Despite positive outlook, competitive intensity and margins in BOPP film industry will remain under pressure

BOPP film industry will se continuing strong demand growth as it recovers from the effects of the economic downturn, as per AMI Consulting. Although demand growth slowed down noticeably in 2008 – it did grow at 2% to reach a market demand of 5.1 mln tons and picked up again strongly by 6% in 2009 adding a further 300,000 tons of demand. AMI is also positive about the demand outlook and sees no reason why global BOPP film demand should not continue growing at respectable rates of 6-7% pa for the next three to four years, driven mainly by growth in Asia and to a lesser extent in Eastern Europe, Russia and Brazil. However, despite this the industry continues to face many challenges. On the face of it this should be an attractive, profitable industry with its high growth rates, a fragmented converter customer base and high barriers to entry, but the reality is that there appears to be no shortage of capital to fund new plants so that the business is continually plagued by overinvestment resulting in persistent oversupply, weak pricing and poor returns with an increasingly powerful and globalised customer base. Much of the new investment has and continues to be in China which is by far the largest market both in terms of production and demand. Most of its production is geared to the local market, with producers managing the supply/demand balance by operating at low rates or not all. Concerns that Chinese producers will increasingly look to export to make their operations more viable, will probably not be realised any time soon in AMI’s view, given continuing high growth in the Chinese market. Chinese producers neither produce the grades nor have the sales infrastructure to sell extensively overseas. The impact will more likely be felt in the export of goods in BOPP packaging or finished products such as tape. There is also growing investment in BOPP production in the Middle East with its access to low cost sources of PP resin, which is more likely to impact on global trade as with relatively small local markets and good export infrastructures they will seek to target markets in high cost regions like Europe. India has been another investment hotspot in recent years because of the enormous potential for BOPP film packaging there. It has a population similar in size to that of China but BOPP demand is currently a tenth of it. The flexible packaging industry has been developing very rapidly driven by strong economic growth and a rising middle class looking for more sophisticated packaged food and consumer goods. Of the total global demand for BOPP film in 2009, China accounted for 38%, North East Asia accounted for 9%, Indian sub-continent had 4%, Middle East/Africa accounted for 8%, North America for 11%, Latin America for 5%, South East Asia for 6% and Europe for 19%. Growth is slowing in the markets of Western Europe, North America and Japan which will present challenges to the BOPP producers there which also tend to operate older, slower, smaller lines with higher costs. While packaging innovation, raw material and technology developments still tend to be driven by BOPP players in these regions, market growth, and more importantly converting operations are shifting to other lower cost regions of the world which will have implications for the viability of BOPP production in the West. While the industry undoubtedly faces challenges it does at least operate in the positive environment of global growth continuing at over 6% pa supplying food and other packaging markets that are considered essentials in modern life. Economic growth in emerging and developing countries, rising standards of food safety and hygiene, growing demand for convenience and packaged foods and the demands of feeding the world’s growing population driving the need for cost effective food distribution and preservation, will all help to contribute to the growth in the global BOPP film market.