European Label Markets

By John Penhallow | September 8, 2011

Between green and growth, Europe's converters and suppliers face the challenges of change

Paper, film, labels, and packaging are sensitive environmental issues worldwide, and Europe is no exception. Legally, all European Union governments are bound by the European Directive 94/62/EC of 20 December 1994 on packaging and packaging waste. This document, which runs to 6,200 words in its original text, not counting the 47 amendments, is not exactly light reading. It also fails to determine the fairly important issue of whether release liner is packaging or not.

How sensitive Europeans are to environmental issues seems to depend on the latitude in which they live. Scandinavian label and packaging producers, like their citizens, are eco-responsible to a fault. In Germany the Man in the Strasse is quick to condemn the evils of packaging (and he doesn't like nuclear power either) and German label converters never miss an opportunity to air their environmental credentials. All glass bottles must be returnable (with a refundable deposit). This is why Germany's label converters sell so many water-removable labels.

But "greenness" sometimes comes nose-to-nose with economic realities. Asked about biodegradable label films, Ralph Koopmann, boss of Germany's biggest label converter Rako, says, "We get requests for biodegradable polyethylene films, but at present they cost three times as much as normal PE films. That is why we have so far not ordered any." In Germany, too, many supermarkets have bins just next to the checkout desks where customers can throw "unnecessary" packaging and save space in the trunks of their cars and in their refrigerators. A very "green" acquaintance of your correspondent, having bought a particularly succulent Sachertorte, put the box into the supermarket bin, the cake into the trunk, hit a bump on the way home and spent the next hour picking bits of Sachertorte off all the rest of her purchases. There may be a moral here, somewhere.

The British are the ones who are most vocal in the Great Packaging Debate; no other Europeans spend
Germany, seen by many as the powerhouse of Europe, managed a 5 percent year-on-year rise in its GDP in Q1 this year, and a healthy 7 percent jump in industrial production.
so much time waving banners outside supermarkets. However, the Brits are still the ones who send most of their waste packaging to landfill. Britain has also introduced the "traffic light" health warnings for packaged foods (green for Healthy, orange for OK in Small Doses and red for Cut it Out if you Know What's Good for You). A straw poll by your correspondent seems to indicate that few Britons are even aware that this nutritional information exists on their labels. On the other side of the Channel, the French don't generally care about nutritional values, but still manage to stay slimmer than their European neighbors. This is probably just one of the reasons why the said neighbors get so annoyed with them.

Further South, life is more relaxed and so are attitudes to "packaging pollution." Southern Italy is perhaps an extreme case, but when garbage collectors are on semi-permanent strike (as they seem to be in Naples), it seems pretty irrelevant to get worked up about returnable bottles and the like.

The Great Release Liner Debate
The one thing that brings a cold shudder to pressure sensitive label converters, their suppliers and their customers is the risk of legislation to penalize or regulate used release liner. This threat could any day leap out at them as the 48th amendment to the European directive already mentioned. The Europe-based label association FINAT has set up a study group to look at all aspects of recycling, and in particular at the problem of used liner. Around 360,000 tons of liner are used every year in Europe, according to Thomas Baumgartner of labelstock producer Herma in Germany; around 90 percent of this is paper-based and, although the proportion of filmic liners is increasing, it is the paper-based liner that is attracting the attention of researchers. An estimated 290,000 tons of European liner still goes to landfill, says Baumgartner, whose company is actively promoting alternative solutions.

Silicone makes used release liner a hard nut to crack, both chemically and mechanically. Two European companies reckon they have the answer: Cycle4Green works with Austrian paper mill Lenzing; and Vertaris, in France, is in partnership with UPM. Both say they are on top of the chemistry, and that it is now possible for suitably equipped paper mills to recycle used liner economically. Both also say that costs of shipping used liner can be absorbed even over distances of several hundred kilometers.
So why is the program so long getting off the ground? And why is one of the mills involved threatening to pull out of the scheme if volumes of recyclable liner don't increase? The sad truth seems to be that major brand owners, while paying lip service to every kind of recycling, are just not very keen on sorting and storing used liner until the recycling truck comes by.

UPM Raflatac has made an excellent, sober assessment of the whole problem of PS labels and the environment. "Although the liner re-pulping is now ongoing with excellent results, it simply is not yet feasible to re-pulp the whole laminate construction with face, adhesive, silicone and liner," says UPM's Erkki Nyberg, director of business development. "The adhesive residues would be a challenge for the current technology at the paper mills." This encouraged UPM to search for other sustainable means of recycling labelstock waste, which has led to the creation of its RafCycle labelstock waste management concept. Label waste can be used as an alternative fuel for energy recovery, and UPM uses this method in its combined heat and power generation plants. UPM has also pioneered turning labelstock waste into UPM ProFi wood-plastic composite products, e.g., decking planks.

