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Asia the emerging saviour for glass packaging

Summary

The glass packaging industry has undergone a complete transformation in the past decade. The changes were marked by low demand growth due to the replacement of glass as a medium, the incremental demand being led by the non-traditional end-use and most importantly, regional displacement of demand. Although the growth of glass packaging at 0.8% was the lowest in the packaging industry, rigid plastics and liquid cartons grew at a higher pace to capture the market. Moreover, glass demand for storing soft drinks was less preferred, while this was captured by the food segment. In the last decade, Asia surpassed Europe as the largest consumer of the glass for packaging material, a trend which is likely to continue in the future.

A brief on packaging industry

Nearly 4-5 trillion units of packaging materials are used globally every year. This consists of units made of metals, flexible and rigid plastics, paper, metallized paper and plastics; and several other materials. The global demand for packaging units grew at around 1.9% of CAGR between 2006-15, there have been changes in preferences for the medium.  

Minimum growth in glass packaging from 2006 to 2015

In 2015, glass only formed around 7.3% of the packaging demand. However, the overall demand grew at 1.9% of CAGR for the industry, glass packaging grew at a meagre 0.8% of CAGR. On the other hand, rigid plastics and liquid cartons saw a higher growth rate of 4-5%, of CAGR.

In most cases, glass containers are used for packaging alcohol, soft beverages, beauty and personal care products such as hair oils, creams, etc. In the past ten years, several companies introduced rigid plastic containers and liquid cartons (metallized paper and plastics) as packaging materials due to the users’ convenience, the safety of the contents, low risk of breakage and the low costs for many of the substitutes. This led to the higher growth rate for glass substitutes and other packaging materials and altered the market share and demand for liquid cartons.

Annual growth in glass packaging and the counterparts

Glass packaging losing the market share in global demand

Glass formed only 8% of the packaging demand in units in 2006, this reduced further and in the past decade, flexible packaging retained most of the market share in the industry. However, this share also receded by 3.9 percentage points. Additionally, this reduction in the market share was gained by liquid cartons and rigid plastics.

Glass packaging losing the market share to rigid plastics and liquid cartons

(A unit here is defined as a bottle, container, pouch, tube or any small container vessel used for packaging)

Slow demand in the glass packaging, caused by replacement

Glass demand only grew around 20.6 bn units between 2006-15 as compared with 290 bn units of rigid plastics and 66.3 bn units of liquid cartons. Rigid plastic packaging has been replacing the glass packaging in soft drinks segment, while liquid cartons have been replacing glass in the packaging of milk, fruit drinks and other beverages. Moreover, flexible plastic packaging (e.g. stand up pouches) impacted the demand for glass in the home care segment for products such as soaps, cleaners, etc.

On the other hand, demand for glass from alcohol segment was less affected by the metal substitutes. Further, beauty and personal care segments moved towards glass packaging as it provides more premium look and feel. These divergent trends altered the share of end-use markets in glass packaging segment.

The falling demand for soft drinks packaging caused a 2.2% points decline in its share as end-use packaging. This share was gained by alcohol, food and personal care products packaging.

Although, the demand from glass segment grew least, cumulative demand growth of rigid plastics and liquid cartons surpassed the increase in flexible packaging. The following chart displays the intra-segment growth of medium preference among food and soft drinks packaging segment. (Rigid plastics and liquid cartons together form 26.4% of the industry, while flexible packaging alone accounts for half of the industry)

Higher increase of rigid plastics and liquid cartons vis-à-vis glass segment

It is interesting to note that liquid cartons, which hold approximately half of the share of glass packaging (as shown in the composition chart) grew twice in absolute terms and replaced glass in many of the end uses. Glass has primarily been replaced as a medium mainly in soft drinks packaging, where the demand declined by 2.6 bn units between 2006-15.

The growth in the absolute demand was led by the food and alcohol segment, which cumulatively grew around 7.7 bn units. Lately, glass has been adopted more in personal care packaging such as perfumes, creams, etc. Thus, growing at CAGR of 7% from 2006 to 2015. However, this segment had a minuscule share in glass packaging segment.

The above replacement was driven by a change in preference of consumers as indicated earlier. The replacements offer convenience to consumers, the safety of content, lesser risk of loss due to breakage and the low costs for many substitutes.

Asia has replaced Europe as a driver of the glass packaging consumption

In 2006, Europe was the leading consumer of glass packaging units. This was led by the high spending and consumption. In retrospect, per capita GDP grew more than 5%, this was higher than inflation. Additionally, with the onset of 2007-08, the great recession in the US sent jitters across the globe and general business environment turned negative. This caused the per capita GDP to decline drastically in Europe in 2008-09, while inflation remained high.

