w w w . p i r a - i n t e r n a t i o n a l . c o m

September 2009

Market Intelligence Guide for Packaging

w w w . p i r a - i n t e r n a t i o n a l . c o m

OverviewOur advantage is that we are embedded in the packaging industry. Pira International is recognised world wide as a leading centre of excellence specialising in technical, commercial and strategic aspects of packaging and the application of packaging within the supply chain.

Pira has over 50 years experience in testing of packaging materials and packaged products, packaging technical investigations, packaging cost reduction, undertaking improvement projects relating to packaging performance and specification, supplier review, machine/material interaction, documenting packaging specifications and manuals, packaging training and management support.

Pira’s knowledge in-house includes experience of flexible and rigid plastics, paper and board, metal and glass, conversion, print, distribution and logistics, machine interaction and production/filling, food contact legislation, environmental legislation and safety. Pira’s global network of consultants, analysts and researchers provides additional material specific, line specific and regional know-how where required.

As part of our core service for the packaging industry, we compile and maintain databases on the global packaging market broken down by material (paper and board, flexibles etc.), substrate (PE, PET etc.) packaging product (bottles, cans, jars etc.) and end-use sector (food, beverages, personal care etc.). This data is captured for each key region and for 80 countries.

Our data is used by many of the world’s biggest raw material suppliers, equipment and machinery suppliers, packaging converters, technology providers, brand owners and retailers, as well as financial institutions, major consultancies and government organisations.

Our high client retention rate is a testament to the speed, accuracy and depth of our data, and the confidence in our robust methodology.

We publish more than 50 market and technology studies annually, many of these on core packaging markets. Studies on subjects like folding cartons and barrier films provide quantitative market sizes and five-year forecasts. In addition, we publish many technology-oriented reports and technology forecasts as well as technical books.

2

This white paper provides a snapshot of Pira’s research on the global packaging market.

Our high client retention rate is a testament to the speed, accuracy

and depth of our data, and

the confidence in our robust

methodology.

A full list of titles is available from our market report brochure.

Every two years we publish our flagship title The Future of Global Packaging. The new edition is due in the final quarter, 2009.

Widening our scope beyond packaging, we also benefit from tracking developments in adjacent industries such as print and paper. We gather data on these industries split by print process, paper grade, end-use, country etc.

In addition, we have a specialist division – IntertechPira – covering fast-growing, niche markets such as advanced materials, LEDs, nanomaterials and many others. This wide scope assists us greatly when monitoring for technology innovations and developments and for assessing possible disruptive technologies on the horizon.

There are many ways for clients to tap into our knowledge and expertise.

Need information in a hurry? Our comprehensive range of off-the-shelf studies will provide the information you are looking for, and if not,

you can ask us for a quote for a fast turnaround project. Need specific data and packaging knowledge to help you make an important decision? Speak to us about a bespoke single client project. Our packaging experts are on-hand to help, and as our global network reaches into all materials, all products, all end-use sectors and in 80 countries, you can be sure the project team will comprise the necessary experience and expertise.

Global trendsOur view is that the global economic slowdown will impact upon packaging demand in the short-medium term before returning to trend levels by around 2011.

The ‘Credit crunch’ resulted in a sharp downturn in business confidence in Autumn 2008, leading to significant fall-off in economic activity during the last two months of that year. The economic downturn will have an impact upon companies’ financial performance and further industry consolidation is likely in the near future.

Consumer expenditure on ‘big-ticket’ items and also discretionary products (e.g. fragrances) is down

3

w w w . p i r a - i n t e r n a t i o n a l . c o m

w w w . p i r a - i n t e r n a t i o n a l . c o m

in many countries, with evidence of ‘destocking’ at the turn of 2008/09.

The main impacts will be a slowdown in demand for packaging for discretionary items, as well as some postponements in the installation of new packaging lines, resulting in a slight pause in materials substitution in some cases.

Developments in materials technology will lead to growing use of natural polymers – driven to a large extent by environmental concerns and regulatory requirements – as well as lighter plastic packaging materials with enhanced barrier properties

There were some signs of rising business confidence by the middle of the year, but rising unemployment levels are set to depress consumer expenditure.

The biggest impact appears now to be in countries with significant heavy industrial base such as Japan and Germany, although impact of the downturn on consumer expenditure could be more prolonged in countries like the UK and US where consumer debt levels are high and government debt has risen sharply, with tax rises likely to follow in the short-medium term.

According to IMF forecasts, the global economy will only revert to trend growth levels by 2011 after a sharp downturn in 2009 and close to zero growth in many countries in 2010.

Global Packaging trendsWe valued the global packaging market at $578 billion in 2007, with an annual growth of 7.7% in current terms between 2003 and 2007. Excluding inflation and exchange rate movements, the global

4 We valued the global packaging

market at $578 billion in 2007, with an annual growth of 7.7%

in current terms between 2003 and

2007.

w w w . p i r a - i n t e r n a t i o n a l . c o m

market was growing at 1.6% per annum over the same period.

