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More important than ever: the situation on the packaging market

  • The year 2020 caused a lot of uncertainty in the packaging industry, but also gave hope for a more relaxed situation in 2021.
  • Overall, 2020 was quite successful for parts of the packaging industry despite the general situation.  
  • Although the pandemic situation initially receded in 2021, an increasingly pressing raw material situation and a cost spiral triggered by it came into focus as the year progressed.  
  • In addition, developments in Europe, North America and Asia were very different, with infection figures rising sharply again in Germany, among other countries.  
  • At the end of 2021, the situation for the local packaging industry continues to be characterized by a major factor of uncertainty, which is clouding what is in itself a good business climate.


 

Will everything remain different?

After a difficult year in 2020, the packaging industry is looking ahead. Because what the crisis has shown so far: Packaging is more important than ever. However, challenges continue to await alongside optimistic prospects. We take a look at the situation on the packaging market.

 

Emerging stronger from the crisis?

Conditions were difficult for everyone in 2020, so the packaging industry was no exception. Uncertain economic developments, unusually difficult forecasts: manufacturers had to contend with a number of imponderables.
 

At the beginning of this first Covid year, the focus was primarily on the issue of sustainability – just as it had been in the years leading up to 2020. Then, however, the pandemic began and ensured that suddenly,
(infection) protection in combination with general hygiene became much more important than ever before – and than had been foreseeable.






 

Over the coming weeks and months, the packaging industry, therefore, underwent a change that was dramatic in places:
 

  • Packaging became enormously important primarily as a safe container for everyday necessities. In fact, packaging specifically for pharmaceuticals, infection control and foodstuffs acquired "system-relevant" status.
 
  • Accordingly, that part of the packaging industry that was (also) dedicated to these focal points flourished significantly in 2020. At the same time, demand for packaging in other sectors slumped by a fifth or more; e.g., plastic packaging in industry.
 
  • As a result of the voluntary and government-mandated "withdrawal" of most people from the public sphere, online retailing again gained dramatically in importance, and with it, of course, the related packaging technology. In addition, such packaging experienced a surge in demand, which enabled pick-up or "to-go" solutions.
 

2020 was therefore a year of unexpected ups and downs for the packaging industry. However, there were no such extreme ups and downs as in the printing industry, which was exposed to the fluctuations within a very short time.

Moreover, it became apparent that the issue of sustainability only had a lower priority for a short time. As soon as the pandemic situation eased, consumer focus immediately returned to sustainable packaging. This shows how important this complex of topics is - and how relevant itself has since become among consumers.

Overall, it can be stated that the year 2020 did indeed present the packaging industry with great many previously completely unforeseeable surprises and in some cases forced it to take uncomfortable measures. Also, not every company was able to take advantage of the advantageous increase in demand. However, other companies were able to prove their efficiency and profit from the increases in demand.

 

In addition, the turn of the year 2020/21 was marked by the completion of vaccine development. This was accompanied on the one hand by expectations of a reduction in the incidence of infection and a return to normality.On the other hand, there were lucrative orders to adequately package everything needed for the millions of vaccinations.

Although the new year 2021 began with the same lockdown that ended the old one, the general business climate in the industry was positive. Nevertheless, most entrepreneurs in the packaging industry were only cautiously optimistic. Here, it was evident at the beginning of 2021 that the changeable previous year had made many cautious.

This caution proved to be justified and correct. Because 2021 brought further problems.

 

Topic Packaging materials: Between demand boom and raw material shortage

As 2021 began, the packaging industry has been able to realistically hope for several events:

  • Globally, the gigantic vaccination campaigns would kick off in the coming weeks and months.
  • On the one hand, this would mean a new push for the packaging materials needed for this.
  • On the other hand, the incidence of infection would therefore normalize in the foreseeable future.


In short, the signs suggested that there would be another boom in terms of vaccine and accessory packaging, but then the situation would gradually ease back; back to the situation that existed before the pandemic began.



However, the reality was different. Around the turn of the year, manufacturers of folding cartons in particular, as well as corrugated board products and those made of plastic, had hardly experienced any disruptions to their supply chains. In the first quarter of 2021, the situation quickly turned into the opposite.

In February, it began to become apparent that there were increasingly pressing shortages of starting materials in the plastic packaging sector. Particularly in the case of raw materials:

 
  • High-Density Polyethylene,
  • Low-Density Polyethylene,
  • Polyamide and
  • Polypropylene.
 

