Market Update: Coating & Laminating Special Report: Still Growing

Published: February 01, 2011, By By Dr. William Llewellyn, AWA Alexander Watson Assoc.

In the world of packaging, vacuum-coated products offer converters and brand owners three key properties: barrier, aesthetics, and sustainability.

• Barrier | Vacuum-coated products provide medium-to-high barrier against the ingress of gas, moisture, and in the case of metallized products, light. This property is invaluable, particularly for packaged foods.
• Aesthetics | The aesthetics of vacuum-coated materials are excellent. Highly reflective metallized films and papers answer today's demands for prestigious, attractive, and decorative finishes for a wide range of packaging substrates, while clear oxide vacuum-coated films combine high-barrier properties with levels of clarity that deliver a transparent package and make it easy to view the contents. Together, these features offer significant shelf standout in the supermarket.
• Sustainability | Vacuum-coated products enable converters and brand owners to be environmentally sympathetic in their use of materials for packaging. They deliver the same functional barrier as many alternative materials — such as aluminum foil, coated films, or extrusion-coated papers — but often without the same concentration of key raw materials usage. Vacuum-coated products also provide considerable scope for downgauging the thickness of the films and papers used at very similar performance levels as thicker substitutes. Additionally, as is increasingly important in many aspects of the packaging industry today, they offer ease of recyclability and high yields of recovered base materials.

Economic Recovery

The year 2010 opened optimistically for the world vacuum coating and metallizing markets. After the debacle of the global economic crisis, most of 2009 had reflected the downturn in consumer confidence and order books were very thin as companies reduced stocks and inventories to minimize working capital and preserve cash levels.

It was only in the fourth quarter of 2009 that there was a perceived upturn in the business environment, and this key element in the 21st century materials market (especially in packaging applications) came to life again. Even so, global demand for vacuum-metallized and coated products grew in 2009 by 7% over 2008 levels, to about 961,000 tons. Few other segments demonstrated such growth levels in such difficult trading conditions.

Geographical Markets

In geographical terms, it is the Asia Pacific region that commands the greatest share of the vacuum-coated films and papers market at 49%, with Europe in second place at 25%, and North America third with 18% (see Figure 1). Europe and North America experienced the greatest demand downturn during the financial crisis.

Demand in developing regions, such as Asia Pacific and South America, was buffered by the relative strength of local economic growth — most notably in China, India, and Brazil. These different characteristics have influenced market development and growth rates in regional markets.

North America | North America is seeing metallized paper volumes decline annually, and the region's limited legislative environmental pressure to substitute aluminum foil laminates with metallized paper structures is not a major driver here as it is in Europe (see Figure 2).

Imports of metallized and plain giftwrap also are impacting domestic production. There also has been marked consolidation in the metallized paper production segment, with Vacumet emerging as the single largest commercial producer.

As in all markets, biaxially oriented polypropylene (BOPP) materials dominate in North America. This is particularly true in the flexible packaging market, with a special focus on extrusion laminations in the snack packaging sector.

Europe | In Europe, metallized paper volumes also are declining — particularly for cigarette packaging, where smoking bans and health campaigning are reducing cigarette sales. Metallized paper sales for wet glue labels also declined in the important beer label market in response to a demand for lower costs (therefore white papers), competition from pressure-sensitive (p-s) labels, and reduced beer consumption.

Barrier packaging for foods was the key market for vacuum-coated products. Polypropylene (PP) films take the major share, although polyethylene terephthalate (PET) films are showing stronger growth.

There is competition from imported materials — especially metallized paper giftwrap and metallized PET and oriented polypropylene (OPP) — from lower-cost production areas, especially China, India, Dubai, and Turkey. This is driving innovation in higher levels of functionality for added value.

European producers also have consolidated. Glatfelter has acquired Metallized Products Ltd., and Alupa and Rotoflex have merged to form AR Metallizing.

Asia Pacific | The world's largest regional market for vacuum-coated products, Asia Pacific, is led by China and India, both for domestic regional production and for low-cost exports (metallized paper giftwrap) to North America and Europe (see Figure 3). Key end-use market segments are food, beverage, tobacco, and personal care products.

China and India are major producers and exporters of vacuum-metallized films, with companies primarily based on the model of in-house, supplier-integrated production. In China, metallized paper demand for labels and cigarette packaging was strong. While the country is focused on films, combined with metallized PP, cast polypropylene (CPP) films feature particularly strongly.

India has the highest concentration of metallized PET of any market. However, interest in — and investment in — metallized OPP is growing, even among traditional PET suppliers.

Countries in which there is emerging interest in vacuum coating are Thailand, with investments in PET and OPP manufacturing; Indonesia, where there is continuing interest in metallized board, PET, and OPP; and Vietnam, where we also are seeing investment in vacuum-coating facilities. Conversely, the mature Japanese market is in decline.

South America | The “new kid on the block,” South America, is advancing quickly in vacuum-coated materials' production and use — albeit from a low base. Demand for metallized papers is increasing at an annual rate of 20% in the Brazilian market in response to changing packaging standards in the highly competitive beer market.

In fact, South American demand for metallized label papers outstrips local production. It is supplemented by imported base metallized papers from North America and Europe, as well as finished printed labels.

