Commissioned by Internet polyolefins sales portal Alastian, a subsidiary of polymer producer Basell (Hoofddorp, Netherlands), the study from analysts at the Economist Intelligence Unit (London) looks at ways to protect market share.
Author Eric Johnson says the Western European commodity plastics industry''s future appears to involve both relative and perhaps absolute decline. This dim outlook is a sobering thought, but one which Johnson says the sector''s players have brought on themselves.
"The [polymer production] industry has become used to steady growth, which can take the sting out of management mistakes," says John Nash, a senior consultant at AMI Consulting (Bristol, England), one of a number of industry experts quoted in the study. "As volumes flatten, there will be less margin for error."
But where does that place plastics processors in Europe? According to Johnson there are several primary challenges they need to meet. Price swings of resin are becoming more prominent, making it more difficult to plan production.
He says plastics processors in Western Europe will need to make more out of less in the future, and adapt to changes in the market more quickly in order to sustain competitiveness. One way is to adopt more material sourcing automation, which Johnson says can reduce error rates in resin buying habits. The study, which of course applauds the advent of automated trading networks like Alastian, says the error rate in resin transactions can be reduced from 5%-15% to just 1%-2%. However, even Johnson asks, "When [will] all of this start delivering serious savings?"
No-frills distributor Alastian hopes eventually to account for up to 40% of Basell''s commodity sales while competitor Elemica now claims to have 2000 partners and an annual trading volume of more than $35 billion. Online resin trader Omnexus (January 2004 MPW, p. 52) was not so lucky and went belly up in 2003. Former Omnexus COO Michael Walsh told Modern Plastics at the time that, "Our primary challenge was traditional ways of doing business-fax and phone."
"There is no need for frills in the European commodity plastics business," says Alessandro Toso, a director at British processor ITS. "Everybody knows how polyethylene or polypropylene is going to behave during processing."
Cooperation between processors or the prospect of consolidation is another factor facing Western European converters, says AMI''s Nash. "The industry is hugely fragmented; there is a massive opportunity for consolidation," he says. However, he points out that progress is slow.
Expansion into new markets where wages tend to be half or less than Western Europe, yet where technical prowess is comparable, is an ongoing trend. As Eastern European consumers adopt more lavish lifestyles and the demand for plastics applications increases, the cost advantage may dwindle. Johnson predicts that bulk-film and injection molding may leave Europe for less-costly areas since these products are easy to transport back to developed markets. Western European processors need to find more defendable niches to sustain their businesses, he says.
A combination of innovation and branding will be crucial for future growth. Processors need to work harder to speed up their customers'' acceptance of novelties. "We have seen some cases of business moving to Asian converters, yet using European formulation technologies, because the Asian end-users were willing to move faster," says Giordano Righini, head of plastic additives at Ciba Specialty Chemicals (Basel, Switzerland).
The challenge from Asia is stark. The assembly powerhouses building up in China, Korea, Taiwan, and other countries there will do an increasing amount of plastics fabrication themselves, says Nigel Davis, editor of industry newsletter, ICIS Insight. "For somebody assembling personal computers or other electronics, this [processing] naturally belongs in the Far East," Davis says.
Robert Colvin [email protected]