brand, and brand owners know that they cannot afford to make sacrifices in product identification and decoration during a weak economy.

"The year 2010 can be regarded as a year of qualified recovery for global and regional label markets. In 2009 there was a gradual transition from the rapid declines of 2008/early 2009, and, in 2010, label markets in general built on that transition to show positive growth." Thus begins Labeling & Product Decoration Markets: Global Review 2011, a comprehensive study newly published by AWA Alexander Watson Associates. The report is subtitled Annual Global Market Review for Labelstock Producers, Material Suppliers, and all Companies involved in the Product Decoration & Identification Market.

The positive opening statement is followed immediately by a caveat: "However, this growth should be qualified by reference to the economic performance of regional markets, and by a consideration of the effect refilling inventories in a depleted supply chain had on actual demand."

China and India have the distinction of showing the highest label market growth rates, says the study, and South America is not far behind. Both regions were somewhat insulated from the economic strife, and demand and investment remain strong. But they face the threat of inflation, driven in part "by inflows of foreign capital, and the possible imposition of tighter monetary controls to curb inflation could adversely affect forward growth."

In 2010, the use of labels showed improved growth over 2009 with a global demand estimated at 43,400 million square meters (467,153 million square feet) – nearly 6 percent over 2009 volumes.

Times remain tough in Europe, and the report cites its fragile economies and concerns about sovereign debt, which have led to cuts in spending and a rise in unemployment. Still, "the European market showed considerable recovery in volumes in 2010 driven by the Eastern European demand and a need in Western Europe to replenish depleted inventories. There may also be an element of companies purchasing label base stocks in anticipation of further price increases and shortages through 2011."

Across the Atlantic, tax breaks and more borrowing are driving the US market, practices that might stimulate short to medium term growth, AWA says, "but at the expense of increased debt and the risk of increased future interest rates slowing future growth."

Pressure sensitive and glue applied labels still dominate around the world, with a combined market share estimated by AWA at 81 percent. "This is a fall from the 82 percent estimated in 2009, and a marked decline from the 85 percent level set in 2008."

Volumes of PS labels showed a strong recovery in 2010, the study finds, meeting or exceeding the 2007 levels reported before the market downturn. "Overall, the global market for pressure sensitive labels is estimated to have grown by 8.5 percent in 2010 with strong growth in North American (+5.5 percent) and European (+10.5 percent) markets, supported by continued growth in the expanding Chinese, Indian, and South American regions."

For glue applied labels, growth is estimated at around 4.5 percent.

Sleeving technologies (heat shrink, stretch, Roll-on-shrink-on) account for around 12 percent of global label volumes. Heat shrink sleeves have been growing in popularity and continue to do so in most markets, mainly in North America and Europe. Growth of the various types of sleeves is said by AWA to be at around 5 percent.

Several drivers are in play when considering growth by label format. These include: recovery of market demand in developed regions such as North America and Europe, and ongoing growth in emerging markets; rebuilding of inventories in support of improving business demand; and the impact of higher energy costs.

Though it represents only about 2 percent of label production worldwide, in-mold label applications show a positive growth profile 2010. "Growth was again realized in all regions except North America, where there were marked declines in volumes." Overall, global growth in 2010 for in-mold labels is estimated at 2.5 percent.

The 2011 AWA study takes note of the rising pressure on label converters from two sides: supplier and customer. Brand owners and end users, also faced with shrinking margins, make continual demands for lower prices. In the other direction, suppliers – particularly purveyors of substrates and of inks and coatings – are forced to pass along price increases placed upon them by raw materials producers.

"The costs of polymers, films, papers, inks, and energy were all

Overall global label market growth at 5.5-6 percent is driven by market growth in China, India and South America, and market recovery in US and Europe. European label market growth is slowest in Western Europe, with Eastern Europe contributing strongly to overall growth in 2010.
showing considerable increases throughout the year," the report notes. "Such price pressures have resulted from increased costs of raw materials that are a result of reduced availability in several areas. There are shortages of key ingredients as manufacturing capacity was shut down or reduced during 2008-2009 and not re-started, or there is increased competition for materials from other applications. An example of the latter is the demand for PET films in displays and screens, providing higher margins for film manufacturers compared with the demand in labels, thereby increasing prices and lead times."

AWA turned to Chicago-based Blaige & Company to provide some details about consolidation in the packagting market. Last year, merger and acquisition activities rose from 41 deals in 2009 to 52 in 2010, exceeding the eight-year average of 40 deals. And the pace continues in 2011. Such activity, says the study, is aimed at gaining market share and expanding product offerings. According to Blaige, private equity is involved in a quarter of all deals.

"Despite these ongoing activities," says the report, "the labeling segment of the product decoration market remains extremely fragmented. In North America and Europe, the numbers of printers/converters in each region exceeds 3,000 – out of step with other packaging forms.

Global economic growth is predicted to grow at 4.4 percent in 2011, according to the International Monetary Fund (IMF). That's down from 5 percent in 2010, and a bit under the 2012 projection of 4.5 percent. The world is looking to emerging economies for the highest growth, estimated at 6.5 percent overall, with China forcast to grow at 9.6 percent, and India 8.4 percent. "Emerging economies now account for almost 40 percent of global consumption and 50 percent of global growth, with only 13 percent of the net global public deficit," says AWA. "The strong growth in these economies is critical to ongoing global recovery.

Growth is expected to be slower in the more advanced economies. "The IMF considers European economic health to be weak with concerns on sovereign debt, availability of capital, and unemployment. Growth in the Euro zone is forecast at 1.5 percent. In the US, growth forecasts have been improved to 3 percent for 2011 from estimates of 2.3 percent in late 2010, but are forecast to slow in 2012 to around 2.7 percent."

AWA says that these economic growth figures are indicators for label demand. "From historical patterns, label market growth in developed regions will broadly follow these economic growth patterns, and with volume growth in emerging markets being a multiple of the local economic growth."

The Labeling & Product Decoration Markets, Global Review 2011, published in April, is available from AWA Alexander Watson Associates via its website, www.awa-bv.com. The report contains a CD-ROM with exhibits, charts, and graphs for downloading and utilizing in Powerpoint presentations.
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