Thermoplastic compounding business is growing well in Eastern Europe

Thermoplastic compounding business is growing well in Eastern Europe, but the market in Central Europe is substantially different from that in the West, with a higher proportion of PVC compounds being manufactured, as per Applied Market Information’s study focused on Europe.
Thermoplastics compounding is a relatively complex industry involving the manufacture of a wide variety of materials. These materials often include additives such as colorants, flame retardants and modifiers to meet a processor's requirements. And in the case of PVC, it must be compounded with some additive content before it can be processed. While a few very large processors carry out their own compounding, the majority buy compounded material either from the polymer manufacturer or through an independent compounder. This "free" market (compounds sourced externally by the processor) is discussed here. At the simplest level, compounders can be categorized as resin producers, such as Borealis, Ineos and Lyondell Basell, or as independent compounders who do not have a captive source of resin.
According to AMI’s databases, there are more than 700 compounding sites in Europe, of which 98 are polymer manufacturers. Companies that produce and compound materials are referred to as "integrated operations"; this definition excludes companies owned by additive or pigment producers such as Clariant and Cabot.
Resin producers have traditionally been involved in compounding in order to aid product development, to add value to the resin and to maintain product quality and they mostly supply to the larger processors of film, pipe extrusion and blow moulding. However, in recent years, cost pressures have caused polymer producers to narrow their range of grades, giving independent compounders more opportunities to work with processors in developing specific-needs materials. While integrated compounders account for around only 14% of compound operations in Europe, they produced 50% of the market's materials in 2007.
Traditionally, the independent sector's market supplies smaller volumes of materials and offers fast colour-matching and high levels of service to local processors. The majority of these companies are involved in supplying relatively unsophisticated colour compounds for the injection-moulding industry. Entry barriers to this sector are low, machinery is readily available on the second-hand market and the technical knowledge is relatively easy to obtain. These companies tend to be entrepreneurial businesses, and as a result there is a high level of corporate change among them-: new companies are established and existing operations go out of business or are being bought. Despite the increasing consolidation within the industry, there continues to be a larger number of producers that fall into this independent category.
Companies that wish to grow and develop beyond the supply of simple colour compounds are expanding their product range into more sophisticated, higher-value products such as masterbatches or filled polypropylene compounds. Servicing this sector often requires greater technical and marketing skills, and a more international business model. At the higher-volume end of the compounding industry are companies capable of producing more advanced technical compounds. Many of their operations have developed from a local base, but because of their innovation and technical expertise, they have built an international customer base.
Another category of independent compounder is the "toll compounder." This is a company that offers its manufacturing expertise and equipment to companies that wish to produce compounds made to their own specifications. Such services are usually used by the resin producers when developing small-volume products that would be uneconomic to produce in their own high-volume plants, or when they have insufficient capacity to meet customer demand. A new market is emerging for the independent compounder somewhere between "toll" and "own products" and in which cooperation with a handful of large customers is creating substantial volume. Markets, typically in the building industry, include pipe and single-ply roofing compounds.
Despite the complex and fragmented nature of much of the independent compounding sector, in recent years the trend has been toward the emergence of larger pan-European groups, many of whom also have operations overseas. Competitive pressures, the costs of developing new products, and escalating global demands of the major OEM customers have driven this trend.
Both integrated and independent compounders have strategies for focusing on core business areas and have been disposing of unprofitable parts of their operations. As a result there have been ongoing mergers, acquisitions, closures, and investments within the European thermoplastics-compounding industry. The pace of these developments has also accelerated as companies seek to expand their regional operations within Europe to the more rapidly growing eastern markets.
Nearly all the leading independent compounders in Europe have a strong international presence. They include Ravago (technical compounds, masterbatches, toll compounding, recycling), Cabot International (conductive compounds and masterbatches), A. Schulman (technical compounds and masterbatches), PolyOne (technical compounds and masterbatches), and Ampacet (masterbatches). In addition to substantial capacity in Europe, these companies have plants in North America or Asia. The distribution of compound production across Europe follows the pattern of polymer demand, with Germany having the largest market share. The only exception is Benelux, which, as an export centre to the major European markets (Germany, France, UK), has a reasonably large production volume in comparison with the overall size of its polymer market. Many leading polymer producers and large masterbatch and additive groups have production facilities in the region.
The market in Central Europe is substantially different from that in the West, with a higher proportion of PVC compounds being manufactured. Almost half of all compound production in Central Europe is for PVC, and most is controlled by the PVC manufacturers: Anwil in Poland, Borsodchem in Hungary, Spolana in the Czech Republic and Oltchim in Romania. Many other compound markets in Central Europe are relatively small and underdeveloped compared to Western Europe. Colour-compound production is limited, with the majority of processors using master-batches. There is also growing demand for technical and engineering compounds driven by investments in automotive, domestic appliance and electrical goods manufacturing in the region. The leading technical compounders in Central Europe are Silon in the Czech Republic, Inno-Comp in Hungary and Rhodia and Zachem in Poland. Most of the leading masterbatch producers are part of Western groups now including Clariant, PolyOne, Schulman and Ampacet.
In recent years the compounding markets in Europe have mainly been driven by the strong growth of technical polyolefin and engineering compounds as replacements for metals and other traditional materials in automotive and electrical applications. Over the past several years, general economic activity has moved from being rather weak to strong. Key industries for compounders, such as automotive and appliances, have gained strength during this period, fostering growth.
In the Eastern EU economies, patchy growth has given way to exceptionally strong growth. A huge amount of inward investment has already occurred, and is planned in both automotive and appliance manufacturing--this will be a key driver in the coming years. The technical polyolefin compounds are mainly PP and PE filled or reinforced with glass fibre or minerals, or modified with additives such as flame retardants, UV stabilisers, and so forth. The market for PP compounds has been influenced by their increasing use in automotive applications, which as the largest end-use segment accounts for over half the demand. These compounds are used primarily for bumpers, interior trim, and structural parts because of cost pressures encouraging the replacement of more expensive engineering resins or traditional materials. The second largest market for PP compounds is in appliances and consumer electronics. Growth in recent years has been driven by increased consumption of these compounds in large domestic appliances, notably washing-machine drums.
PE compounds are used in a wide range of applications, of which cable is the most important, accounting for over 65% of demand. Cable compounds include crosslinkable PE, low-smoke and low-fume, zero halogen, semiconductive, cable jacketing, filling, and insulation compounds. In cable applications, PE compounds continue to gain market share from PVC.
Engineering polymer compounds include polyamide, polycarbonate, PBT, acetals and PPO and their modified (with fillers and reinforcements) blends. Typically these can be carbon-fibre, glass, minerals, elastomers, or flame retardants. In this segment, nylon compounds have the highest market share of around 50%. Engineering compounds are widely used in automotive applications, such as engine and transmission parts, exterior components, instrument panels, interior and electrical parts, and under-bonnet applications. The segment is characterised by increasing penetration of PA in under-bonnet applications, PBT growth in the sectors traditionally dominated by PA, and competition for PA and PBT from PP in less critical components. The flame-retardant grades of engineering compounds are used in the electrical/electronic sector in connectors, plugs, switches, lighting accessories, and printed circuits. A significant part of the market for engineering compounds is in housings for large and small appliances, consumer products, and miscellaneous applications.
The other strong growth-market within European compounding is for thermoplastic masterbatches. For many commodity polymers, masterbatch has replaced the use of colour compounds, and a similar trend is now emerging in some engineering polymers--especially crystalline polymers such as ABS and polycarbonate. The market is also driven by the overall growth in thermoplastics demand generally, by cost pressures to replace compounds in automotive and telectronic products, and shorter production runs to meet changing consumer and fashion trends in colour and surface effects. White masterbatches account for the largest share of total masterbatch production (around 30%), followed by coloured masterbatches. While the PVC compound sector is often perceived as being under attack from environmental groups, demand has continued to advance and is modestly driven by growth in window-profile production.
The only negative area has been a decline in the production of the larger-volume colour compounds, with these products being replaced by masterbatches. While colour compounds still tend to be used for technical polymers and for pipe/cable grades of polyolefin, the market continues to be eroded by competing products such as masterbatches and liquid colour, and by the trend among resin producers to move away from providing a variety of compound grades to supplying the processor standard grades with a masterbatch.
In the future the market is expected to carry on growing as most segments continue to advance. Overall compound production in Europe is forecast to increase annually by an average of 2% to 2012. This general market advance tends to hide the wide variations between the specific sectors of the compounding market.

