Growth shifts to Asia

Source from:  tobaccojournal.com 06/24/2004

Folding box board is the most popular packaging material for cigarettes world-wide. How will this industry sector develop in the future? TJI takes a closer look at the carton board market. More than one third of global packaging consumption is accounted for by paper and carton, ranking above glass, metal and synthetic materials, making this packaging material the most popular world-wide. During the past ten years the global market for carton packaging registered continuous growth and the future also seems to give reason for hope. Even though markets in North America and Europe are saturated and are growing only at a moderate rate of 2 per cent, higher growth is registered in the Middle East, Africa, South America, eastern Europe and of course Asia. Growth, however, depends heavily on per capita consumption and this differs significantly in each region. In order to get a more differentiated picture one needs to take a closer look at the various markets. With 30 kg per capita, North America is the global leader. Japan and Europe follow with a per capita consumption of 21.8 kg and 17.6 kg respectively (see chart below). In contrast to that China so far only has a per capita consumption of 3.6 kg and market observers forecast that this will increase only very slowly. The high population density in China may, nevertheless, lead to explosion of the domestic consumption. Experts forecast for the region a growth rate of 3.7 per cent during the next ten years while growth rates in Europe and America for the same time span are estimated at only1.6 per cent and 1.1 per cent respectively. Absolute growth in Asia therefore is for example four times higher than it is in the US. Asian rejuvenation Major concentration moves in the past years have left their marks on the board sector. When looking at the manufacturing landscape in the US, for example, the five leading companies ?Mead/Westvaco, International Paper, Graphic Packaging, Smurfit-Stone, and Caraustar ?meanwhile account for 65 per cent of the market. In Europe developments are almost identical. The market is dominated by Stora Enso, Mayr-Melnhof and Reno de Medici, whereby the concentration rate is similar to the US market. The concentration level, however, differs when looking at the various segments of the paper and board industry. The carton segment for example has reached a concentration rate of under 50 per cent, whereas the leading tissue manufacturer already arrived at 70 per cent and newspaper suppliers even grasped 80 per cent. In contrast, the Asian market shows a completely different profile. The top five Chinese manufacturers still account for only 30 per cent of the market. The status quo, however, may be deceiving since the situation in Asia is massively in upheaval. Small and old plants, which predominantly produced grey board and white coated board are being shut down for efficiency or ecological reasons while new plants are built and equipped with flexible and high-performing machinery. Due to this structural change, the machinery used in Asia is expected to rejuvenate dramatically in the forthcoming years. During the past five years the capacity for manufacturing folding carton, for example, has increased by 2.2 million tonnes despite the closure of 50 plants. And this development is forecast to accelerate in the future. It is estimated that capacities will explode by more than one million tonnes per year, while working widths and capacities are expected to even surpass those of European and American plants. This growth may temporarily lead to an over capacity. Market experts, however, reckon that the demand in Asia will keep up fast with production so that in the medium term no significant volumes can be exported. Some analysts even expect that, owing to the fact that demand in Asia is still regulated by supply ?not the other way round as is the case in western countries ?the domestic demand for folding carton cannot be satisfied fully by Asian companies. Thus, Asia will ultimately remain a net importer. In order to respond to the growing world demand for carton, the western industry will also have to invest enormous sums in the expansion of existing factories. But the continuing cost pressure in the raw material sector and the high investments, necessary in the US and in Europe in order to guarantee quality and profitability, will probably lead to further concentration. This process in turn will provoke the closure of smaller, unprofitable plants. All in all these changes will ultimately provide for higher widths and higher average capacities, a development that customers certainly will welcome. Intelligent products Another factor that will influence massively new developments in the carton board packaging industry is the accelerating change in the consumer and information society. Markets will call for a higher product variety, more flexibility and faster reaction times, in order to satisfy the fast changing requirements of customers. Packaging designers will pose ever higher demands on carton manufacturers in order to optimise communication, technology and efficiency. Recent examples observed in the tobacco packaging sector seem to confirm this. Carton will more and more have to fulfil intelligent properties and become a sort of 'uto-learning?board that is capable of storing and transferring information along the supply chain. Apart from increasing product security, another relevant parameter in this respect could be any data that optimise supply, stock control and product safety. No doubt, it probably will take several levels of development until this vision can be realised. Intensified co-operation Requirements to be fulfilled by the packaging industry will certainly continue to increase. Higher flexibility, more product varieties and the creation of add-ons, however, are in strong contrast to concentration and standardisation, the other two major developments currently observed in the industry. To optimise the board' runnability on machines and packaging lines is a challenge which the industry is certainly willing to face. However, industry representatives often claim that in order to reach these goals they need to be integrated in the process at a very early stage and in a closer co-operation. Many of them feel that there are still significant deficits to overcome. Potential cost savings are seen in the reduction of stocks between the different production processes from carton manufacture, folding box making to packing. An optimised data flow and transparency in the supply chain could reduce capital commitment and thus enhance margins (see also interview on page 71). Other potential cost savings are seen in lighter weights. A recent example observed in the tobacco sector was Iggesund's new product of its Invercote range which, according to the company, reached material savings of up to ten per cent. Concentration, mechanical rejuvenation, technological innovation are buzzwords which the tobacco industry is also very familiar with. Being a major customer of the carton industry the tobacco packaging sector will certainly benefit from increasing standards in the global board industry. But the tobacco industry may also contribute to the other development registered in the packaging world, namely that growth will shift to Asia. Enditem