Any label you want, so long as it's digital
A staggering 73 exhibitors – that's 15 percent of the total – are showing digital printing or converting equipment at this year's Labelexpo in Brussels. One reason for this phenomenon is that Europe with its 48 countries and almost as many languages has more need of short-run printing than does the continent that gave birth to Henry Ford. Another reason, less specifically European, is that entry barriers are comparatively low for digital presses (not so low for digital finishing), and several OEMs from the packaging sector have jumped on the bandwagon. Third, most of the manufacturers of digital narrow web presses buy the print heads which are the heart of the machine – and the British company Xaar has done a good job both technically and commercially in promoting its digital inkjet print heads to machinery manufacturers throughout Europe.

Who's afraid of the big, bad dragon?
For more than a decade, Europe's narrow web machinery manufacturers have been worrying about China, and to a lesser extent India. Far Eastern participation at Labelexpo Europe is perhaps as good a barometer as any to test the pressure. At Labelexpo Europe 2001, a mere 10 years ago, there were two exhibitors from mainland China (out of 430 exhibitors). Two years ago Labelexpo Europe, with 440 exhibitors, attracted 13 Chinese. This year the Chinese participation will total 23 exhibitors. There will also be 10 from India and 16 from Taiwan. Far Eastern manufacturers are coming to Brussels to offer materials, both films and labelstock, and printing/converting machinery.

So far these companies have not taken a significant share of European markets. So far. Eric Hoendervangers, boss of Netherlands-based press manufacturer MPS, says, "Like all European press manufacturers, I recognize the danger from Chinese competition, which is both real and imminent, due to their lower labor costs. Fortunately for MPS, labor is only a small part of our total costs."

It may come as a surprise to some readers of L&NW that the other country perceived as likely to swamp European markets with low-cost capital goods is – the United States. Despite the dire state of Euro-zone indebtedness (and despite politicians' failure to get to grips with it), the dollar is still, at the time of writing, near its all-time low against the euro, encouraging imports from the US and making life hard for Europe's exporters. Chiara Prati of Italy's Prati Company, which makes narrow web finishing equipment, is not fazed by this situation. "We make and sell highly specialized top-of-the-range finishing equipment, and the dollar exchange rate hasn't caused us to lose customers to US-based competitors; quite the contrary, in 2010 we increased our sales in North America dramatically."

First quarter 2011 growth among European nations shows continuing strength in the eastern half.
The UK and Ireland turned in good results as well.

�and now for some facts and figures
Statistics, it has been said, is a subject chosen by students who find accountancy too adventurous. It has also been said, with rather more truth, that statistics are what politicians select to back up their prejudices. Nothing like that taints FINAT's annual statistical report on the European label industry, presented every year at the association's annual congress. For a start, the figures are provided by 12 labelstock manufacturers representing over 90 percent of European production, and covering deliveries to 30 European countries; they are collated not by FINAT but by an independent consultancy. They are therefore as close to reality as it is humanly possible for statistics to get.

FINAT reports that for the 2010 calendar year, aggregate European labelstock deliveries stood at 5.7 billion square meters (61 billion square feet), a 3.5 percent increase on the previous best year, which was 2007. Filmic label face materials continued their dramatic rise, while paper showed only a modest increase over the previous peak year. As FINAT Managing Director Jules Lejeune pointed out at the congress this year in June, over the 15-year period 1996-2011 paper rollstock consumption in Europe has almost doubled, but filmic rollstock has tripled.

When we look at the different regions of Europe, the variances around the mean are stark (see diagram). Leaving aside the two slump years of 2008 and 2009, we nonetheless see a pattern of sluggish growth in Scandinavia and Britain, but solid advance in the Central region, which is dominated by Germany, and surprisingly dynamic 2010 growth in Eastern Europe and in the Southern region. This last is particularly unexpected: The region includes Spain, Portugal and Greece, all of which have struggling economies, and we must assume (FINAT does not publish individual figures for each country) that rising sales in France, Italy and especially Turkey swayed the average.

These regional divergences are still clearer in the 1st quarter 2011 results, which show continued strong growth in Eastern Europe (year-over-year increase of 5 percent) while Scandinavia continues to be below average.

Average per capita labelstock consumption in Europe is 7 square meters. This average hides variations from 13 m2 in UK/Ireland, i.e., close to US levels, down to 3.5 m2 for Eastern Europe. Barring unforeseen political developments, we can therefore expect continuing growth in the Eastern part of the continent, and particularly in the dynamic economies such as Poland.