Distribution of compounds in Europe in 2007
Other East Europe	3.0%
Poland	2.6%
Other West Europe	4.2%
Spain	6.5%
Scandinavia	3.8%
Benelux	14.4%
UK	9.4%
Italy	18.8%
Germany	25.0%
France	12.3%

Europe's 10 leading independent technical compounders
Ranking	Company Name	Head Office Location
1	Ravago	Belgium
2	MPB Materie Plastiche Bresciane	Italy
3	Polymer Chemie	Germany
4	A Schulman	Germany
5	Sirmax	Italy
6	Inno-comp	Hungary
7	Albis Plastic	Germany
8	Sumika Polymer Compounds	United Kingdom
9	Plalloy MTD	Netherlands
10	LAM Plast	Italy

The total number of compounding producers has increased to 707 from 680 (by about 4%). Due to lower costs of production, the industry continues to shift to the Eastern European countries. The demand in Europe particularly in Western Europe is driven by a strong demand of technical polyolefin compounds and ETP. PVC compounds have grown moderately. The Central European countries have a share of about 6% of the total production in Europe. However, the Central European countries have a high proportion of PVC compound production. Anvil of Poland, Borsodchem from Hungary and Spolana from Czechoslovakia, the PVC polymer manufacturer have a large capacity of PVC compounders- Silon in Czechoslovakia, Innocomp in Hungary & Rhodia & Zachem in Poland. Germany and Italy together have a 44% share of the total production in 2007. These two countries also have higher polymer capacities. Benelux countries with 14.5% are not very far behind compared to Italy.
The integrated compound producers with polymer producers are almost 100 out of 707 (14%), but they enjoy 50% share of the total market. They will continue to increase their share in the total market of Europe.