Despite the Middle East’s political turbulence, label converters can expect new business opportunities and are gearing for expansion with mergers that could herald a switch to digital, reports Catherine Diamond.
Global demand for labels rose 4.5% to hit 46.85bn sqm in 2011, according to a 2012 report by AWA Alexander Watson Associates. In Africa and the Middle East, the market totalled 2.39bn sqm. The region is also set for significant growth in 2013–14, and a more moderate expansion in 2015-16, found AWA.
Glue-applied label technologies – cold glue and wraparound (hot melt) glue-applied styles – represent 38% of the regional market, while pressure sensitive labels make up 35%, according to the report. Primary label applications emerge as the leading application segment for all label types in the region, which is typified by a low level of VIP label applications.
Iran holds 18% of the market, followed by North Africa with 14% and Pakistan with 13%. All countries in the region produce significant quantities of glue-applied labels, but South Africa makes about 150m sqm of pressure sensitive labels and Pakistan is expected to grow its pressure sensitive label market by 14% between now and 2016.
The report finds major differences across the region. “Label converters rely to varying degrees on the balance between local production and imports of the required label materials,” it reads. “This in turn influences the economics of local production by label format and beneficially or adversely affects the growth of individual label formats and end uses.”
The wider packaging sector will also grow at least as fast as the label segment, said Adam Page, business manager at Smithers Pira, which has gathered information on the packaging, paper and print industry supply chains.
“In 2010, packaging sales in the Middle East amounted to $19.9bn, up 6.0% on 2009,” he said. “This followed on from an 8% sales decline in 2009. Sales are projected to increase by 6.9% in real terms for the full year 2011 to $21.3bn. Going forward, annual growth of the order of 4.4 % in real terms is anticipated over the period 2011–16, with sales set to reach $26.4bn by 2016.”
Turkey represented a third of the Middle East’s entire packaging demand in 2010, which amounted to almost $20bn, he said.
“Medium-term growth forecasts estimate an average annual increase in demand of almost 6% in Turkey, well ahead of the rest of the region, where growth of under 4% on average is anticipated over the forecast period. The Middle East market is expected to be worth about $24bn by 2016, with Turkey having increased its regional share to over 35% by this time,” he said.
Investment
The Middle Eastern market has seen very dynamic growth and investment in the latest equipment, particularly in the UAE, Saudi Arabia, Egypt and Lebanon, said Mark Bouffard, senior marketing communications manager at Avery Dennison.
Bouffard sees an advantage for the Middle East in its role as a hub linking Asia and Europe with Africa, “the next continent to develop”.
“On top of that, local markets are also growing. Hence, Mideast label producers will play an important role,” he said.
Mike Russell, international sales director at Mark Andy, sees the Middle East as similar to other markets without strong infrastructures for label printers.
Since the early 1990s, when Mark Andy began selling into the Middle East, he notes “a steep learning curve”. Most sales initially went to established printing companies interested in branching out into self-adhesive labels.
“These companies were mostly offset printers and needed to be educated on the nuances of flexo printing. The printers who persevered became successful. We have recently seen a surge in activity as new label printing operations are being established to meet the increasing demands for labels in the region.”
But training and retaining skilled operators will always be a challenge, along with finding suppliers for tooling, inks, substrates and other consumables, he added.
Paolo Grasso, Mideast manager for Italian press manufacturer Omet, also see the market as similar to that in other regions.
“In general the Gulf is very reachable,” he said. But the region’s fractured nature can create challenges in connecting with people, he said. “The challenge is to get into people’s hearts,” he said.
Mergers and acquisitions
Merger and acquisition (M&A) activity is increasing across the globe and the region’s label market is no exception. According to Grasso, M&As can tranform converters’ buying power. “This turns into bigger purchasing power and, therefore, new capabilities for printers,” he said.
“It allows printers to approach more international-oriented manufacturers and distributors. Quality standards are becoming even and competition is tougher for the smaller players. Although the market is growing in double digits every year, there is still room for improvement.”
The shift to digital
While the vast majority of labels printed in the region are flexo-based, digital is expected to grow as converters increase their capital and have access to more sophisticated equipment.
Digital technology has made significant inroads in the prepress workflow, said Mark Andy’s Russell. “As a lot of the label printers in this market come from the offset industry, the quality of flexo needs to be equal to or greater than that which they achieve with offset. For this reason, the latest in prepress and plate technology is critical, and that has recently involved digital technology.”
But the region’s converters often cannot yet afford top-of-the-line equipment, even if M&As are set to help, he said. “Digital press technology is of interest, of course, but not at a high level. We have found interest in lower-cost digital technology for those looking to fulfil shorter runs.”
Ali Mohammadlou of Sarah Manufacturing of Sharjah, UAE, which represents EFI’s Jetrion printers in the Middle East, sees a trend for local companies to merge to cut costs and gain market share. Mergers can sometimes help larger companies establish a presence in this sometimes splintered region, he said.
“Larger companies are buying small privately owned businesses to increase their presence in as many countries as possible in the region,” he said.
“This is more cost-effective than setting up their own branches from scratch. This, of course, has been driving smaller companies that have been traditionally producing at a lower cost -out of business or making them distinguish themselves in order to survive.”
Filip Weymans, Xeikon’s director of segment marketing and business development for labels and packaging, says that though the label market is not as established in the Middle East as it is in North America or Europe, it is poised for solid growth.
“Since 2011 we have increased our focus on the region with the dedicated appointment of Vincent van Horenbeeck, regional sales manager for the Middle East, who in his turn set up a dedicated dealer network,” said Weymans.
While the Middle East lacks a consumer base the size of North America, many global retailers offer global brands in the region, he added.
“So a certain amount of the labels and packing materials are used for the domestic market but equally for export,” he said.
“This export requires them to be highly competitive and that drives them to implement manufacturing processes that maximise throughput and minimise both cost and waste. In many cases, they are an example of manufacturing excellence and they also invest in top quality equipment.”
UAE pioneers digital switch
Niklaus Amacker, head of corporate communications at Gallus, says the proliferation of digital has already started in the UAE, and he expects it to spread throughout the region soon.
“The amount of digital investment in terms of the number of new presses actually going into the market is approximately 15-20% worldwide,” he said.
“Yet the amount of digitally printed product in the global market is between 3% and 5% per annum. This means there is either low productivity, or that the digital equipment has its limitations in a range of products or segments, in which conventional printing technologies can do better.”
Cem Karabayir, area sales manager for the Middle East market at UPM Raflatac, says the Middle East is carefully following the development of digital technology since it has positive impacts on production costs, particularly in short runs.
“On the other hand, making an investment decision on digital technology is not an easy task. There is still a perception of the market that the costs of raw materials (substrates, inks, toners, etc.) for digital printing are higher than the market expectation,” he said.
“The more the digital technology allows printers to use conventional raw materials and systems, the faster the growth of digital technology in the Middle Eastern region will be.”
Catherine Diamond is the associate editor of Label & Narrow Web