Plastic Packaging Industry: striving for niche amidst growing environmental scrutiny (Part II)

Backgrounder

In the previous blog (Plastic Packaging Industry: striving for niche amidst growing environmental scrutiny), Televisory explored the past trends in the industry and found that while the overall plastic packaging industry is losing market to non-plastic packaging, soft drinks and food packaging were the forerunners and drove the demand in plastic packaging. Further, Televisory examined the regions driving this demand as well as the potential market size of the industry.

Growth in plastic packaging to be fuelled by the developing economies

The market for plastic packaging was valued at USD 300 billion by sales (FY2014). The market has grown at approx. 5% CAGR between 2006-14. This expansion was majorly driven by

• Increasing containerization of food and beverages
• Increasing demand from healthcare segment, for the packaging of medicines and equipment
• Increasing in the offering of household and beauty products in smaller volumes such as shampoos, detergents, creams, cleaners, toothpaste, etc.
• Lifestyle changes which have led to more concentration on hygiene and customer appeal

The developed nations, in particular, the United States of America, Canada, France, Germany, United Kingdom and others have passed through the phase of increase in containerization of plastic packaging. Presently, the growth of plastic packaging in the developed nations has slowed down, owing to:

• An existing high penetration of plastic packaging across the goods
• Increasing reluctance to use plastic, based on awareness and perils of plastics

Increasing market share in the growth (bn USD) in Asia

Source: Bloomberg and Televisory’s Research

From the year 2006 to 2014, the market for plastic packaging in Asia grew at about 10 per cent CAGR as compared to 3-5 per cent growth in other regions. The growth in Africa, which also comprises developing nations was as low as 3.8 per cent CAGR as its constituent countries such as Rwanda were one of first to pass the bill against the use of plastic bags (only) as early as 2006.

The market share for Asia, which consists of many developing nations and is also high on growth, increased to more than one-thirds in the global market. This was a significant improvement compared to one-fourth market share held by the Asian continent earlier.

Televisory will expect the developing nations to continue capturing the market share in the near future. The growth in developing economies was mainly caused by:

• Increasing urbanisation and penetration of goods: The demand for packaged goods is further expected to increase as rural population gets exposed to better products in terms of hygiene, appearance, convenience, handling and transportation
• Expansion of e-commerce: The expanding e-commerce would augment the demand for plastic packaging for goods to be transported across cities and countries
• Improvement in healthcare: As a nation progress, this leads to better availability of healthcare, the demand for packaging pharmaceuticals and equipment also increases
• Overall development: The demand for plastic packaging would also rise by increase in trade, construction activities (packaging for cement bags) and increase in agriculture (packaging of fertilisers, preservation of crops)

The highest increase in revenue realisations for flexible plastics (2006-2014)

The flexible packaging comprises plastic films, sheets, wraps, tapes, stand-up pouches and other related material while rigid packaging includes bottles, closures, etc. The rigid packaging accounts for a majority of the plastic packaging globally. However, of late, flexible packaging has gained demand due to lower cost involved, customizability, relative lower weight, lower plastic consumption and customer appeal. The markets, which yielded the highest demand are food packaging, home care packaging, tissue and hygiene packaging.

Demand for flexible plastics boosted by food packaging

Source: Bloomberg and Televisory’s Research

A high demand for flexible plastics in the above segments boosted the revenue realisation between 2006 to 2014. The flexible plastics still remain the lowest cost material followed by glass and rigid plastics.

Source: Bloomberg and Televisory’s Research

However, despite the small cost advantage over rigid plastics, the adoption of glass as the packaging material would remain subdued due to the inconvenience to the users, higher costs and risk of breakage involved through transportation.

Plastic packaging to become USD 400 bn market by 2018

Televisory estimate the plastic packaging industry to reach USD 400 bn by the end of 2018. This implies a growth rate of 6 to 8 per cent CAGR between 2014 to 2018. This growth is expected to be driven by:

• an expansion in the overall market for soft drinks packaging, food packaging and healthcare packaging;
• continuing shift from non-plastic packaging to plastic packaging in soft drinks and other goods packaging (including healthcare);
• penetration of e-commerce and increasing urbanisation.

Estimated market size of the plastic packaging industry (USD bn)

F: Forecast

Source: Bloomberg and Televisory’s Research

Key risk to the stated growth: a ban on plastic packaging in developing nations

The environmental regulations and norms are being modified in developing countries, which could hamper the growth of the plastic packaging industry. There are impending bans in many developing nations like India, Indonesia, New Zealand, etc., which if enforced will hamper the industry significantly. Moreover, many developing nations are contemplating to ban (at least) plastic bags, which form a sizeable part of the industry. Even if the statewide bans are not enforced, many nations have local legislations which can enforce such ban.

A few examples of recent environmental regulations are

• 17^th Jul 2016: Morocco put a complete ban on plastic bags
• 5^th Sept 2016: San Francisco in the United States of America banned the use of plastic bottles