RESIN PRICES TEMPER OPTIMISM

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Although most plastics processors feel confident about their prospects for a profitable 1997, anxiety about resin pricing is keeping that optimism in check, according to a recent Plastics News fax poll.

The whole enchilada would give anybody pause: Utilities, taxes, freight costs, interest rates, wages and workers' compensation name only a few of the pangs of doing business.

But 55.6 percent of the 369 North American processors that responded to the poll said their No. 1 worry, by far, is how much they will have to pay this year for plastic.

With polyethylene suppliers already wielding two more rounds of price hikes, that worry seems well-founded, as documented in last week's Materials Outlook '97 special report.

``The biggest concern is for unstable raw material pricing,'' said Eric Strom, vice president and general manager of rotomolder Spin-Cast Plastics Inc. of South Bend, Ind. ``The majors keep announcing [price] increases, and sometimes they stick and sometimes they don't. It certainly does make processors and, ultimately, their customers pretty nervous.''

A rotomolder of highway safety barriers that use 85 pounds of plastic apiece, Spin-Cast is hit hard by each 5-cent-per-pound price hike for PE, Strom said. And short-term contracts keep the company from passing on increases to its customers.

Walt Sargi, president of Pro-Gram Plastics Inc. of Geneva, Ohio, said high density PE suppliers may price themselves right out of the ballpark for blow molded bottles. Pro-Gram blow molds about 6.5 million pounds of HDPE a year into bottles for pharmaceuticals, food and industrial chemicals.

``The HDPE resin producers have blundered,'' Sargi said. ``They have priced their material so [high] that they will force bottlers to change to PET. If the products are equal ... PET would offer at least a 15-20 percent material savings. Someone using 50 million containers per year would be able to pay for new tooling in seven months — not a bad return on investment!''

Despite their qualms regarding resin, an optimistic majority of processors — 60 percent — said they expect more profit this year than last. For 21 percent, their own prosperity hinges on how their customers do; and 14 percent say it depends on whether they can find, and keep, qualified workers.

A handful of processors — just 1.4 percent — complained about the effects NAFTA and the General Agreement on Tariffs and Trade have had on their businesses. Several say it is hard to compete with manufacturers in countries where wages are much lower and companies do not have to comply with government regulations. But domestically, processors vying for a spot in the global marketplace sink time and money into meeting quality standards, like ISO 9000.

``There's too much foreign competition in the plastics industry — especially China,'' said Richard Smith, president of Service Plastic Containers Inc. of Egg Harbor Township, N.J.

SPC, which does about $2.5 million in sales of blow molded toys and point-of-purchase displays, lost close to $1 million in business last year when a customer switched to a Chinese knockoff of one of its products, Smith said.

Blow molder B&D Molded Products Inc. of Shelton, Conn., claims it lost $3 million in sales to NAFTA, according to its president, Thomas Outlaw.

``Mature industries can't stay away from the cheap labor,'' said Henry Harding Jr., chief executive of custom molder Harding Manufacturing Corp. of Rome, N.Y.

Harding said his firm widened its geographic reach to replace customers that moved South to tap a low-cost labor pool. But Harding still supplies tooling to one company that uses a Mexican shop to do the molding.

Harding, who has been to the Mexican plant to get his tooling up and running, says automation is conspicuously missing there. The operation is a contrast to U.S. molding shops, where sprue pickers and robots are the norm and, often, cost-effectively replace workers.

``They throw labor at everything,'' he said. ``I think it's really a case of cheap labor, and no [Environmental Protection Agency], no Department of Conservation.''

From its plant in Albuquerque, injection molder Plastech Corp. serves customers whose maquiladoras in El Paso, Texas, and Ju rez, Mexico, make vacuum cleaners for the U.S. market.

Plastech does about a third of its $63 million in sales out of the New Mexican plant, said Mark McCourtney, vice president of sales and marketing. The firm also exports quite a bit of product to Europe and China — mainly parts for telecommunications equipment that it molds at its headquarters plant in Rush City, Minn.

Plastic products made in China have not yet reached U.S. quality standards, McCourtney said. China is only cheaper if the volumes are high and the product is not too complex — at least for now, he noted. ``I'm sure China will get caught up in short order.''

Canadian firms that rely on exports into the United States, like Richards Packaging Inc. of Mississauga, Ontario, are helped or hindered by the value of their own dollar. U.S. sales make up roughly half of Richards' blow molding business, said Howard Sandys, vice president. Luckily for Richards, Canada's currency was relatively stable in 1996, except for a rapid rise in its value at the end of the year, he said.

Sandys said, ``As the value of the Canadian dollar goes up, basically our prices in the [United] States have to go up also ... exports will decrease.''

Despite the pitfalls, overall, processors' morale seems higher this year than last. Most seem frugally optimistic. About 46 percent of those polled plan to boost capital spending this year; that compares with just 30 percent in the 1996 fax poll. Only 19 percent say spending will be down this year over last; 34 percent project no change.

As for new equipment, almost 52 percent said that if they buy new equipment, it will be to expand capacity; 36 percent said it will be to improve quality or productivity; 12 percent have no plans to buy any machinery whatsoever.

Most processors — about 55 percent — also do not expect any new hires this year; but a solid 42 percent say their work forces probably will grow.

More than 72 percent expect the economy to cooperate favorably with any growth plan they do have — unless, of course, the government mucks it up, the Federal Reserve raises interest rates or the stock market takes a dive.

The possibilities had a few processors painting scenarios.

``The Fed will have to raise interest rates soon. This will cause inflation and prices to rise,'' said Daniel Bohn, a technical specialist for injection molder A.L. Hyde Co. of Grenloch, N.J.

Several processors expressed concern about an over-valued stock market. Richard Petri, vice president of manufacturing for injection molder Hartzell Manufacturing Co. of Turtle Lake, Wis., said: ``If a major correction occurs in the stock market, I think the economy will go in the Dumpster.''

Barry Shepherd, president of Shepherd Thermoforming and Packaging Inc. of Brampton, Ontario, put a down-to-earth spin on things: ``As long as fiscal restraint in government is maintained, and confidence in the future is good, we will do well.''

The unscientific poll, conducted Dec. 10-16, was faxed to 1,042 North American plastics processors chosen from Plastics News' six rankings databases of thermoformers, injection molders, rotational molders, blow molders and various types of extruders. The 369 replies represented a 35.4 percent response rate.