8. Status: where we are today

8

Status: where we are today

Let’s have a look at the total market. The data from Smithers Pira forecast a steady growth across the packaging industry, valued at USD 839 billion in 2015 increasing by 3.5% year-on-year reaching a total value of USD 997 billion in 2020.

As this happens, sustainability will become an increasingly important factor for decision makers at all stages in the packaging value chain. The rigid packaging compared to flexible is 56.5%, but flexible will catch up. None printed packages, for protection only, etc., is still a big part of the total but the growth comes from printed packages. Offset stays for around 44%, most of them rigid board and paper. Flexo is the second biggest technology, mostly used on flexible, and then there is Screen and Gravure. Digital printed packaging was valued 2015 to USD 10.5 Billion, still as a small part of packaging, but expect to grow with a CAGR (Compound Annual Growth Rate) of 13.6% per year to 2020, almost doubling their numbers according to the prognosis from Smithers Pira. To get a better picture of packaging today, we must split the market into groups.

Flexible packaging

Converters in the flexible packaging segment are the ones with the greatest opportunities and a lot of challenge in this coming transformation from analog to digital. If we look at the flexible packaging market by type (stand-up pouches, flat pouches, gusseted bags, wicketed bags, wraps), material (plastic films, paper, aluminum foil, bioplastics etc.), through analog and digital printing technologies,

application and region – the future looks huge and prospering. A report from Markets and markets from 2017 shows a global forecast for flexible plastic packaging to growing from USD 100 billion in 2017 reaching USD 131 billion by 2022, at a CAGR of 5.2%. Another report, this one from Smithers Pira, shows the market for flexible packaging in total to be USD 230 billion in 2017 with a CAGR of 4.3% and then reaching a value of USD 283 billion in 2022. The global flexible packaging market is witnessing a growth with consumers new demand, owing to the rise in manufacturing activities and growth in the demand of conveniently packaged products. The pressure of leaving the fossil based plastic media to new and sustainable, recyclable, and compostable media, like many bioplastics, also plays an important role. It’s a nice combination to have this transformation working both for printing and for new media. This paves the way for new sustainable bioplastic media and digital printing to hit the market at the same time. Both adding new value to us consumers and can cover some of the extra cost from the new and more expensive media in the beginning. We see for sure a growing demand of this and very soon it will be a must for the participants on the market. Shorter run lengths and more orders will also be a big driver, even if this segment originates from very long runs. Certainly, this segment will also go through the same development as both the self-adhesive Label Print and the General Commercial Print market already have gone through.

Rigid packaging

The rigid part of the packaging market was 2017 around USD 500 billion. Folding carton and Paper are 43%, then Rigid Plastic 30%, Metallic 17%, and Glass 10%.

By application the whole packaging market divides into Food USD 284 billion (29%), Drinks 102 billion (11%), Health care USD 41.9 billion (4%), Cosmetics USD 27.2 billion (3%), other consumer packages USD 119 billion (12%), while Industrial and Transportation is USD 401 billion (41%) and those are mostly none printed packages.

The growth within folding cartoon is found mostly in the US, Asia, and South Africa plus the emerging markets. That’s the same growth areas as within flexible packaging. In mature markets, like here in the Nordics, the growth rate stays at 1-2%. Within this, we already see a lot of new investment in the paper mills. They are looking for new ways and new products away from the decreasing demand in newspaper (bulk) and fine paper. Newspapers drop with as much as 20% YoY and fine paper with around 10% YoY. The Nordic mills alone have so far invested around USD 2 billion in converting or adding new machines for board. The total production capacity of board will increase

with almost double the amount in a few years. It’s great with new investments and braveness for new products in the Nordics, but this transformation from newspaper capacity to board and liner is also happening globally and don’t match the relative small overall increase in volume/tons of new demands worldwide.

5 European mills that transforming from bulk paper towards different products like carton board and liner.

1. Billerud Korsnäs, Sweden With an investment of MEUR 700 includes the construction of a new board machine at the Gruvön production site and rebuilding of the existing pulp mill. The new annual capacity of 550 000 tons of board on top of all ready existing 1 051 000 tones. The production is expected to start in the first quarter of 2019.

2. Metsä Board, Finland Investing around MEUR 1,200 and increase their production from 400,000 to 700,000 tons in Husum’s maily for carton board, primarily for the North America market. Net new capacity will totally increase from 800,000 to 1,300,000 tons.

