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  • How to deal with the economic downturn in packaging industry?
  • Add time:2018-11-22

The packaging industry is currently facing tremendous pressure to improve efficiency tap new opportunities. The deterioration of the economic situation in the United States Europe, the tightening of bank credit the inflation of input costs are eating up the profits of packaging enterprises. Now the question is: How fast can our industry respond?

Rising production costs

If the packaging industry is going to enter a difficult period, it is not only because of the dempressure in many mature markets, but also because of the rising production cost of the whole supply chain: both material suppliers packaging enterprises are facing the pressure to transfer the new cost to customers.

Many companies are feeling the impact of rising production costs. The financial report released recently by Vpk Packaging Company, a Belgian cardboard manufacturer, shows that their operating profits have been seriously affected this year. "Rising energy prices have reduced our profit margins, while rising recycled paper prices have further increased our cost pressures," the company said.

Although the price of crude oil has fallen from the historic peak of $135 per barrel due to declining demfor energy in the global market, it remains at a high level. Natural gas prices have also risen sharply since this year. In addition, plastic manufacturers also feel the pressure of rising costs. Plastic packaging is one of the most demanding packaging forms for petrochemical products. Therefore, the production costs of these enterprises will be directly affected by the price of crude oil.

Influenced by the continued rise in aluminium prices, other packaging sectors have also experienced tremendous pressure, including the gold stamping market. Although the supply of aluminium is relatively adequate worldwide, the global market consumes a lot of aluminium every day, the price varies greatly. Because the production process of aluminium consumes a lot of energy, the industry is more vulnerable to the impact of rising energy costs. In addition, China accounts for a large proportion of the global aluminium industry, our production capacity has been greatly improved in recent years. But energy shortages have forced the Chinese government to impose export taxes on aluminium materials to control energy demin the industry. If the aluminium materials used by bronzing enterprises come from China or other countries, they may face greater price pressures.

"We have realized that China has been a net exporter of aluminium in the first four months of this year, but in order to ensure a balanced trading environment for aluminium in China, we will reduce exports in the future to reduce the demfor raw materials in the international market," an official of China Nonferrous Metals Industry Association said recently.

The depressed macroeconomic environment, shrinking market demand, rising production costs adverse changes in foreign exchange rate mean that packaging industry must make more efforts to achieve higher profits in difficult times.

Emerging markets efficiency

In the case of rising production costs, the most effective response of enterprises is to improve production efficiency. In some cases, this means that firms need to increase productivity by closing factories or integrating them, as European paper cardboard producers do. However, in mature markets such as Europe, there will be no significant increase in consumer demfor packaging products, so blindly improving productivity can easily lead to overcapacity. In order to avoid this situation, packaging enterprises should seek new market opportunities while pursuing efficiency.

Take the folding cardboard industry in Europe as an example. The markets in the UK or Western European countries are saturated will not grow substantially. But we can find many new business opportunities in the Eastern European countries, such as PolRussia, whose consumption capacity is growing at a rate of 9% every year.

In recent years, Central Eastern European countries have increased their investment in many fields, the days of producing in these countries sending their products back to Western European countries for consumption are gone forever. With the growth of per capita wealth, the domestic markets of these countries have shown great growth potential. Therefore, the packaging industry also needs to be prepared to move eastward.

Despite concerns about energy prices, Belgium's Vpk Packaging Group also pointed out: "The market downturn is only more serious in Western European countries, Central Eastern European markets have achieved strong growth in the first quarter of this year. With the improvement of people's living standards, the consumption demof packaging in these countries will continue to rise. Therefore, the Central Western European markets are particularly important for packaging companies with ambitions to expand.

This change has had a significant impact on the development strategy of folding carton manufacturers in Western Europe. Many Western European companies have begun to focus on providing value-added services to their customers, have shifted production plants to countries with lower input costs.

However, according to the analysis of some industry experts, this approach may further aggravate the problem of excess capacity in Western Europe, thus worsening the economic situation of some companies. At the same time, packaging companies also realize that they can find more opportunities in the Asian Latin American markets. The rapid growth of China's economy the continuous expansion of industrial production make it one of the largest consumers of products packaging in the world. In particular, soft packaging will become one of the fastest growing areas in China.

It is customary to enter such a market.

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