Although the European labels industry has returned to pre-crisis growth levels, converters must plan for continued innovation in the face of rising materials prices and generational change.
In 2011 the European labels industry continued its recovery from the worst days of the global economic recession. But if converters do not keep up investment levels and find new, value added niche markets, longer term profitability levels could well be under threat as raw material costs continue to rise and retailers engage in price wars.
In his farewell speech, outgoing Finat president Andrea Vimercati summed up the situation very well. After warning that the European labels industry is failing to invest enough in training, ‘human capital is as important as investment in machinery’, he continued; ‘if label converters are to survive, they need to organize their operations in ways which encourage creativity and shorten the innovation lifecycle.’
Adding stress to this process are the challenges facing family-run businesses, which account for the great majority of European converters. ‘The first generation was always the innovator. How to deal with continuing change is the challenge of their heirs, who need a new vision and resources. They need to embrace the complexity of change,’ said Vimercati.
According to Finat figures, pressure-sensitive label demand in 2010 finally returned to pre-crisis levels, showing an 11.4 percent increase over 2009 and three percent increase over the 2007, the year the crisis started.
This ‘solid recovery’ affected both paper and film rolls. Paper demand grew by nine percent, but PS film continued to outstrip paper, growing by an impressive 15.3 percent over 2009. Since 2000, PS film consumption has grown by 50 percent and film now accounts for over 20 percent of European PS label consumption.
Southern Europe remains some way behind in its use of filmic PS labels, at around 30 percent of North and Central European levels. Paper labels represent 80 percent of the PS market in the South against 70 percent in North and Central Europe.
Geographically, demand in 2010 was strongest in East and Southern Europe, with Turkey, Russia, and Bulgaria the star performers with over 20 percent growth. This compared with an average four and a half to eight and a half percent growth in the developed North and Western markets, with Germany alone showing double digit growth.
‘Demand for PS labelstocks in Eastern Europe has more than doubled in 10 years, while regions in the North and West have remained stagnant over the same period,’ noted Finat secretary Jules Lejeune.
Last year Eastern Europe crossed the one billion sq m benchmark for the first time. But this represents a per capita consumption of only 3.3sq m against 15-18 percent in North and West Europe, so there remains huge growth potential.
‘It seems clear that in North and West Europe demand has reached maturity, although German, Austria, Sweden and Benelux have increased per capita consumption,’ concluded Lejeune.
The outlook for 2011 is for continued, if slower growth compared to last year. Growth slowed to 3.3 percent in Q1 2011, with film labels growing at over twice the rate of paper (8.9 percent vs 3.9 percent).
‘We have seen a gradual tempering of business optimism in our quarterly market survey,’ said Lejeuene. ‘Less than 20 percent of our survey group remain optimistic amid concerns about the risks that remain in the European economy and the continued rise in supply chain costs.’
Lejeune pointed out that in the year January 2010 to 2011 pulp prices increased by 20-25 percent, and resins by 25-35 percent. The constituent chemicals for adhesives rose by a staggering 65 percent and for inks by up to 30 percent. At the same time increases in the price of oil increased transport costs.
Another interesting result of the Finat quarterly survey is that converters are investing more in productivity improvements, and new sources of value added are being sought. ‘This includes clustering through strategic alliances, or making acquisitions to gain access to new technologies or global markets,’ explained Lejeune. ‘At the same time customers are outsourcing non-core operations, which presents new opportunities, as does customers’ search for sustainability. We have to embrace change to offer new value to our customers.’
Italy bounces back
A more detailed view of these market trends can be obtained by looking in detail at the situation in Italy, one of Europe’s most important label markets. Italy has some 450 label converters, 80 percent of whom convert PS labels with a total sales value of 900m euros. Exports are worth around 73m euros. The Italian Label Federation (GIPEA) converter membership represents 20 percent of the Italian industry, but 64 percent of Italian turnover. The Italian industry remains fragmented. Among GIPEA’s 87 members, 56 have a turnover of less than five million euros, and just 12 a turnover over 10 million euros. However, the biggest 10 converters account for 20 percent of the Italian market, demonstrating consolidation at the top end.
The Italian labels industry suffered along with the rest of Europe from the global recession, according to Alfredo Pollici, president of GIPEA. In 2009 converters showed negative growth of 3.7 percent, and smaller converters were hit particularly hard. But the industry recovered quickly last year, with a growth rate of nine percent – and over 12 percent for smaller converters.
GIPEA converter members have spent the last five years upgrading their print technology. In that period the share of letterpress has reduced from one half of all installations to just 15 percent, and its place has been taken by (UV) flexo. Most astonishing is the rise of digital printing from just one percent of installations in 2005 to 11 percent by 2010.
Action on liner waste?
No review of 2011 would be complete without mentioning the subject of release liner waste with the EU through its European Waste Directive threatening a possible crackdown on landfilling liner waste. GIPEA has responded by discussing a scheme for collecting liner waste with Channeled Resources, as well as lobbying the Italian government on liner waste issues.
When two years ago at the Finat congress in Turkey, a presentation was made on ‘cradle-to-cradle’ thinking, the speaker was widely dismissed as an idealist, or even a crank.
Today, cradle to cradle is fast becoming the new orthodoxy, championed by the chair of Finat’s Sustainability committee, Herma’s Dr Thomas Baumgartner. ‘If the EU re-categorizes liner waste as ‘packaging’ waste this will have a negative impact on our industry. We must get rid of this negative image and use these high value materials again.’
Commenting on the Cycle4Green (C4G) glassine liner recovery system, Dr Baumgartner said C4G has agreed to collect paper liner waste for free if it is over three tons. ‘This amount requires only six to eight stacked Europallets, so requires only two to three Europallets space.’
The material is delivered to Lenzing in Austria, which carries out the de-siliconization and makes the recovered paper available for the manufacture of new label papers.
‘The glassine and Kraft liners must be sorted and clean. There is a five day notice period for collecting containers and Lenzing does all paperwork for cross border traffic,’ said Baumgartner. Current capacity at Lenzing is 50,000 tons, but this can be increased.
‘It is very important to support these systems,’ he concluded. ‘But we have to include the whole process chain, since the big quantities are at the label end users. It is the printer’s job to contact their customers and Lenzing directly.’
UPM Raflatac also announced a major paper liner recycling initiative with French company Vertaris.
Vertaris already produces fine paper from mixed office waste and will now handle the de-siliconization of glassine waste and deliver it back to UPM as raw material for use in both label and liner manufacture.
Vertaris has a capacity of 200,000 tons, ‘enough to absorb all the material we can collect,’ said Erkki Nyberg, UPM-Kymmene director, business development, Engineered Materials Business Group. The collection system will operate throughout Europe.
‘The technology is now tested and we can use our own logistics system for liner collection. Now we need to find enough companies to use the service, as they too will gain financial benefits,’ said Nyberg.
UPM Raflatac already operates a filmic liner recovery system called Rafcycle, which pays up to 370 euros per tonne for clean PP filmic liner waste – providing a minimum tonnage can be collected.
‘Oil price rises and increased demand in the developing world mean that using recycled liner waste as a raw material will become more and more important,’ said Nyberg.
For the last five years UPM has been converting its own film liner waste into ‘Profi’ wood composite, a building material with 40-70 percent label waste content. This year the project started to receive customer waste for the first time. ‘We also use labelstock waste as fuel in combined heat and power plants.’