3. Kotkamills, Finland Kotkamills opened a new 400,000 ton capacity BM2 carton board machine, a total investment of MEUR 170. Kotkamills have also announced that they will start a pre-feasibility study for one more machine.

4. Kama Pulp & Paper, Russia With Austrian supplier a new folding carton board machine installs with a production capacity of 220,000 tons. It is scheduled for start-up in the first quarter 2019. The total cost of the investment project will amount to approximately MEUR 455.

5. Dobrush paper mill, Belarus The Minsk based factory will in 2018 launch their new investment with a new production capacity of 200 000 tons. The total investment will reach equal to around MEUR 350.

Will the increase in volume, with all the new capacity in board and liner also affect prices? Certainly, all wood fibers that grow in the Nordic forest must find a new way of use! At least we know they’ll be growing as fast as they have done in the past also in the future, whatever happen with the packaging market, if it goes up or down today or tomorrow the trees will still grow at their own pace. The trend among paper mills is turning global, not only seen only in our Nordic market. Many other mills around the globe also transform their volumes today into board and liner paper instead of yesterday’s newspaper (bulk). The packaging market grows fast with upcoming new products waiting to add new value. At the same time, we see a continued transformation away from segments of low adding value print, none printed packaging, newspaper, and manuals.

Corrugated board

This segment is first divided in pre-printed liners, roll-to-roll and post-printed board, pre-cut sheet. The actual consumption of corrugated board packaging by end users totaled 128.6 million tons in 2015, says a Smithers Pira report. That’s worth over USD 222 billion to converters, with a growth of 3.6% from 2014 to 2015. The shift geographically is dramatic. The US goes from 22.7% in 2015 down to <20% in 2021. Western Europe goes from 14.8% in 2015 down to <12% in 2021. China alone has gone from 22% in 2009 reaching 29% in 2015 and expected to reach 35.6% by 2021. With an expected growth rate of 3.6% annually in 2016–2021, that means a decrease in both the US and Western Europe. On top of this, the counting is in dollar and tons, if you count in square meters it’ll be even worse because trend and quality are moving toward lighter products with the same capacity.

However, within the biggest application Processed Foods there will be a growth of 4.5% over the average of 3.6% and Consumer Electronics will have the biggest growth rate with 5.5%. Most of this growth is created in Asia. We have only seen the beginning of the journey from analog to digital and for sure we’ll see a transformation but NOT a flip of this market as we see forthcoming in the flexible segment. With low margins for most of the converters today in Europe and no really growth in the next 5 years, there will be some losers. A positive thing about that is that it will turn others into winners. It will take longer to transform within this segment, and maybe with too low margins, and it will be harder to find the right value, at least in our region.

Labels We must include labels into packaging. Today, we see labels (most press sensitive labels) as something we can add to packaging as a product. Labels integrate step by step as an application, a secondary packaging product; the line between labels and packaging will soon be blurred out. I see more of a definition when it comes to premiere packaging or secondary packaging. Premiere packaging covers the product itself. Secondary packaging covers one or many premiere packages in one pack. Therefore, label converters can easily expand their product portfolio. Not only within self-adhesive labels, but also by new applications in secondary packaging as shrink sleeves, sleeves, IML (in-mold), pouches, sachets, girdles, etc. Most of the label converters today are already working with their transformation towards digital. From design, digital workflow to handling so many more jobs per hour, printing digital (HP Indigo digital-offset press) to die-cutting and finished labels. Digital Printed Labels, referring to FINAT, has grown from 17.7% in 2014 to 22.19% in 2015 regarding Converters total revenue. When it comes to gross margin, Digital Converters claim the figure is DOUBLE. Having already gone through this transformation, Digital Label Converters have a great advantage and by knowing digital as technology and hopefully digital as a business model, now stand in pole position for packaging. They can either expand their possibilities and portfolio or merge with conventional packaging converters who are waiting to experience this transformation in the packaging market.

$45 Global printed label market by label type, 2009-19 ($ billion, constant 2013 prices & exchange rates; trillion A4 prints) GLOBAL PRINTED LABEL MARKET BY LABEL TYPE, 2009-19 ($ billion, constant 2013 prices & exchange rates; trillion A4 prints)

0,4

$0 $5 $1 0 $15 $20 $25 $30 $35 $40 Label types in global label ( $ billion cosnstant 2013 values)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Wet glued labels Pressure sensitive Multi-part tracking In-mould Sleeves Label volume

1,2

0,2 0,4 0,6 0,8 1,0 Total label printed volume (trillion A4 prints)

SOURCE: SMITHERS PIRA