Into 2008, the market grew by an estimated 9% in current dollar terms but by just 1.3% in real terms with a sharp slowdown into the last two months of the year. In Euro terms, the global packaging market grew at an annual rate of 2.6% over the period 2003-2007 to €422 million, and was up just 1.2% in 2008 to €427 million.

In current dollar terms the fastest growing regional markets for packaging between 2003 and 2008 were Eastern Europe and South & Central America. Aside from strong growth in key national markets such as Russia and Brazil, value sales were also boosted over the period by the strengthening of key currencies versus the US dollar – to some extent related to a recovery in currency values after the devaluations of the late 1990s. More recently this trend has been reversed with the strengthening of the US dollar in late 2008/early 2009.

In real terms, many of the fastest growing markets for packaging are in Asia, including China and India. China in particular has emerged as a major exporter of a range of industrial and consumer products, the

latter including toys, small electrical appliances and also cosmetics, principally mass market skin care and make-up products.

Across developed packaging markets, consumption has been growing at low-mid single digit rates year on year. Japanese sales grew by just 1.5% per annum,

5

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

2% 7% 14% 15%6% 11% 13% 16%9% 10% 12% 17%4%3% 5% 8%

World

Western Europe

MiddleEast

Australasia

Asia

NorthAmerica

South & CentralAmerica Eastern

Europe

World

CAGR (%),2003–2007

% change, 2007–2008

15%

Africa

Circles representdollar value atcurrent prices

2003 2007 2008

Global Packaging Market by Region, 2003–2008 ($ billion, current prices)

w w w . p i r a - i n t e r n a t i o n a l . c o m

in part due to deflationary effects but also the high degree of maturity of this market.

Material trendsRigid plastic packaging has been the fastest growing sector of the market, driven by continuing replacement of metal cans and glass bottles by PET, as well as by similar trends across other application areas in food, cosmetics and healthcare.

The general growth in packaged food consumption has also been a major driver in rigid plastics, as well as in flexibles demand.

Across flexibles areas foil has been the fastest growing, driven by rising demand for blister packaging in healthcare applications, although more recently demand growth for packaging foils has been falling back in the US and other markets, losing share to plastic laminates in food applications for reasons of cost.

Plastic packaging industry as a whole remains fragmented in comparison to other sectors, with overcapacity within the industry often making it difficult for suppliers to pass on price increases, despite rising resin prices for much of the decade.

Board remains the single largest sector at over $200 billion in 2008, growing by around 1% per annum lower than the overall market. Folding cartons demand growing only steadily with corrugated packaging output developing more strongly in emerging markets.

Metal cans losing share to plastics in drinks markets but still seeing demand growth in many markets as off-trade (take-home) sales of drinks rise and the

6

Board remains the single largest

sector at over $200 billion in 2008.

w w w . p i r a - i n t e r n a t i o n a l . c o m

on trade (out of home) loses share. Industrial metal packaging demand buoyant until 2008.

Glass also losing share to plastics in food, drink and other markets, but significant growth in container glass capacity seen in fast-growing markets such as Russia during the current decade.

End-use trendsFood and drink packaging is likely to be unaffected by the economic downturn in the main, although issues with credit availability are set to lead to lower investment in new machinery lines in some cases, and demand for higher-value packaging for higher-value products may fall back, especially in emerging markets.

Healthcare packaging sales set to hold up well in the short–medium term in developed markets. Pressures on public finances may lead to a slowdown in healthcare expenditure growth, but this is likely to be offset by the effect of ageing populations.

Elsewhere in emerging and especially transitional economies, demand for healthcare packaging may be affected by declines in consumer spending, especially in countries like Russia.

Impact of economic downturn most likely to be felt in cosmetics packaging, especially in the case of fragrances and high-end skin care and make-up products. Early evidence suggests sales declines for fragrances, although cosmetic preparations holding up fairly well in developed markets. Demand for cosmetics overall set to fall back most significantly in transitional economies in Eastern Europe

Despite moves to boost domestic demand, Chinese packaging output likely to be affected by falling demand for other consumer goods (electricals, etc.) and industrial products in major export markets.

European packaging trendsWe expect that 2009 will prove to be a tough year overall for the European packaging industry, with industry revenues down by around six per cent in Euro terms on 2008 levels to €160 billion. All sectors of the market will be affected by the downturn in the economy, albeit some to a greater extent than others – industrial and transport packaging areas will be the hardest hit in line with the downturn in heavy industrial sectors and decline in global trade.

7 Impact of economic

downturn most likely to be felt

in cosmetics packaging,

especially in the case of fragrances and high-end skin care and make-up

products.

w w w . p i r a - i n t e r n a t i o n a l . c o m

Across consumer areas meanwhile, we are seeing sharp falls in expenditure on discretionary items such as fragrances and some premium cosmetics items, as well as other mid-big ticket items including electricals and electronics – although the greatest impact here is often being felt in Far Eastern markets as the source of many of these goods. Healthcare packaging demand, meanwhile, appears to be holding up well by comparison, although the increasing pressure on public finances is likely to lead to a slowdown in growth in healthcare markets in the short-medium term.

