No industry can be protected from the credit crunch. However, when the economic base of major markets is continuously weakened, liquidity in the credit market becomes active.
Negative economic data continues to shine in our eyes and shake the confidence of U.S. manufacturers.
The survey conducted by PricewaterhouseCoopers International Accounting Corporation in the first quarter of 2008 showed that most American industrial manufacturers are pessimistic about the coming year, and strong profit pressure has cooled their enthusiasm for expanding production scale.
In fact, many developed countries are now caught up in the unfavorable situation of the weak economy. The Organisation for Economic Co-operation and Development (whose members are from Europe, North America, and all economic powers in Asia) recently announced the growth index of industrial productivity, and pointed out that many of its member countries have experienced slowing economic growth.
Although these macroeconomic trends have had a wide impact on the social economy, its impact on the packaging sector has just begun to show. Since 2008, there have been more and more signs that the European forest products industry has felt powerful. The profit pressure has had a negative impact on the paper and paperboard industry.
In addition, other factors also contributed to the decline in the profits of the entire packaging industry.
Increase in production costs
If the packaging industry is going into a difficult period, it is not only because of the pressure of demand in many mature markets, but also because of the rise in the production costs of the entire supply chain: both material suppliers and packaging companies are faced with the transfer of new costs. The pressure on the customer.
Many companies have felt the impact of rising production costs. The financial report released by the Belgian cardboard maker VPK Packaging Corp. recently showed that their operating profit this year has been severely affected.
The company pointed out: "Energy price increases have narrowed our profit margin, and the rising price of recycled paper has further increased our cost pressures."
Although the price of crude oil has fallen from the highest price of 135 US dollars/barrel due to the decline in energy demand in the global market, it still maintains a high level of operation. The price of natural gas also began to rise significantly this year.
In addition, plastic manufacturers are also feeling the pressure of rising costs, plastic packaging for petrochemical products, the largest demand for a form of packaging, so the production costs of these companies will be directly affected by the price of crude oil.
Dow Chemical recently announced that it will increase the price of all products by about 20% to offset the increase in production costs. In addition, chemical manufacturer Huntsman will increase the price of all products by 25% to cope with the rapid growth in energy, consumer goods, intermediates, and transportation costs.
Peter Huntsman, the company’s president and chief executive officer, said: “We hope that the price of energy and consumer goods will stop growing, but the influence of dealers on controlling energy prices and the rising costs of raw materials and services will not be overlooked.â€
Affected by the continuous rise in aluminum prices, other packaging areas have also felt tremendous pressure, including the gilding market. Although aluminum supplies are relatively abundant throughout the world, the global market consumes very large amounts of it every day, and the price changes are relatively large. As the aluminum production process consumes a lot of energy, the industry is more vulnerable to rising energy costs.
In addition, China holds a large proportion of the global aluminum industry, and our production capacity has also greatly improved in recent years. However, the shortage of energy has forced the Chinese government to impose an export tax on aluminum to control the industry's demand for energy. If the bronzing companies use aluminum from China or other countries, they may face greater price pressure.
An official from the China Non-Ferrous Metals Industry Association recently stated: “We have realized that China has been a net exporter of aluminum in the first four months of this year. However, in order to ensure the balance of the aluminum trade environment in China, we will Reduce exports in time to reduce the demand for raw materials in the international market.â€
The sluggish macroeconomic environment, shrinking market demand, rising production costs, and unfavorable changes in foreign exchange rates mean that the packaging industry must make more efforts to obtain higher profits in difficult times.
Emerging markets and efficiency
In the case of rising production costs, the most effective response of companies is to increase production efficiency. In some cases, this means that companies need to increase productivity by shutting down factories or integrating businesses – just as European paper and board manufacturers do. However, due to mature markets in Europe and other countries, consumer demand for packaging products does not appear to grow significantly, so blindly improving productivity can easily lead to excess capacity. To avoid this situation, packaging companies should seek new market opportunities while pursuing efficiency.
Take the folding paperboard industry in Europe as an example. The markets in the UK or Western European countries are already saturated and there will be no substantial growth. However, we can find many new business opportunities in Eastern European countries such as Poland and Russia – the spending power of these countries. It is growing at a rate of 9% every year.
In recent years, countries in Central and Eastern Europe have increased the scale of investment in many fields. The days of production in these countries and the return of products to Western European countries for consumption are gone forever. As per capita wealth grows, the domestic markets of these countries have shown tremendous growth potential. Therefore, the packaging industry also needs to prepare for the eastward shift.
Although people are more concerned about the issue of energy prices, Belgium's VPK Packaging Group also pointed out: “The market downturn is only serious in Western European countries. Central and Eastern European markets have achieved strong growth in the first quarter of this year. With the improvement of people’s living standards, the consumption and demand for packaging in these countries will continue to rise. Therefore, the markets in Central and Western Europe are particularly important for packaging companies that have ambitions for expansion.â€
This change has had a significant impact on the development strategy of Western European folding carton manufacturers. Many Western European companies have begun to attach importance to providing value-added services to their customers and have shifted production plants to countries with lower input costs.
However, according to analysis by some industry experts, this approach may further aggravate the problem of overcapacity in Western Europe, and thus worsen the economic conditions of certain companies.
At the same time, packaging companies are also realizing that they can find more opportunities in the Asian and Latin American markets. China’s rapid economic growth and continuous expansion of industrial production make it one of the world’s largest consumers of products and packaging. In particular, flexible packaging will become one of the fastest growing areas in China.
Entering such a market is a daunting challenge for packaging companies that have become accustomed to fumbling in mature markets, but they must realize that the economic growth rate and spending power of any market can change. The Organisation for Economic Co-operation and Development (OECD) has recently pointed out problems in developed countries in the world and warned people that there is evidence that the economies of Brazil, China and India are also in a downturn.
Lehman Brothers’ Asian economists have pointed out the difficulties China’s economy is currently facing, as Chinese scholar Sun Mingchun put it: “Since the US subprime mortgage crisis broke out in October 2007, most major economies in the world have There has been a credit crunch, and we do not rule out the possibility that China's economic growth will decline."
There is no doubt that the global economy will experience more twists and turns in the near future, but there are only three ways in front of packaging companies: optimizing costs, geographical expansion and business transformation.
The continuous deterioration of the economic environment will have a negative impact on the development of all industries. The packaging industry is just one of them. The main problem that packaging companies are currently facing is how to increase the cost of transferring to customers.
For Europe's folding paperboard industry, the Eastern European market is expected to continue to grow, but Western European countries will face certain difficulties.
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