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| KN21039 |
| KEY NOTE PACKAGING (PAPER AND BOARD) JULY 1999 |
| Overview |
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Demand for paper and board packaging has slowed as
the principal markets have been affected by the falling growth rate of gross
domestic product (GDP) and the impact of packaging waste regulations, which are
now being applied throughout the European Union (EU). Nevertheless, the
apparent UK market is estimated to have increased in value by 19.2 percent, from
£3.83bn in 1994 to £4.57bn in 1998.
Slow growth in demand,
excessive capacity and intense competition (increasingly from imports) in all
sectors have severely dented the profits of many companies, causing a number of
leading manufacturers to review their strategies for the future. Anticipating a
continuation of these conditions over the longer term, a few have chosen to
dispose of their paper and board manufacturing activities to other groups.
Others have lost their independence, following acquisition, mainly by
internationally-owned companies which are strengthening their presence in the
UK. The large customers are tending to award contracts to fewer suppliers,
providing they can guarantee to meet their conditions on price, quality and
delivery. However, the source of supply could be any country in which the
suppliers operate, and will not necessarily benefit the UK market.
As
markets force changes in operational structures, consolidation within the
industry is gathering speed across frontiers. It is being motivated by an
industry which is capital intensive, by large customers which favour the
multinational supplier and by the fact that the bigger groups are better able
to finance investment in new plant, technology, and research and development
(R&D). Such groups are also better able to control any wasteful duplication
of assets by concentrating investment at fewer sites, thereby improving
productivity and efficiency, and reducing the cost to the customer. Overall,
the biggest motivation is to improve profitability in an industry where demand
is slackening off and the excess of supply over demand must be rectified.
Future growth in the volume of demand depends on faster GDP growth and on
increasing customer preference for added-value products. As the Government's
priority is to maintain tight control over inflation, current policies are
likely to continue, with interest rates and taxation being used to restrict
growth to a sustainable level (historically around 2 percent a year in real terms).
Slow growth in GDP, combined with customer plans to reduce the volume of
packaging, will make it very difficult to raise market value.
End users
want to reduce the cost of their packaging and there appear to be few new
markets where paper and board can make a significant impact. Technical
developments may make it feasible to substitute paper and board for other
materials, e.g. the replacement of steel and aluminium cans with board-based
equivalents, but this seems unlikely. The best hope is for a rise in GDP growth
rates, which will raise volume demand, reduce the value of sterling to a more
competitive level and improve the balance between imports and exports within
Europe. Key Note forecasts only moderate growth between 1999 and 2003, with the
apparent value of the market rising by 8.6 percent from £4.67bn to
£5.07bn.
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Text © 1999 Key Note
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Last updated by Jacob van Eldik 22th February 2000