Metallized OPP represents the majority share of the South American vacuum-coated products market overall — with about 84% of the total — and is growing at 3%-5% per year. Indigenous manufacturers have made significant investments in film production and downstream metallizing operations, and today they are major exporters of base and metallized film within this region and beyond it, with North America a special focus.

Metallized OPP is widely used in the region in flexible packaging applications, such as snack packaging laminates that use adhesive lamination technologies and in metallized wraparound labels for carbonated soft drinks and beer. Metallized PET has shown slow growth but is forecast to evidence significantly increased demand in the short term — particularly in barrier laminates for flexible packaging.

Market Structure

Companies involved in the vacuum-coating value chain can be categorized by their level of vertical integration, with its associated influence on costs and complexity. Excluding vacuum coaters that specialize in capacitors and stamping foils, we see two principal categories of companies: In-house vacuum coaters/metallizers and commercial coaters/metallizers.

• Companies that vacuum coat their own raw materials (and are therefore materials-integrated) for later sale, as well as companies that concentrate on converting their own vacuum-coated materials (and are therefore converter-integrated), make up the “in-house” category.
• All other vacuum coaters that either contract vacuum coat (toll vacuum coat) or purchase raw materials for vacuum coating to sell to third parties on the open market represent the second category — the free or unaligned vacuum coating/metallizing market.

However, there are overlapping interests between companies as well as between the two categories.

Vacuum-Coated Films

It is relevant to examine the characteristics of the vacuum-coated products market by substrate (see Figure 4). Around the globe, most of the volumes today are in vacuum-coated films, and metallized PP dominates, growing at a rate that drives the overall market growth. Snack food packaging and wraparound labels for soft drinks and packaged waters are the main markets for metallized BOPP, as well as giftwrap.

Metallized PET usage varies by region but is growing significantly in Asia Pacific, driven by Chinese and Indian demand. There are slowdowns in PET usage in North America and Europe, but we forecast early recovery here.

Vacuum-coated PET films offer the widest range of application opportunities for any vacuum-coated material. They range from high-barrier metallized and oxide-coated flexible packaging (for dried powdered foods, liquids, and snacks) through sophisticated coatings for the aerospace market, to semi-transparent window films, insulation laminations, and medical products. Clear oxide-coated, vacuum-coated PET films — particularly aluminum oxide-coated PET — take the leading share in this type of packaging film.

Most oxide-coated films are produced in Japan, but production in North America and Europe is growing. Key film coaters in all these geographies today offer developed technologies.

Metallized polyvinyl chloride (PVC) films are widely used for decorative end uses, and other vacuum-coated films seen in the global market for specific applications include polyamides (metallized and clear oxide-coated), cellulose acetates, regenerated cellulose films, and polyimides.

Vacuum-Coated Papers & Boards

Metallized label papers are the stalwarts of the North American and European beer markets. They have suffered a significant reversal in the light of reducing demand, a technology shift to clear p-s labels, and a downgrade to white paper labels on commodity beers.

Metallized paper packaging also is declining overall as demand in the key cigarette packaging sector declines; paper-based developments in nontobacco segments are slow to take market share; and most importantly, the functional benefits of films have given them the lead in core flexible packaging applications. Metallized giftwrap now is centered in lower-cost production areas such as Asia Pacific.

Transfer-metallized boards, however, remain a niche product. Metallized paper/board laminates offer better environmental credentials than metallized film/board or aluminum foil/board laminates — a feature on which they have yet to capitalize in the marketplace.

Market Status & Opportunities

The proven functional benefits for brand owners and converters will ensure that vacuum-coated products — particularly films — will continue to thrive in the global packaging market, both for established uses and in innovative applications. There is increasing evidence of higher levels of global trading.

Now widely imported into North America and Europe are oxide-coated films from Japan; metallized PET and OPP from the Middle East, China, and India; and metallized giftwrap from Asia Pacific. Southeast Asia, South America, South Africa, and many other geographies are importing metallized label papers from North America and Europe.

Growth will continue to be driven by demand for vacuum-coated films in India and China — with a modest contribution from South America. Flexible packaging and labels involving metallized OPP films and papers will be the main end-use applications.

There is still plenty of opportunity to innovate in this versatile technology, both functionally and aesthetically. Transparent oxide barrier coating is a key area.

Developments in high-barrier coating for flexible displays — a growing market — will expand the market further. Of course, the drive to sustainability will encourage the use of biopolymers such as polylactic acid (PLA) for barrier coating on flexible packaging.

The vacuum-coated and metallized products market is unquestionably one to watch for the future. It represents a real opportunity for business development in the converting industry.

Dr. William Llewellyn is VP and senior consultant at AWA Alexander Watson Assoc., Amsterdam, Netherlands, a market research firm that specializes in monitoring the coating, laminating, metallizing, label, and packaging markets around the globe. Contact him at +31 20 676 20 60; www.awa-bv.com.

Want To Learn More?

The Vacuum Coated & Metallized Products Global Review 2010 is part of a series of concise annual market evaluations available from AWA Alexander Watson Assoc. For more information, visit www.awa-bv.com.