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BOPP Film: How Real Is the China Threat?

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BOPP Film: How Real Is the China Threat?
Oct 1, 2003 12:00 PM, Simon King PCI Films, Consulting Ltd.

advertisement Plans to increase BOPP capacity in China have industry players worried. The (US) $6 billion world BOPP film industry has experiencedturbulent times in the past ten years as supply and demand balances have created a cycle of almost “boom and bust.” Right now, just as world markets were improving, industry players have become fearful of the effect of the latest announcements of increases in capacity over the next two years in China. Over the past five years, an additional 1.2 million tonnes of BOPP film production capacity hasbeen installed worldwide, with a corresponding increase in demand of 1.4 million tonnes. During this period, increases in demand have been outstripping increases in supply, and regional markets have been tightening. In North America, capacity closures and little additional investment, alongside an improving demand situation, have been welcomed as a positive trend for those wishing to improvereturns and set aside profits for new investment. This has been true of embattled suppliers in South East Asia also. The “tightening” effect is best illustrated in Table I. It shows that in most BOPP film markets, the percentage increase in demand from 1997 to 2002 has been greater than the percentage increase in capacity. As a result of this imbalance, demand has been catching up with supply, enablingproducers to better utilize their capacity and improve profitability. In stark contrast to the tightening supply/demand situation in other regional markets, Chinese film suppliers have been investing heavily, well ahead of domestic market demand and often it appears, without an awareness of the competitive environment. Fortunately for world producers, the investment program, which has increasedChinese production capacity by 157% since 1997, has not resulted in much exporting activity and therefore has had little impact on regional markets. Film producers in China appear to have managed their internal market by running plants below nominal capacity and often have stopped them completely, rather than turning toward exporting. The Chinese domestic market also has seen demand increase by100% in the past five years, helping to absorb some of the excess capacity and to mold a more balanced market.

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BOPP Film: How Real Is the China Threat?

http://pffc-online.com/flex_pack/paper_bopp_film_real/

So to date, the massive investment (45% of all capacity installed since 1997) in the Chinese BOPP film industry largely has been restricted toaffecting internal market dynamics and has not caused any real difficulties in other markets. When looking at the figures in Table I, the percentage growth in historic capacity in China looks ominous, but our research has established it has had little historic impact on other world markets. The market is not so sure this will continue to be the case over the next five years, when the Chinese BOPP filmindustry is set to almost double again in size, and there are fears Chinese producers will need to become more active on the international stage to remain viable. Are the Fears Well-Founded? This is a difficult question to answer, but let's weigh the evidence to gauge whether the Chinese BOPP film industry has the capability or the need to become a force in world export markets (see Table II.) In ourview, the evidence suggests that in the next two years China will have the production capability to compete in world markets but currently lacks the skills and market knowledge to develop medium-term export markets. In addition, the industry does not really need to seek volume from other markets — a burgeoning domestic market (the fastest growing in the world), an acceptance that lower...