European GDP growth remained below inflation

    

Consequently, following the GDP decline, Europe was quick to emerge in 2010. However, the credit crisis in the region ensued and interrupted the recovery in 2011. In addition, later events had a wide-spread and deeper impact on the spending in the European economy. The per capita GDP largely remained below inflation past 2011, lower purchasing power caused cut back on consumption by the people.

This declining consumption had a direct and larger impact on non-essential and premium items such as beer, wine, perfumes, which form a large part of the end-use segment. In addition to the decline in consumption, there was a replacement of packaging medium to plastics, which brought about alteration in the regional market share.

Europe loses the market to Asia

The demand in Europe fell by 9.9 bn units between 2006-15, while the same increased in Asia by 25.3 bn units. This clearly indicates that the above rejig in market share is not just caused by the falling demand in Europe, but by increasing demand in Asia. The demand from other regions such as North America and Latin America increased merely by 2.1 billion units, this hardly formed around 8% of the increase as compared to over 30% of the increase in Asia (mainly comprising India and China, fastest growing economies in the region). India and China, together account nearly 55-60% of the population in Asia.

Asia (India and China) led the demand for glass packaging

The increase in demand from Asia was fueled mainly by India and China. A substantial demand for glass packaging was due to rise in demand for alcoholic beverages, which was the main driver. Furthermore, increasing urbanisation spurt the consumption of beauty products and food packaging. The glass packaging is expected to capture a certain share of this increase. Thus, India and China, in addition to other Asian countries are projected to gain more share within glass packaging industry led by:

  1. Increasing Population - The population in India and China has largely grown at a greater rate as compared to Europe. The present population in Europe is much lower (0.74 billion) as compared to India (1.2 billion) and China (1.35 billion). It is projected that Europe will continue to remain laggard (at least in near term) in terms of population growth. A larger base of population and a high growth in India and China will continue to present a bigger opportunity to the glass packaging industry.

India and China continue to outpace Europe in population growth

  1. Better demographics - In addition to the high population and growth, age composition in India and China present long-term opportunities. China has a much higher proportion of the adult population (people eligible for alcohol consumption) as compared to Europe. Likewise, India has witnessed a consistent increase and surpassed Europe in 2015. On the other hand, Europe saw a decline in the proportion of the adult population.

Additionally, China and India have a greater population in the 0-14 age bracket. This will further add on to the mature population and boost the demand. In contrast, Europe has less population  in this age bracket, and thus, there will be low demand replacement with time.

Higher adult population in China, the trend is increasing in India

    

  1. Anticipation of better economic growth - India and China have demonstrated a higher resilience towards global meltdowns and a high GDP growth has boosted the consumption within the two nations. These economies are further expected to grow at a higher rate as compared to Europe, empowering increasing population with more spending. This will convert to high demand from the Asian region.

India, China and Asia are expected to continuously outgrow GDP growth of Europe

On the other side, demand from Europe is likely to be subdued. This is due to the low disposable per capita income available because of the ongoing austerity measures in several nations of the region.

  1. Changing consumption patterns – the demand for alcoholic beverages, packaged food and beauty products increased with urbanisation in India and China. This trend is likely to continue as the population in rural areas make much of the population in these countries. In addition, consumption behaviour is changing even in the rural areas owing to development. This is led by governmental efforts and policies to inculcate these in economic growth. This will continue and add demand at current levels.

However, people in Europe reduced the consumption of alcohol due to high awareness linked to perils of drinking. Similarly, people are spending less on items such as alcohol and beauty products because of low disposable income (due to austerity measures). This is likely to continue as Europe is still to recover from the effects of twin-recessions.

Demand for glass packaging will continue to grow at a subdued rate

Televisory expect glass packaging industry to continue to grow at a subdued rate of 1.5-1.7% of CAGR until 2020. This is a higher growth rate in comparison to the average in 2006-15. This growth is comparable to the 2011-15 period. The growth would be led by:

  • An increasing demand from Asia mostly led by alcohol segment
  • Urbanisation at a similar pace, implying rising demand from other segments
  • Recovery in Europe and demand, this will be led by the growth in the region

However, this estimate is capped by the continuing replacement of the glass as a packaging material.          

Growth based on the above will also bring about additional changes in the regional share of demand. Although, the rate of shifting is expected to slow down due to the recovery of demand in Europe. Secondly, Eastern Europe, which is comparatively a less penetrated market for glass packaging, will slow down the shift.

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