FINAT also plots business confidence among label converters and their materials suppliers. Results show a rebound of optimism peaking in the second quarter of 2010, followed by a dropping off toward the end of 2010 and early in 2011.

Market structure
The past two years have seen changes in the European paper market as major groups have consolidated their positions and smaller mills have been absorbed or gone out of business. For the labelstock business, however, there have been no dramatic changes. The same 12 European producers continue to supply 90 percent of the market. Newcomers from Turkey are hammering at the gates of Europe, but apart from Herma, no European labelstock producer has significantly increased its capacity since UPM Raflatac opened its plant in Poland in 2009. Despite encouraging noises from various suppliers, no other plant of this type has seen the day anywhere in Eastern Europe.

The narrow web machinery business in Europe is also amazingly resistant to structural change. A glance at the Labelexpo Europe Show Guide for 2001 shows that all the industry leaders in flexo and offset are still around, although a couple have changed ownership, and have been joined over the past decade by half a dozen newcomers mostly from outside Europe. For Europe's label converters, however, there is a definite move towards greater concentration, with market leaders like Schreiner, Rako, CCL, Skanem and Autajon expanding their market share, mainly by acquisition.

In France the Autajon Group in 2010 continued to expand and now has an estimated 12 percent of the French self-adhesive label market, and medium-sized groups like Barat and Le Mee have been active on the acquisitions front. Asked for his views on the future of Europe's PS label converting sector, Ralph Koopmann of Rako says, "The German and European label markets will continue to get healthier. There will be more concentration of firms in the converting sector. Major brand owners want reliability in label deliveries, and for this a supplier must have many presses – Rako for example has 80. In addition, the quality requirements are getting even higher. We need to be able to offer all print technologies – flexo, digital, offset, gravure, and screen, both individually and in combination."

Sales over the past three to four years shows strength among converters in Southern Europe,
fueled no doubt by the emerging prominence of Turkey in the label marketplace.

Input prices put the squeeze on
Increasing labelstock volumes are all very well, but as every businessman knows, what counts is not how much you sell but how much money you make, and with rising raw materials prices worldwide and generally low economic growth rates in Europe, most of the continent's label converters are feeling the squeeze.

Research consultant AWA tracks certain raw material prices, and contrary to expectations, price increases over the 12 months to April 2011 are not dramatic (with the exception of BOPP, which rose 60 percent over the two-year period to April 2011). glassine release liner and silicone are both only a few percentage points above their five-year average price. European label face papers, on the other hand, as tracked and reported by the magazine Pap'Argus, show 6 to 9 percent rises across all grades for the year to July 2011.

Falling crude oil prices will in theory work their way through to lower costs for petrochemical feedstocks and hence to films. For Europeans, however, the dollar/euro and pound/euro exchange rates are likely to be a major uncertainty factor over the months (years?) to come.

Making things to label
Apart from cricket bats, whisky and a few other essentials of civilized life, Britain, so we are told, has virtually stopped making things. France still has a significant manufacturing sector, but in both counties industrial production is falling as austerity measures start to bite. Spain, strewn with weed-filled, half-finished housing projects, saw its industrial production fall by 3 percent in the year to June 2011, and Greece's spiraled downward by a breathtaking 13 percent.

There will be no prizes for guessing the bright spot amid Europe's industrial woes: Germany. The country seen by many as the powerhouse of Europe managed a 5 percent year-on-year rise in its GDP in first quarter 2011 and a healthy 7 percent jump in industrial production (double that of the United States, but still a long way behind China). Interestingly, both Austria and Switzerland are also showing similar rises to that of Germany. So if you are looking for a vibrant manufacturing sector the watchword is simple: Sprechen Sie Deutsch!

Eastern Europe is still very much in the business of making things, but here as further West the differences between countries are stark, from rich industrialized economies like Poland to basket cases like Moldova. The Russian economy still dwarfs all others in the region (although its lead is being eroded) and opinions differ as to where it is heading. Industrial production in Russia showed only modest growth in the year to June 2011. As to the retail sector, according to Anna Sinyavskaya, head analyst of RBC Market Research, "In 2011 the Russian retail market is to witness a recovery in growth rates; however, outstanding increases should not be expected. According to the forecast of the Russian Ministry of Economic Development, the real growth rates within the market sector in 2011 will be lower than the previous year and will amount to 3.8 percent year on year. Given this, the year 2011 may be less vibrant than 2010."

Pick a winner
As a wise man once said, predictions are risky, particularly if they involve the future. Your risk-loving correspondent predicts that over the next 12 months the Old Continent will carry on much as before, the Euro Zone will hold together (just), a couple of label equipment makers will disappear, along with a rather larger number of label converters, and label markets will do better than average in Turkey, Poland and Germany. Rendezvous in a year's time to see how much of this comes true!