BPIF Q3 Outlook: UK print and packaging recovery continues despite cost and supply headwinds

Despite heavy pressure from supply chain disruption and higher costs, the UK printing and printed packaging sector extended its rebound in the third quarter. Most businesses reported stronger performance, and many expect further gains in the fourth quarter.

The newly released Printing Outlook from BPIF is a quarterly gauge of industry health. It found that after the first-quarter 2020 COVID-19 outbreak, workloads only began to recover markedly in the second quarter of this year, even as lockdown measures eased and the economy reopened further.

Q3 delivered the anticipated continuation of growth and stronger activity. Even with supply chain hurdles and a sharp rise in input prices, that momentum is forecast to carry into Q4.

The survey showed that 59% of printers raised output in Q3 2021, while 33% held output steady and 8% recorded a decline.

BPIF economist Kyle Jardine pointed to the end of furlough, employees returning to printing firms, a recovering economy, and more work being generated and approved.

Many printers are upbeat about year-end output growth, supported in particular by Halloween and Christmas marketing activity, and expect strong business levels to run into Q4.

For Q4, 48% of companies expect output growth to rise, 42% foresee stable output, and just 10% anticipate a decrease.

Substrate costs were the top business concern for 85% of respondents for a second straight quarter. Access to skilled labor ranked second at 61%, and energy costs third at 55%. Concern about Covid-19’s economic impact fell sharply, cited by only 14%.

Raw material supply shortages are now the toughest issue affecting companies’ ability to recover from COVID-19. “Insufficient demand” had been the leading operational challenge in Q1, chosen by 60%, before falling to 44% in Q2 and 23% in Q3; it now ranks only fifth.

68% of respondents said concern over shortages of imported inputs and raw materials had grown, making it the most frequently selected challenge, narrowly ahead of domestic input supply. “Other cost pressures” ranked third at 41%.

Companies across the industry have faced unprecedented and substantial cost increases in every major cost area, and upward pressure is expected to intensify in Q4.

BPIF said paper and board costs continued to create the strongest inflationary pressure in Q3, yet cost inflation remains unusually intense across the board.

Jardine said the industry has historically struggled to pass on cost increases, but in today’s climate customers understand the reasons, so firms appear able to transfer more costs than before. Still, there is a limit: if costs keep climbing, returning to customers for further increases becomes harder, and there is clear concern that work volumes could eventually be constrained.

The survey also found that, following the end of the furlough scheme, an overwhelming majority (91%) of companies do not expect to make redundancies before the end of December.

All businesses (100%) expect at least 50% of employees currently working from home to return to the office, at least partly, by the end of December. Industry capacity utilization also kept rising strongly, with October above July.

Finally, fewer printing and packaging companies suffered “severe” financial distress in Q3. The number facing “significant” financial distress is also set to ease back to more typical third-quarter levels.

The Q3 Printing Outlook survey ran from October 1 to 18, 2021, and drew responses from 114 companies.

Source: China Packaging Network (pack.cn); original link: http://news.pack.cn/show-378696.html