Packaging producers – the second largest group of plastics converters in Germany after the construction industry – are currently facing immense challenges. Not only are skyrocketing energy costs and disruptions in supply chains putting pressure on manufacturers, but the quotas imposed on the use of recyclate and the ambitious sustainability targets of brand manufacturers are also prompting massive movements within the industry.

And the threat of a recession is depressing the mood still further. If consumers have to tighten their belts in general, fewer products and hence less packaging will be sold.

The projected decline in sales is reflected in the industry’s sales expectations for Q4 2022. Seven out of ten manufacturers anticipate a deterioration compared with the previous quarter. This is the outcome of the latest survey by German plastics packaging association Industrievereinigung Kunststoffverpackungen (IK, Bad Homburg; www.kunststoffverpackungen.de), whose more than 300 member companies represent some 80% of industry sales. Expectations in terms of earnings are even more pessimistic. Here, 78% are reckoning with a decline over the coming months. “The outlook for the general economic situation is almost as pessimistic as at the start of the coronavirus pandemic in spring 2020”, said IK managing director Mara Hancker.

The industry had remained comparatively stable during the two years of the pandemic, however, with primarily pharmaceutical and food packaging manufacturers benefitting from the changed requirements and consumption patterns during Covid-19. “Much greater focus came to be placed on product protection”, Hancker said, adding that the plastics industry now also has a slice of the booming e-commerce sector. “An increasing number of shippers are opting for reusable bags, and this will be a growth market for plastics!”

The “flexible fraction” – packaging films and the finished packaging made from these – accounts for roughly half the total production volume, with the remainder comprising the “dimensionally stable fraction” of bottles, cans, cups, crates, and buckets. At 4.7 mn t, manufacturers in Germany produced around 5% more packaging in 2021 than the previous year. Sales increased to an even greater extent, rising 13% to EUR 16.28 bn.

But since it was the huge rise in raw material costs that was largely behind the growth in sales, many converters were ultimately rather despondent. The figures published by German plastics processing industry group GKV (Berlin; www.gkv.de) show that the growth in sales – a 12.6% increase to EUR 69.4 bn was reported across all the different conversion sectors – only had a positive impact on the operating result of four out of ten companies (see Plasteurope.com of 08.03.2022).

Last year it was the high raw material prices that put a strain on converters, now it’s skyrocketing energy costs. Electricity prices have doubled on average in the industry since the start of the year, and some companies are even reporting an eight-fold increase. The situation for natural gas is no better.

“The high energy costs are threatening the survival of the sector as a whole and exceed the general cost increases of the past two years many times over. Electricity has been just as expensive as the material at times”, said Frank Kriener, managing director of dimensionally stable plastics packaging manufacturer Gizeh (Bergneustadt, Germany; www.gizeh.com). “The high energy costs have forced us to cut back our production”, Kriener stresses. The company primarily makes PP packaging for the food industry and reported sales of approximately EUR 150 mn last year with around 800 employees.

“The cost increases in the energy sector are making our day-to-day business difficult.” This statement from Marek Pawlak, CSO of Austria’s adapa (Wiener Neudorf; www.adapa-group.com), the new name of flexible packaging manufacturer Schur Flexibles (see Plasteurope.com of 30.09.2022), was shared by packaging group ppg (Oldenburg, Germany; www.prepacgroup.de), Greiner Packaging (Kremsmünster, Austria; www.greiner.at), and Mondi (Vienna; www.mondigroup.com) when contacted by Plasteurope.com. “We have had to accept stoppages at individual locations in the meantime”, Pawlak added.

Converters have to try and pass on the higher costs – that was also the subject of numerous conversations with customers at the recent FachPack fair in Nuremberg, Germany. “The cost increases for energy are hitting us twice over”, says Oliver Fankhauser, CEO of flexible packaging manufacturer Wipf (Volketswil, Switzerland; www.wipf.ch), “Firstly, through our own consumption and secondly through our purchases, since film manufacturers are also endeavouring to pass on their additional costs.”

