European Self-adhesive Label Sector Rebounds

THE HAGUE, The Netherlands—FINAT, the European association for the self-adhesive label industry, reports that demand for self-adhesive label materials in Europe has continued its strong recovery in 2010. From the all-time lows recorded at the peak of the global financial crisis in mid-2009, demand returned to pre-crisis levels in the course of 2010. Last year, an overall volume of around 5.7 bln. square meters was recorded, an increase of 11.4 percent compared to 2009 and 3.5 percent above the level recorded in 2007, the year before the collapse of global financial markets.

Underlying this growth was the strong, 9.5 percent recovery of the demand for rolls of paper-based label materials, representing some 70 percent of total demand for self-adhesive label materials. Exceeding this growth, however, was the increase in demand for filmic roll label materials (PE, PP, others), which amounted to 15.3 percent over the previous year. Filmic materials thus resumed their rise in the share of European self-adhesive materials demand and this from just over 15 percent at the beginning of the decade to over 22.5 percent in 2010.

Geographically, growth in demand was driven by Eastern and Southern Europe (including Turkey). Both regions recorded healthy double-digit growth figures of 20.6 percent and 13 percent respectively. Within these regions, Turkey, Russia, Bulgaria, and Romania stood out with annualized growth (well) in excess of 20 percent, a sign of strong economic development in this emerging region. In the more matured regions, growth of self-adhesive label demand was more modest at around 4.5 – 8.5 percent, although double-digit growth figures recorded for Germany, The Netherlands, Italy, and Spain ranked above the top end of this range.

This healthy recovery does not come without significant future risks and concerns however. Already in the late summer of 2010, FINAT members expressed concerns about disturbances in the supply chain that were building up pressure on raw materials' market conditions. According to FINAT's quarterly member survey, this prospect tempered the optimism of executives at the beginning of 2011, although the balance of respondents continued to be positive about business prospects for the industry.

Over the past three to four months, the pressure on raw materials has aggravated. Between January 2010 and January 2011, the benchmark pulp prices increased between 20-25 percent, while resins for LDPE, PP and PET, crucial to filmic label materials, increased between 25-35 percent. Polymers necessary for the production of adhesives even increased by 65-75 percent. Also ink suppliers are being faced with the impact of tight raw materials' markets and have announced price increases ranging up to 30 percent. The rise of crude oil, driven by the uncertainties in the Arab world, is further intensifying the pressure, not in the least because of the increase of related transportation costs.

“Capacity limitations cause a gap in supply versus double digit growth in demand,” according to Jules Lejeune, FINAT managing director. “A gap that is only closing slowly. Our members are confronted with quarterly price adjustments or even ‘spot’ prices on materials not yet delivered. Under such market conditions and because of the time lapse, contractual raw materials clauses only offer limited shelter. Ultimately this could affect the financial stability of label businesses.”