As for food packaging, aside from foodservice markets demand is holding up quite well, as one might expect. There appears though to be lower investment in new machinery and equipment and so we’re seeing less innovation coming through and basically the market is pretty flat. In the case of drinks packaging, after a difficult start to the year we think we have seen something of a pick-up in activity into the summer period, although it is still to soon to say for certain what effect this will have on figures for the year as a whole.

Typically we are expecting declines of between three to five per cent in local packaging revenues in

Western European markets. It should be noted that while we are predicting a decline of over nine per cent in UK sales measured in Euro terms, this is in large part a result of exchange rate trends since the

8

oTrend in European packaging sales by region/country, 2008–09p (€ million, current prices)

-9.3%

-6.4%

-8.2%

-2.2%

-3.1%

-2.5%

-10.0% -9.0% -8.0% -7.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0%

Note: p = projectionSource: Pira International Ltd

w w w . p i r a - i n t e r n a t i o n a l . c o m

o

Disruptive technologies analysis

Source: Pira International Ltd

Likelihood of success Possible impact

0 2 4 6 8 10

Natural polymers

Retort and aseptic packaging

Engineered polymer additives, films, polymer

blends, layered structures

Tamper-resistant technologies

Absorbers/emitters

Conductive coatings

Plateless digital printing

Integrated communications

beginning of the year – in local currency (sterling) terms, we believe that the market will decline by around three per cent. Eastern Europe, meanwhile, has been hit particularly hard by the economic downturn, with its impact extending to areas such as toiletries, packaged foods and alcoholic/soft drinks.

Trading conditions are likely to remain difficult into 2010 for the industry. Much though will of course depend on whether we are in for a smooth recovery or a double-dip into a second recession. Whatever the outcome, expenditure on discretionary items is likely to be subdued for some time as governments in many countries (including the UK) resort to austerity measures to bring the public finances into line.

Technology trendsTo fully understand industry trends, our expert team also track technology developments and innovations in the global packaging markets. One example is active packaging – packaging that performs an active function after the contents are packaged by interacting with the contents to deliver improvements in quality, shelf life, safety and usability.

9

w w w . p i r a - i n t e r n a t i o n a l . c o m

Active packaging technologies were initially considered to offer huge market potential and benefits for producers and consumers. Undoubtedly, there has been good growth in active packaging technologies over the past five years, but several factors have restrained market growth: its relatively high cost, consumer resistance and restrictions imposed by food safety legislation, particularly in the EU.

However, the trend for consumers to demand more convenient packaged foods will drive sales of MAP and active packaging, including use of moisture scavengers, self-venting films and microwave susceptors. The growing demand for organic food has encouraged development of MAP solutions that suit an extended distribution chain. Finally, consumer demand for environment-friendly packaging is driving the introduction of MAP packaging using renewable resources.

Disruptive technologiesWe also track potentially disruptive technologies. A disruptive technology is one that upends an existing technology and eventually replaces it or at least becomes accepted as equivalent.

In our report Ten-year Forecast of Disruptive Technologies in Consumer Packaging, packaging experts considered more than 200 potential disruptive technologies, eventually producing a rating for the 25 top technologies in terms of i) likelihood of success/acceptance, and ii) potential impact on the consumer packaging industry by 2017.

Natural polymers were ranked as the number one disruptive technology (in respect of both acceptance and impact), considered to have significant potential in fast food/grocery packaging. Aside from PLA, most biopolymers are at an early stage of R&D due to issues with cost and properties such as heat & moisture resistance.

While aseptic packaging has already reached maturity, it is possible retort packaging will make inroads into areas like sauces, assisted by developments in barrier materials, etc. and also by the fact that it requires less expensive food-processing equipment than is the case for aseptic packaging. New engineered polymers also represent an area of great potential, in the form of laminates, blends, composites and molecularly engineered polymers. The main market will be barriers for bottles and jars and to reduce the cross-section of rigid containers.

10

The trend for consumers to demand more

convenient packaged foods

will drive sales of MAP and active packaging.

Pira InternationalEstablished in 1930, Pira is the first choice for packaging, printing and paper industry professionals when addressing technical and market issues.

If you have a technical or market related question about the packaging, printing or paper industries, challenge our experts to find you the answer.

UK officePira International Cleeve Road Leatherhead Surrey KT22 7RU United Kingdom

Tel: +44 (0) 1372 802000

US office 19 Northbrook Drive Portland Maine 04105 USA

Tel: 00 1 (207) 781 9800 Fax: 00 1 (207) 781 2150

11

w w w . p i r a - i n t e r n a t i o n a l . c o m

Contact usStephen Hill

Global Head of Sales and Project

Development

+44 (0) 1372 802 025 stephen.hill@pira-international.com