On The Mend — As Europe pulls out of the worst recession in most people's memory, the local plastics industry is taking stock and preparing for the future. K 2010 seems to come at just the right time to help them reboot their businesses. The road to recovery promises to be long and winding. Recent financial data from various sectors looks encouraging when viewed on a year-on-year basis, but this is largely because the end of 2008 and most of 2009 were so disappointing. It will take some time before the peaks around 2007-08, when machinery production hit record highs, will be seen again.

Europe's Standing after the Global Recession

Data compiled by Plastics Europe, the Brussels-based association of plastics manufacturers from across 27 European countries, shows that the production index for machinery (taking a starting point of 100 in 2005) fell from over 110 in 2007 to under 70 in 2009. A recent study by UK consultant Applied Market Information (AMI), in Bristol said, fall in demand for thermoplastics in 2008 and 2009 had effectively cancelled out the previous five years of growth and in their latest annual reports, Europe's materials suppliers are very cautious about prospects for the coming months. Manufacture of plastics products has however been recovering gradually since the middle of last year.

The recession was global, but it was Europe that mostly felt the effects. As far as the plastics industry is concerned, two factors in particular explain this fact; first, the North American plastics processing industry had already down-sized more in the previous decade, with an appreciable shift of production to Central America and to Asia. Second, the size of the recession in absolute terms was greater in Europe than it was in other important regions such as China. Furthermore, Chinese authorities have had more direct influence on rebooting demand with massive incentive packages than their European counterparts.

Across the world, packaging, building & construction, automotive and electrical/electronics are the four key sectors for the plastics industry. Plastics Europe says packaging represents around 40% of total consumption in Europe, which is a blessing, given that this sector is much more recession-proof than others. But building & construction activity has been on a steady downward path for the last two years and automotive production plummeted in 2008, only to show a faltering recovery last year. Both sectors have been given temporary boosts by government incentives for consumers to improve energy efficiency and reduce emissions of greenhouse gases. And all the while, car plants are closing across Europe, from southern Italy to Scandinavia.

The plastics industry in the European Union (27 countries in all) provides direct employment to 1.6 million people in the production of materials, finished and semi-finished goods and equipment. Despite the continuing growth of polymer production in the Middle East and beyond; despite a substantial shift (which is now largely over) of processing capacity to Asia in general and China in particular; and despite the growth of machinery production in China: the EU remains a net exporter in all three sectors. But more and more, local manufacturers are concentrating on high-end products, products with low labor costs, and products with readily accessible feedstock.

This means that there will be only few, if any, new commodity polymer plants in the region, but development of high performance products like carbon nanotubes and nanocomposites will go on. Mainstream blown film equipment production will remain difficult, but there will be margin in high-performance multilayer blown and cast film. In injection molding, the future is in pellet-to-pallet operations - highly automated, highly integrated.

Review

Since the last K show in 2007, there have been some important structural changes in the European plastics industry, on both the supply and the demand side. In injection molding, e.g., Battenfeld is now part of Wittmann; Demag Ergotech is now part of Sumitomo Heavy Industries; Sandretto is now part of Romi. There is also increasing cooperation with Japanese machine makers: KraussMaffei has a deal with Toshiba on machine development, while Engel recently announced a commercial agreement that will initially see Mitsubishi Heavy Industries selling some of its multi-component machines in Japan, but which could develop further.

In extrusion, Kiefel Extrusion first went to Brückner and is now part of Reifenhäuser. On the materials supply side, several companies with high debt from previous acquisitions continue to reorganize themselves.

Among processors, there was much more M&A activity, especially in the automotive and packaging sectors. AMI believes that there are probably more than 10% fewer processing sites in Europe than there were three years ago, due to relocation and rationalization.

In the heart of Europe, Germany's plastics processing industry shrank in sales terms by 14% last year, with production falling 11%. A slight recovery is expected this year. Suppliers of technical parts to the automobile and electrical/electronics industry took a major hit, with sales falling 20%. According to the GKV trade association (Gesamtverband Kunststoff verarbeitende Industrie) even turnover in plastics packaging fell 10%. Industrial packaging mostly accounts for this downfall. Overall, domestic sales fell 12.5%, exports were down by 16%.

Rising Tendency in Europe's Plastic Industry

German processors generally feel like being out of the woods though. Only 9% expect sales to fall again this year. The jury is still out on whether those all-important exports will pick up or not. And industry representatives are worried that companies will find it difficult to get the money they need to invest in growth - a worry that in fact is voiced in numerous quarters and which applies to big and small players alike. Base lending rates are at record lows, and yet credit is highly restricted and very expensive as financial institutions try to recover their own losses.

GKV-president Dr. Reinhard Proske says know-how and the ability to innovate are the two essential factors for the success of the German plastics processing industry. To sustain both of them, he has called for more government investment in education and training, along with more support for research & development and less red tape.

In the UK, BPF (the British Plastics Federation) is taking a stand on behalf of processors. Peter Davies, the BPF's director-general, says members experienced a huge fall in business last year. At one point, UK car sales fell 46% year-on-year, car manufacturers closed for long periods and component and systems suppliers cut down staff and introduced short time working, he notes. On top of that, "there were only 80,000 housing starts in 2009, whereas normally 200,000 homes would be constructed," says Davies.

Davies echoes other voices in saying innovation will be the salvation of the sector. "We welcome the government's strategies to boost UK composites production, plastic electronics and low carbon vehicles," he says. "There are reasons to be cheerful. Use of plastics in all forms of transport will increase because light weighting saves power and medical and electronic advances will depend on plastics advanced technology."
It is clear that processors are thirsting for new European technologies. Over 4000 visitors attended Arburg's Technology Days last March and around 2000 turned up at a symposium organized by injection molding technology leader Engel last year - more than ever before. "In these drastic economic times, our customers are increasingly relying on improving their competitiveness by increasing productivity, innovations and energy savings," says Dr. Peter Neumann, CEO of Engel.

