'Disturbed supply chain puts label industry under pressure,' says Finat

Finat, the European
association for the self-adhesive label industry, has been alerted to growing
concerns about the tight market conditions its members are facing. In the
second half of 2009 and first quarter of 2010, the industry has seen strong
signs of recovery. As a result, the market decline for the year as a whole in
2009 was restricted to 5.3 percent in comparison to a double digit decline in
the first half of that year. In the first quarter of 2010, this upward trend
continued and demand for label materials grew by 12.5 percent compared to the
same quarter a year ago, when the global crisis reached its lowest point.

However, growing business
optimism has been tempered by recent developments in the raw materials market.
While paper manufacturers have been adjusting their capacity temporarily or
even permanently throughout 2009, the recovery in demand has pushed pulp prices
to all-time highs. This trend was aggravated by a temporarily wipe out of pulp
production capacity due to the Chilean earthquake, while strikes in Finland and Sweden also had their effect on raw
materials delivery. As a result, pulp prices reach plus 40 percent above the
levels recorded early 2009 and have approached the record levels of 1995.
During Q1-2010, major paper suppliers have consequently announced price
increases ranging from 8-10 percent.

Also in the filmic materials
segment, refineries and feedstock suppliers have adjusted capacity in the
course of the demand crisis and price increases in the range of 5-10 percent
for PE and PP have recently been announced. Simultaneously recent reports from
other segments in the supply chain are indicating similar capacity constraints
for specialty chemicals used by ink and adhesives’ manufacturers to produce
their consumables. To complete this picture, transport and energy costs are
under pressure too.

‘The sector appears to be
facing a classic example of bottoming out of the economic cycle. On the one
hand, customers start filling up their empty warehouses in anticipation of
returning consumer confidence. On the other hand, the crisis has triggered raw
materials suppliers to implement or accelerate capacity adjustments and they
have great difficulty meeting the upswing. The net effect is that there is
great pressure on the label converters to cope with the tight market conditions
at present. Business prospects for the sector therefore remain fragile,’ said
Jules Lejeune, managing director at Finat.

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