Packaging experts reflect on industry challenges as Omicron threatens more disruptions

06 Dec 2021 --- As the Omicron variant of the COVID-19 virus forces new lockdown and travel restrictions across continents, the packaging industry is coming to the end of another unpredictable and turbulent year.

Supply chain disruptions, cost fluctuations and raw material shortages have hampered the industry, threatening mass layoffs and billions in damages. With the dawn of a new year looming, PackagingInsights looks at some of the most damaging and daunting developments of 2021, and what the future might hold for packaging. 

We discuss new shipping regulations, supply disruptions and surging energy prices with experts from across industry to get a view on what policymakers and stakeholders can do in the midst of so much instability. 

Free trade fallout? 
Fresh changes to the EU’s outdated waste shipping regulations, which have been proposed under the bloc’s Green Deal, are raising serious concern in some quarters that restricting waste export to non-OECD (Organisation for Economic Co-operation and Development) countries – as the new stipulations intend – could create unfair regulatory burdens for secondary raw material suppliers in the packaging sector. 

Speaking to PackagingInsights, Ross Bartley, the Bureau of International Recycling trade and environment director, explains global trade restrictions outlined in the waste shipping amendments would damage any idea of a “circular economy.”

Revised EU waste shipping rules could threaten the circular economy, say experts.“Trade restrictions on waste – restricting exports or hindering access to outside markets – threaten the ‘circular economy’ by not maintaining the value of products, materials and resources in the economy.” 

Over many years, he explains, the EU has continually been increasing the separate collection of used and end-of-life goods and materials. The consequences of these actions, and the efforts of all citizens are that there is an excess of recyclables collected in the EU – more than is currently consumed in the EU. 

“Without buyers within the EU, these excess steel scraps, aluminum scrap, copper scrap, and scrap paper are exported to manufacturers in third countries, and that €13 billion (US$14.6 billion) trade provides revenue for the EU Member States.”

“The EU imports primary materials from the global economy that actually compete in the EU economy against the recyclables being collected within the EU. We should work toward a global circular economy,” he stresses. 

Raw material shortages 
Besides disputes over trade legislation, a recent crash in the magnesium, steel and aluminum markets sparked fear of potential “catastrophe” for European packagers, who depend largely on China for their material supply. 

In October, a collective of industry associations, including Metal Packaging Europe, signed a letter to the EU demanding immediate action on skyrocketing magnesium prices, warning of impending production shutdowns and mass layoffs. 

The fall in magnesium production, which occurred as China slashed its output in efforts to tackle a domestic energy crisis, means manufacturers of aluminum F&B packaging could lose an essential, irreplaceable alloy. Metal packagers are facing shortages and price disruptions amid transatlantic trade disputes.

Since China produces 87% of all magnesium worldwide and supplies 95% of the European magnesium demand, sourcing magnesium from other countries is extremely challenging, and experts say there is no current solution to the crisis.

Metal trade wars 
Following the global climate summit COP26, US President Biden declared a stand against “dirty” Chinese steel and aluminum production, pledging to forge a renewed economic bond with Europe after years of Trump-era imposed trade tariffs. Besides breaking China’s monopoly on raw metals, the intention is to “decarbonize” production practices, which western leaders say are highly polluting in China. 

However, the packaging industry declared concern over the proposed new transatlantic relationship, with the head of European Aluminum (EA) saying the EU would be “sacrificing the entire aluminum value chain like never before to appease a handful of downstream users and traders.” 

Associations like EA argue that without complete removal of tariffs, rather than a renegotiation, the packaging industry in Europe will continue to suffer the burden of levies and continue to be at risk of China dumping cheap, polluting metal onto its markets. 

Surging polymer prices 
Meanwhile, plastics converters, who turn polymers into plastic products like packaging, issued stark warnings that energy surcharges resulting from unforeseen circumstances like COVID-19 and drastic weather disruptions are threatening to “kill” the industry. 

Disputes over who should shoulder the cost of rising energy prices is disturbing the plastics conversion industry.Two central circumstances have sent energy prices up over the past year. Firstly, a drop in wind energy and, secondly, the ongoing gas supply disputes between the EU and Russia. Russia reportedly controls over 40% of the EU’s gas supply. 

Due to this situation, polymer manufacturers then devised a surcharge and sought to pass these rising energy costs onto converters. 

“The conversion industry is constructed around the principle that when these indices move, which they can do quite dramatically, it’s a well-established practice that these price changes are reflected in the selling price of these materials. Particularly in the case of packaging, the cost of these indices are passed on to the users,” a European Plastics Converters association spokesperson told PackagingInsights. 

“These cost increases are of a scale that would nullify the margins of many converters, which typically survive on meager levels of profitability.”

With so many developing trade and environmental disputes rocking the packaging industry in recent months, combined with ongoing COVID-19-related disruptions, 2022 promises to be a pivotal and challenging year for industry. How the sector’s economic and environmental sustainability can be protected and enhanced will require close examination from experts and policymakers throughout the value chain. 

By Louis Gore-Langton