Plastics companies operating in the Klaipeda Free Economic Zone (FEZ) have been fortunate. The impact of the COVID-19 outbreak has so far been limited. In fact, they report increasing demand, the opening up of new product and sales segments, and a renewed sense of worth in the eyes of society.
The flip side, to date, has been the impact on turnover of falling raw materials and oil prices. Klaipeda
FEZ is the largest plastics hub in the Baltics. It is home to 5 companies active in the plastics industry, who together generated a total turnover of €890m in 2018, or nearly half of Lithuania's total for this industry.
The preliminary data moreover indicate that the 2019 figures are at around the same level: while production output was higher, the 2019 fall in oil prices impacted both other raw materials and, consequently, the pricing of end products.
For these reasons, Klaipeda's plastics companies are reluctant to forecast their 2020 results at this point: while the demand for some current and new segments has increased over the past few weeks, it is still unclear how oil prices and the state of the global economy will develop.
Growing need for safety and hygiene
Pack Klaipeda, a manufacturer of egg trays and disposable polystyrene foam dishes, probably has the most positive outlook in today's situation. Curiously, only a year ago the company was uncertain about its future, as the European Parliament approved the single-use plastics (SUP) directive. Today, Pack Klaipeda already has a new polypropylene packaging production line in place that doesn't fall under limitations set by the EP.
The company also has a record number of employees and estimates that it has achieved a 30% annual revenue increase in the first quarter of this year. Last year, according to preliminary data, Pack Klaipeda posted a 3.4% revenue increase, up to €9.2m. The company expects 17% growth this year.
"I believe the COVID-19 outbreak, lockdowns, and quarantines have brought the consumers back to reality when it comes to safety and hygiene that disposable packaging brings to the food industry,” says Vytautas Butvilas, the CEO of Pack Klaipeda.
“At the same time, the restrictions for the restaurant segment and full hospitals have led to a major jump in demand for PS packaging for takeaway food. We are also seeing some of the customers from the catering industry, who were previously exploring paper laminate packaging and other alternatives, massively returning back to the safe and proved PS solutions. All these factors have contributed to at least a 30% increase in demand in our main markets - Lithuania, Scandinavia, Germany, and Poland.”
He believes that this may even impact the sentiments towards the plastics industry by both the society and European institutions.
"I think it's naive to believe that we will all return to using ceramic cups and dishes as before the outbreak,” said Butvilas. “Even today, some European associations believe that the new priorities will be hygiene, safety, circular economy, recycling and only then bans or restrictions.”
He does not wish to speculate on whether the EU will review its SUP directive or implementation timelines, instead preferring to prepare for the future. In addition to the new production line that manufactures environmentally friendly and easily recyclable PP packaging, the company has also developed products for new segments such as molten packaging for fresh meat, salads, pastries, food assortments, and healthy takeaway foods.
The company also plans to deliver other hygiene-oriented, environmentally-friendly, and recyclable novelties. Currently, takeaway food packaging (both hot and cold) amounts to around 80% of Pack Klaipeda's portfolio, 10% are egg trays and 10% - other categories. Among the latter, packaging with caps for liquid foods has been growing the most.
Limited only by physical factors
The Retal Industries group sees the recent developments from a quite positive perspective. In Klaipeda FEZ, it owns one of the largest European PET producers - NEO GROUP- and an HDPE caps and APET film manufacturer, Retal Baltic.
The initial data indicate that Retal Baltic generated some €46m in revenue last year, a 4.2% decrease compared to the year before. However, the company’s output at 22,400 tons was only 2.6% below 2018. Retal suggests that a major part of revenue decrease can be attributed to plummeting PET prices. This notwithstanding, company, also saw its profit rise 6% last year.
This year, Retal Baltic plans to fully employ the expansion projects of 2019 and to increase output to 28,000 tons. Consequently, it expects revenue to grow by 20% to €54.5m.
"Both of our core products - HDPE caps for drinks packaging and food-grade APET film - remain strategically important, even under the circumstances of business and societal restrictions,” says Viktorija Jurevičiūtė, the CEO of Retal Baltic.
“Since the COVID-19 outbreak, we have witnessed a slight increase in demand from our existing customers; however, some projects with our new and prospective customers have temporarily stalled. That is because some testing, equipment set up, auditing, aligning, and other processes are always needed when onboarding new customers.”
As Retal Baltic increased its production capacity of caps by 15% and 35% for film, the company expects the revenue from these segments to grow in line with these numbers. While the numbers from March and early April look good, prolonged lockdowns and quarantines may impact projects with new customers. "We aren't concerned too much, as we have been paving long term relations with our customers,” said Jurevičiūtė. “However, we are aware that the pandemic impacts various processes for both us and our partners. For instance, we were planning to upgrade some of our equipment, but our suppliers from Northern Italy aren’t operating currently. We expect to be late with this particular project, but by a few months, not more. Another challenge is the decrease of deposit PET bottle collection and recycling: consequently, there are less materials in the secondary PET market and the prices are growing. However, oil, as the primary material for PET, is getting less expensive."
The company also admits that decisions for future investment and expansion projects are currently on hold at both Retal Baltic and its international partners. However, the company is eager to resume its investment considerations once the situation becomes more stable. In March, Retal Baltic provided more than 3 tons of special APET film to Lithuanian makers' community, manufacturing protective shields for medics. The company has even modified some of its production processes to pursue this initiative. Jurevičiūtė says that this contribution was pro bono, however, the company sees demand for such materials from the commercial segment. In the short run, such materials for protective shields may account for 2-3% of Retal Baltic's portfolio; however, this demand should significantly decrease or disappear after the pandemic goes away.
"Speaking of the long run though, it's obvious that product safety, sterility and long shelf life have now become incredibly important factors in society,” Jurevičiūtė notes.
“But only plastics industry insiders have been talking about this and were rarely heard. The current situation has shown that we should split the features of packaging materials from the questions of their use, collection, and recycling. I'm certain that the 'safety first' principle will stick around for a long time among the consumers. Of course, we do support the efforts in the circular economy, recycling and environmental fields, but it now becomes clear that the market and its regulators won't be able to ignore the basic need for safety.”
NEO GROUP, one of the largest European PET producers, says it is currently working to full capacity, although the first days of the lockdown were followed by some minor challenges in the logistics chain.
"The food industry and related activities were pronounced strategic during the pandemic, and so our production is in full swing,” says Paulius Ambrazaitis, the chairman of NEO GROUP.
“The demand for packaged food currently grows, it is both fuelled by safety and longer shelf life that decreases the number of shopping trips. We are also seeing an increase in demand for segments such as bottles for disinfection liquids and the medical sector - the market needs more test containers, medicine packaging, and other products that use PET.”
Production increased 15% last year at NEO GROUP according to the preliminary figures, while turnover dropped 6% to €508m. The decrease is attributed to the drop in raw material prices. Currently, NEO GROUP is fulfilling its first-quarter plans and expects at least 'stable' sales for the rest of the year. "We've been hearing negative feedback from the public regarding the plastics. It looked like the plastics industry was Public Enemy No. 1. Now, as the world faces a major pandemic, we see an increasing understanding that plastics packaging is probably the safest one, it has great barrier properties and prolongs the shelf life of products. Plastics are also needed everywhere - for the production of medical masks, shields, and disposable clothing. This is all made of polyethylene, polyester, PET. Safety is the main priority now. However, as consumers, we should remain responsible by recycling and not littering," commented Ambrazaitis who also highlighted NEO GROUP's commitment to circular economy efforts, as well as research and investment in this field.