The background to this was a chain of unfortunate events. There were weather-related outages in Texas and elsewhere. What was particularly dramatic was that many industries around the world recovered "too quickly" at the same time. This, in turn, caused demand to soar.

This increase was accompanied by reduced oil imports from Saudi Arabia and the USA to Europe. In some cases, raw material quotas were diverted to Asia in order to satisfy the hunger for demand from an industry that is significantly larger than in Europe. Accordingly, many European manufacturers of plastic packaging were faced with a sharp increase in demand coupled with a dramatic reduction in the supply of raw materials.

Around the same time, packaging manufacturers relying on wood and materials made from it also had to admit that the situation was anything but positive. Factors such as

 
  • Collapsed supply chains in the most important wood-producing regions of Scandinavia, Eastern Europe, and North America,
  • a lot of unusable damaged wood, for example, due to bark beetle infestation, and
  • a construction boom, particularly in the USA with a strong tendency towards wooden constructions there caused timber prices in this country to rise sharply within a short period of time, and at the same time timber became scarce.
 

Such a situation had already become apparent in mid-2020 but had not come to full fruition as a result of the Covid situation. With the improving pandemic situation at the beginning of 2021, this was made up for in the negative sense within a short period of time.

Whereas until the end of 2020 only raw material prices had increased and thus reduced revenues, for example in the corrugated board sector, the raw material situation became increasingly pressing in the course of 2021. In the fall of 2021, it became clear that in Europe alone there was a shortage of approximately 300,000 tons of virgin fibre-based cardboard.

Although cardboard and folding box manufacturers, in particular, were producing at their limits, demand was so great that many customers were unable to obtain anything even with above-average offers. In some cases, the situation was so dramatic that new customers were left completely empty-handed because the manufacturers could only supply regular customers.

As a result, the local prices for base paper for corrugated board production rose by an incredible 46.6 per cent between September 2020 and September 2021. The increases in the recovered paper sector were even more severe. This situation was compounded by political measures that made energy sources more expensive and also increased CO₂ emissions.

At the beginning of the last quarter of 2021, the situation even caused corporate expectations to darken.

In the area covered by the German Printing and Media Industries Federation (BVDM), the business climate index fell by 0.3 per cent between September and October. A flash survey published at the end of November by the German folding carton industry association published at the end of November also showed that many companies were convinced that the supply situation would remain unchanged for some time to come.

At present (early December 2021), more and more manufacturers are therefore calling on their customers to once again specify their actual packaging requirements, in order to keep the order quantities for the coming months as realistically in line with actual demand as possible.

Unfortunately, this is proving to be exceptionally difficult. That's because the final quarter of 2021 is surprisingly similar to the same quarter last year. Billions of people worldwide have been vaccinated. However, the numbers are nowhere near enough. Since October, the infection figures have been rising rapidly, and by the beginning of December in Germany and many other European countries, they had exceeded the peak levels of previous infection waves.

Markets and market outlook: What's next for the packaging industry?

Whereas at the beginning of 2021 the packaging industry could have hoped that it would soon be back on its usual course, by the end of the year it will be facing a similar situation to that of the same period in the previous year: it is uncertain how the infection situation in this country will develop.



 

Current developments such as

 
  • very high incidences,
  • an upcoming change of government together with an expected "familiarization phase",
  • the expiration of the "epidemic situation of national importance" at the end of November,
  • Nationwide indecision on further action between lockdowns and mandatory vaccinations

        encounter a world in which a new Corona variant, in particular, is causing great concern. In such a situation, there is naturally also  
        great uncertainty for the packaging industry
. At present, it can hardly estimate how things will develop.

 

Anything seems possible at present, from a more infectious but significantly milder variant of the virus to a renewed shutdown of the Federal Republic, to a normal fading of the fourth wave. Thus also everything that the respective future could mean for the packaging industry.

In addition, the global situation is highly heterogeneous: in China and other Asian countries, industry is booming again very strongly; the USA, on the other hand, is suffering from supply bottlenecks and staff shortages. Above all, many countries are experiencing inflation rates not seen for decades.

The only certainty for the packaging industry is therefore that it must prepare itself for all possible scenarios. This "certainty of uncertainty" is also reflected in the business climate index: although it was better in the penultimate month of 2021 than in the earlier fall, it was equally less confident about the future.

  

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