Engel has been in the fortunate position of being able to offer its customers incentives to trade in old machines for new ones. In France, where the plastics machinery and materials market fell 40% in 2009, ACD (Association des Constructeurs, Distributeurs et Importateurs), an association representing producers and importers, wants the government to introduce similar incentives for all types of equipment. The organization is also involved in various programs to support the local industry, and supports plastics machinery makers in Algeria, Morocco and Tunisia, which all have historic ties with France, as well.

Coping With Legislation

"What does not kill me makes me stronger," Nietzsche said back in 1888. He obviously wasn't thinking of REACh (Registration, Evaluation, Authorisation and Restriction of Chemicals), the Restriction of Hazardous Substances (RoHS) directive for electrical and electronic devices, recycling directives, or carbon taxes; but his words are apt. All three of these developments are putting burdens on European plastics companies, but it is to be hoped that those companies, able to carry the weight, will emerge much fitter as a result. They will be more energy-efficient, they will produce less waste, and they can operate with the certainty that the chemicals they use and produce are nearly 100% safe.

Many plastics players in Europe will argue that they are over-legislated, and in comparison with other parts of the world they most certainly are. But only few will argue that the motives behind the laws are not good ones. Today's and tomorrow's consumers have the right to live in a safe and sustainable environment - and this is what EU legislators are aiming for.

Unfortunately, legislators can be over-ambitious. The industry has to submit registration dossiers for all high volume substances and for certain categories of substances of concern by Nov. 30. On Jan. 3, 2011 companies are required to submit notifications for their substances in order to permit ECHA, the European Chemicals Agency, to set up a classification and labelling inventory - irrespective of their volume of production or sale.

A significant number of chemical companies are starting to panic as they could miss the first deadline, says Jo Lloyd, director of the REACh-ready information service. "Panic is starting to set in. From now on it's going to be an interesting time politically," Lloyd said recently. Companies that fail to submit a reach dossier for their substance will be forced to remove such substances from the market.

Processors who think that REACh only applies to chemical companies are in need of a reality check. Fortunately, EuPC, the European Plastics Converters trade association in Brussels, is there to provide one. It has set up a "REACh club" that offers networking opportunities for anyone interested in REACh and its impact on the plastics industry. The club is a community of plastics experts. EuPC says being a member gives processors privileged access to an internet platform where they can improve their knowledge of the regulation by sharing their experiences with other REACh experts and by learning from their own experience.

Processors can, e.g., find out about the circumstances under which they have to write their own chemical safety report, and why, when and how to communicate the use of chemical substances within the supply chain.

Machine Makers Look Forward to K

European machinery makers have to come to terms with a new world order. Euromap, Europe's association for plastics and rubber machinery manufacturers, says new orders started dropping off in late 2008, although that did not stop the year being a record one - €17.6 billion in production (up 1.2% compared to 2007) and €12.5 billion in exports (up 1.5%). "Core" machinery, which excludes molds, auxiliaries and film printing equipment, comprises around 63% of these totals. Euromap's share in the global market in 2008 was over 50%.

But 2009 was a year of retrenchment. Capacity utilization was way down. "All major applications were hit hard," says Euromap. Medical was about the only area that continued to grow. And for an industry so reliant on exports, the fall in global markets was sorely felt. During the first half of 2009 exports to Eastern Europe, to North and to Latin America decreased on a large scale and at the same time, while demand from customers in Asian countries could not compensate the loss.

Figures are likely to show that overall production by companies covered by Euromap fell by over 20% last year, with production of core machinery down by approximately 30%. Provisional data from Italy, Europe's second largest producer of equipment to the plastics and rubber industry, showed sales shrank by 24% last year and exports fell by 27%. Trade association Assocomaplast draws consolation from the fact that with total production valued at €3.2 billion, there was still a relatively healthy trade balance of €1.35 billion. And it is positive about 2010.

The association says it is doing more than ever to support members with various made in Italy initiatives. Worried about increasing imports of Asian equipment, Assocomaplast has also carried out a specific action trying to prevent machinery appearing on the market that does not comply on safety with the European legislation. Several months ago, it signed an agreement with the Italian customs authority. According to association Chief Claudio Celata, numerous inspections on machines imported into Italy from China and Taiwan have uncovered failures to meet local safety norms, even though the machines display the CE label that is intended to indicate a minimum level of safety.

Celata refutes any charge of protectionism. "We want respect for regulations established by the EU for machine safety," he says.

Outlook

The good news is: the worst is over. In the fourth quarter of 2009 the decline in orders bottomed out in all Euromap member countries. "Sentiment and business expectations in the plastics and rubber converting industry have improved and are still improving," said Euromap in February.

The crisis has certainly affected employment levels in the industry, but fortunately not as much as may have been the case in the past. Labor markets in Europe are now much more flexible than they were before. Many companies made use of short time work regulations provided by their governments. In most cases, enterprises took great effort to keep qualified staff and retain programs for vocational training and education.

Euromap says: "These measures are essential to keep and enlarge the knowledge base and shape the future. During the crisis many companies shifted their focus on research and development. These provisions also help manufacturers to introduce and market new products once the markets start to rebound. "

The association concludes: "Düsseldorf's K show in autumn 2010 is mentioned by European manufacturers of plastics and rubber machines as the year's hub and highlight: they expect the economic situation to have essentially improved by the time of K - and that this meeting of the plastics and rubber world will favour the upswing."