BOPP Packaging Film in H1 2011: Capacity Expands Rapidly, Market Cools

In the first half of 2011, the flexible packaging film industry was clouded by uncertainty and fatigue, and businesses cycled between hope and disappointment. Bearish factors—macroeconomic tightening, capacity expansion and weakening demand—combined to weigh on the sector. In BOPP (biaxially oriented polypropylene) packaging film, rapid capacity growth had already pushed the market into a downward channel.

According to Boye Information, China's BOPP capacity totaled 3 million tonnes in 2010, an increase of 13.5% year on year, while output reached about 2.55 million tonnes, up 14.8% year on year. By the end of 2011, around 150,000 tonnes of new BOPP capacity was expected to be released to the market. Overall, 2010–2012 was a period of rapid capacity expansion for BOPP. In H1 2011, the market from January to April followed the trend seen in the second half of 2010; prices edged upward but faced strong resistance. In May and June, with positive factors exhausted and bearish factors taking hold, the market entered a downward channel.

Crude oil was the first factor shaping BOPP packaging film trends. Geopolitics proved the biggest variable in the crude oil market this year. The outbreak of the war in Libya drove oil prices sharply higher; by the peak in mid-April, Brent crude was close to $130. As the war factor faded, prices began to return to more rational levels.

The macroeconomy was the second factor. In the first half, inflationary pressure in emerging economies continued to rise, and China's central bank raised the reserve requirement ratio six times to manage inflation expectations. Yet the tightening policy did not curb inflation effectively; instead, it weighed heavily on economic activity and weakened growth momentum. In Europe, the economic picture remained complicated, with the sovereign debt crisis spreading further. The United States had maintained a relatively solid recovery early in the year, but unfavorable factors for growth are now increasing: consumer spending, government spending and business investment have all slowed, and this is likely to remain a drag on growth.

Supply and demand formed the third factor. In H1 2011, no large volume of new BOPP capacity entered the market. On the contrary, before May, power rationing constrained supply to some extent, and producers in East China operated below full capacity. However, soft demand offset the reduction in supply, leaving the market in a mildly balanced state. Another key variable was stricter government oversight of food safety. The plasticizer incident and the subsequent rectification of the food industry directly affected packaging demand.

This article is reprinted from China Packaging Network (news.pack.cn). Original link: http://news.pack.cn/show-376339.html. All rights belong to the original author; this article is for industry exchange and learning only.