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FLEXO Magazine : September 2010
Industry Indicators Opportunities and Challenges in Packaging Paper Markets By Frank Perkowski Arecent study focusing on the North American pack- aging papers market segment concluded that this segment offers both opportunities and challenges for industry participants across the supply chain. In addition, recent and emerging developments within this segment are likely to result in major market shifts going forward. These papers include a range of different paper types and applications that are characterized by very different market and supply dynamics. As a result, this important segment is often misunderstood and under estimated relative to its sig- nificance within the overall packaging segment. While most packaging market participants can quickly identify applica- tions such as labels, release papers, and multiwall bags as major markets for packaging papers, other applications such a s foodservice papers, food processing papers, industrial wrapping papers, and multi-ply packaging paper wraps are not well known or understood. Market Size Taken as a whole, however, these market applications (con- sisting of 10 distinct segments) represented about $7.9 billion in annual U.S . sales at the finished packaging sales level, nearly 3.9 million tons, and more than $4.0 billion in paper sales in 2009. From a paper converter or printer perspective, these papers taken as a whole represent a little more than 50 percent of the total cost of sales, reflecting, for most convert- ers, their largest cost area. But the relative significance of paper cost in each applica- tion depends on the amount of total value added in the con- verting operation for each of the major application categories. A key factor, of course, is the number and type of different value-adding converting operations that are employed in creating the finished packaging material in each case. The bar chart provides an overview of the substrate cost of each of the 10 major application segments, and shows the total U.S. paper expenditures as a percentage of the total finished packaging cost for each one. As can be seen, the relative cost of the paper substrate varies from a low of about 36 percent to a high of about 80 percent, reflecting a significant variation in the amount of value addition at the converting level in each case. This percentage also has implications relative to profit potential within each applica- tion category, the opportunity to offer differentiated products to the customer, and the ability of convert- ers to exert influence on suppliers and customers within the supply chain. Looking at this market in another way, the pie chart below breaks out the total packaging paper volume for each of the 10 major paper packaging application identified in this study. As can be seen, the larg- est application category in terms of both total and paper expenditures is the release-base application cat- egory, while the smallest category is food processing papers. Printing iMPOrtanCe Within these 10 segmentation categories, there are about 60 individual applications that we have identified. These ap- plications are quite varied and range from unprinted grocery bags and industrial wrapping papers at the low end of the print spectrum, to decorative labels and composite packag- ing wraps at the high end, where the highest quality and most intricate printing is demanded. While about 44 percent of the • U.S. sales estimated to be $7.9 billion annually at the finished packaging sales level. • Printed material totals about 2.2 million tons annually. • Cost of the paper substrate varies from a low of about 36 percent to a high of about 80 percent of the finished product. Figure 1 16 FLEXO sePtemBer 2010 www.flexography.org FLX_Sept2010_mech.indd 16 8/31/10 5:40 PM