Speciality papers - troubled times ahead?

Annual growth across the global speciality papers market is predicted to be 3.7 per cent to 2013, yet there is a need for innovation and investment, according to a new report from Pira International - The Future of Speciality Papers to 2013.

This paper industry sector produces speciality grades, as opposed to the more common commodity grades. The definition of what constitutes a speciality paper is debated throughout the industry and no two definitions are identical. Broadly speaking, speciality paper markets tend to be niche, with higher than average margins than commodity markets and fairly stable pricing over time. For example, many manufacturers in the sector have targeted the same markets for many years, due to the fact that:

• speciality paper products have strong market credentials in both good and bad years

• the manufacturer may have a high customer share in that particular product

• speciality papers may be produced with unique technical properties, making them unique to that customer and application.

A strict definition states that speciality papers are unique and cannot be substituted, but many do not fit this description. For example, flexible packaging and labels all have unique properties, but they are subject to competition from competing technologies and materials. Papers that start off as specialities can also become commodities, further clouding the issue.

A changing market

During the next five years, the key drivers and trends will be:

• Increased production costs

The industry is experiencing unprecedented increases in raw materials and energy costs. The greatest pressure is on non-integrated speciality mills, which have comparatively low production of the more profitable speciality papers.

• Consolidation

Both the Western European and North American markets are experiencing a consolidation period. The market needs to undergo a further 18 months to two years of consolidation before supply and demand balance out.

• World economic downturn

The world economic downturn is causing a further squeeze on speciality producer margins. Speciality papers are especially vulnerable in consumer sectors, due to reduced consumer demand.

• Competing products

Plastics remain a competitor to paper in the speciality field and have taken market share in specific segments, such as sack kraft and labels. Oil price rises have slowed migration to plastics, but the speciality paper industry needs to tackle competition head-on through technological development.

• Technological and commercial developments

The industry needs to focus on innovation, and the creation of functional papers that are valuable to end-users. Producers are looking to form closer relationships with customers to increase understanding of how they can create useful products. Examples of technological developments are non-wood fibres, coatings, barriers, RFID and bioplastics.

• Environmental concerns

Growing awareness of sustainability issues is a positive development. However, the industry needs to improve at getting its message out to the market.

Speciality papers by end-use

The size of the markets surveyed equated just over 21mn tonnes in 2008. Flexible packaging is the largest sector, with approximately 11mn tonnes and a 52.5 per cent share. The next biggest sectors are labels, inkjet paper and release liners. Growth varies considerably between segments.

The areas experiencing the highest growth for end-use applications will be glassine, driven by strong growth in emerging markets, and printing, stimulated by gains in thermal and inkjet paper. There is also expected to be good growth in labels, release liners and industrial filtration. Such mature markets as flexible packaging and security papers will exhibit the lowest growth rates.

Flexible packaging has the largest share of the speciality paper market, equating to just over 50 per cent (Chart E1). The second largest section is printing, followed by release liners and filtration.

Geographical factors

In 2008, the US was the biggest single market for speciality paper, followed by Japan, China and Germany (Chart E2). Western Europe is the largest single region, within which markets are mature. Demand varies by product segment, with stagnation in some markets and robust growth in others. Good growth is forecast in most speciality paper segments in both Eastern Europe and the emerging Asian markets.

Both the US and Western Europe are mature markets, where growth has slowed to match GDP in some key sectors. Japan is also a mature market that is indicating only limited growth. Strongest growth is coming from the developing markets of China and India, although these countries still have some way to go to catch up with per capita consumption in the west.

Increasing economic strength and disposable income are key factors driving growth in speciality paper segments. Despite this, some producers are disappointed that the growth in Asia hasn’t been as strong as expected.

Flexible packaging

Paper based packaging is flexible, allowing fast, trouble-free converting, yet relatively stiff, ensuring improved product protection and ease of filling. Flexible packaging paper is usually clay coated to impart high printing quality.

Numerous treatments and other materials can be added to, or combined with, paper to provide extra properties. These include wax, polymer film, aluminium and other paper types.

Paper can be made grease resistant, or incorporate barriers to block moisture and odours or to retain aroma. Recently there have been developments combining paper with bioplastics and other plant derived materials, creating biodegradable, sustainable products.

Market size

The flexible packaging market was estimated to be around 11mn tonnes in 2008, of which the US was the biggest single market with a size of just over 3mn tonnes. Western Europe is comparable in size with the US market. Asia is around two-thirds the size of the US and Western European markets. The flexible packaging market is growing annually at around 2.5 per cent.

Food developments

The food and food service industries are by far the largest users of flexible packaging, particularly protective wraps and bags, sacks and pouches. In this sector, paper has to compete several other materials, including plastics, glass, steel and aluminium. However, it has numerous advantages in certain applications, and paper is one of the most widely used packaging materials, being supplied in numerous forms, including those that are:

• barrier treated to preserve aroma or maintain the freshness of the contents

• crack resistant to maintain printing quality, even on sharply folded bags

• grease resistant for packing such products as pet food.

Paper also has the rigidity necessary for both packing and standing on shelves, has breathable properties and natural sensory characteristics, all of which make it a favourite substrate for food packaging. Such confectionery products as sugar, cookies, sweets and bakery products are often packaged in paper.

Broadly speaking, paper for food and food service packaging divides into two distinct sectors: heavyweight ‘sulphate’ and lightweight ‘sulphite’ paper. The former is used for paper sacks to wrap such products as flour, sugar, fruits and vegetables. Sulphite paper tends to be used for grocery bags and sweet wrappers, as an inner liner for biscuits and in laminations. Versions of these paper types are commonly found in the food and food service industries. For example, greaseproof paper is sulphite paper made resistant to oils and fats, used for wrapping meat and dairy products. Papers can also be treated with wax to provide a moisture barrier and facilitate heat sealing. However, a simple wax coating is easily damaged by folding or by abrasive foods. This is overcome by laminating the wax between layers of paper and/or PET.

The main objective of food packaging is to optimise food preservation, together with making an attractive product for the consumer.

Food service on the lightweight side includes wrappers (for sandwiches and burgers), small carry-out sacks, pouches for fries, paper cups, and napkins.

More heavyweight applications include beverage holders for soups and drinks.

This article is derived from The Future of Speciality Papers to 2013, published by Pira International. The report can be purchased online from the publisher’s website.