As was the case in Q3 2022 already, the availability situation for standard plastics is easing in the last three months of the year. The exception here is EVOH, which is used as a barrier material in a large number of food applications.

Here, however, packaging is up against competition from customers in the construction industry. The short supply is reflected in quotations: supplier Kuraray (Tokyo; www.kuraray.co.jp), which operates a plant in Antwerp, Belgium – one of only two such facilities in Europe – was demanding hikes of EUR 1,600/t for the barrier polymer in October (see Plasteurope.com of 29.09.2022).

“When it comes to the shortage of EVOH, we are able to replace a certain amount with coatings, but with the rest the scarcity is reflected in our delivery times”, says Pawlak. Manufacturers are reacting to the tight supply situation either with developments to further reduce the thickness of their EVOH layers or – as at adapa – through mono-material solutions that dispense with EVOH barriers altogether (see Plasteurope.com of 18.05.2022).

In the meantime, the improved availability of the majority of packaging raw materials is also having an impact on prices. Since April 2022, quotations for LDPE, LLDPE, HDPE, PP, and PVC have been falling. “The pace at which prices are declining has slowed down now, though”, said Martin Bäcker, head of the Plasteurope.com polymer price team. “This is because many large-scale producers have reacted to the weaker demand and the present energy price situation with production cutbacks. That is now making itself felt.”

In addition, with freight rates at a more moderate level again, imports from Asia, the Middle East, and the US have become more attractive, since prices for many polymer types are considerably below those in Europe.

While difficulties in day-to-day business is one thing, the switch to sustainability currently constitutes an even greater challenge for converters. With the specified target of a climate-neutral Europe by 2050, the industry has been pursuing ambitious sustainability goals for a number of years now, with regulatory requirements constituting one of the driving forces here.

The use of recyclate in packaging production has increased sharply in a bid to achieve a functioning closed-loop economy and reduce carbon emissions; it currently stands at 11%, equivalent to a volume of 474,000 t.

Regarding the much-discussed EU plans for the minimum recyclate content in packaging (see Plasteurope.com of 20.09.2022) the IK is expecting a proposal at the end of November 2022. “On the table are 35% for non-food packaging and 25% for food packaging – averaging 30%”, Hancker reckons.

But what about availability? Referring to Germany, Hancker said, “To achieve the specified targets, the post-consumer recyclate content of plastics packaging in Germany alone would need to be increased from its current 370,000 t to 1.3 mn t by 2030. And, overall, there is a still a shortfall of just under 600,000 t rPE, 250,000 t rPP, and 140,000 t other polymer types, including rPS and rPA.”

Related: Interview with Jens Kaatze from Wipag about the future of recyclate

Apart from the insufficient quantities of recyclate, however, the applicable regulations could also slow things down. With the exception of rPET, where a more or less closed loop already exists, a large proportion of the mechanically processed polyethylene and polypropylene from Germany’s yellow-bag household collections is not approved for direct food contact. These applications have so far been reserved for polyolefin materials from chemical reclaim.

Recyclate content in PET beverage bottles is governed by the German Packaging Act (VerpackG), with the percentage of recyclate set to increase to 25% by 2025 and to 30% by 2030. “The available and required volumes are already more or less aligned here”, said Hancker.

Alongside recyclate content, “Design for Recycling” is another sustainability topic that the industry is addressing. If subsequent recyclability is taken into account in the development process of packaging, this can also pay off in monetary terms via the licence fees for Germany’s central packaging register office Zentrale Stelle Verpackungsregister (ZSVR, Osnabrück; www.verpackungsregister.org).

“Plastics packaging manufacturers have done their homework on this”, said Sonja Bähr, analyst at packaging consultants Tilisco (Hatten, Germany; www.tilisco.de). “Manufacturers have been surprisingly quick in offering so-called monofilms that run efficiently on the fillers’ existing machines. Readily recyclable solutions are now also available in PE and PP for stand-up pouches.”