The Hague, The Netherlands – FINAT, the European association for the self-adhesive label industry has been alerted by growing concerns about the tight market conditions their members are facing. In the second half of 2009 and first quarter of 2010, the industry has seen strong signs of demand recovery. As a result, the market decline for the year as a whole in 2009 was restricted to 5.3% in comparison to a double digit decline in the first half of that year. In the first quarter of 2010, this upward trend continued and demand for label materials grew by 12.5% compared to the same quarter a year ago, when the global crisis reached its lowest point.

However, growing business optimism has been tempered by recent developments in the raw materials market. While paper manufacturers have been adjusting their capacity temporarily or even permanently throughout 2009, the recovery in demand has pushed pulp prices to all-time highs. This trend was aggravated by a temporarily wipe out of pulp production capacity due to the Chilean earthquake, while strikes in Finland and Sweden also had their effect on raw materials delivery. As a result, pulp prices reach plus 40% above the levels recorded early 2009 and have approached the record levels of 1995. During Q1-2010, major paper suppliers have consequently announced price increases ranging from 8-10%. Also in the filmic materials segment, refineries and feedstock suppliers have adjusted capacity in the course of the demand crisis and price increases in the range of 5-10% for PE and PP have recently been announced. Simultaneously recent reports from other segments in the supply chain are indicating similar capacity constraints for specialty chemicals used by ink and adhesives' manufacturers to produce their consumables. To complete this picture, transport and energy costs are under pressure too.

"The sector appears to be facing a classic example of bottoming out of the economic cycle. On the one hand, customers start filling up their empty warehouses in anticipation of returning consumer confidence. On the other hand, the crisis has triggered raw materials suppliers to implement or accelerate capacity adjustments and they have great difficulty meeting the upswing. The net effect is that there is great pressure on the label converters to cope with the tight market conditions at present. Business prospects for the sector therefore remain fragile," comments Jules Lejeune, Managing Director at FINAT.