For a number of years, markets for plastic compounds have been growing at a faster rate than for plastics in general. Most important growth driver is the replacement of traditional materials such as metal and wood, coupled with an extensive research and development focus on new products and applications, according to a new study by Frost & Sullivan (December 1998, USD 3,950). The international consulting firm believes these factors will impact growth in compounding up to and beyond the end of the millennium, athough to a lesser degree than in the past.

The overall European plastics compounding market was valued at USD 4.81bn in 1998. Revenues are expected to reach USD 6.80bn by the year 2005, due especially to the increasing importance of end-user markets such as telecommunications and business equipment as well as automotive applications.

PVC currently accounts for the lion´s share of the European plastics compounding market, followed by reinforced and filled resins and thermoplastic elastomers. This should change by 2005, when thermoplastic elastomers are expected to lead the field, with PVC compounds and reinforced and filled resins then ranking second and third. As the consultants note, thermoplastic elastomers are continuing to replace thermoset rubber as well as being adapated for new products and applications. PVC compounds profit from growth in building and construction and the development of improved formulations, as well as new applications.

Lower-cost reinforced resins have begun to replace engineering thermoplastics in some applications, such as kitchenware and domestic appliances. Plastic compounds will continue to challenge engineering plastics in an increasing number of markets, as long as their price-performance ratio remains competitive, Frost & Sullivan says.

Germany is Europe´s largest market for plastic compounds with an estimated 28% of market revenues in 1998, followed by Italy and France. Mainly due to the increased use of plastic compounds in automotive applications, Germany´s market share is projected to expand over the forecast period, while Italy´s will decline, due mainly to the gloomy outlook for the footwear industry. The Iberian peninsula is expected to show the largest gain in market share.

According to Frost & Sullivan, there is a high degree of crossover between market segments, with some companies producing more than one type of compound. In particular, manufacturers of thermoplastic olefins often produce blends and alloys as well as reinforced resins. PVC compounding represents the most specialised market. According to David Platt, industry analyst at Frost & Sullivan, the market share of integrated operations will grow at the expense of independents over the next five years as downstream changes favour the integrated company. End-user industries are becoming more international, more consolidated, reducing their supplier base and focusing more on total supplier value.

Consolidation in compounding markets is being encouraged by mergers in the resins supply industry and among key end user groups such as automotive, electrical and appliances, and as the report notes, compounders themselves are seeking increased size as a counterbalance against the stronger bargaining power of their suppliers and customers. As these key industries become larger and more globalised, they favour integrated suppliers who can guarantee consistency, reliability and value on a worldwide basis and compete on value added services. This, of course, benefits large integrated operations.

The future health of the independent sector, says Platt, depends on its development of strategies to counterbalance the bargaining power of suppliers and buyers and thus regain some control over margins. Strategic options include developing niche markets, building brand image and increasing size through mergers and acquisitions.