CIT SEES MODEST GROWTH AHEAD FOR PLASTICS

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The U.S. plastics industry will enjoy modest but steady growth through 1999, according to CIT Group's latest forecast.

The Livingston, N.J.-based firm's ``7th Annual Plastics Industry Outlook,'' covering 1997-99, cites continued economic expansion as the reason for a 4.4 percent increase this year in real industry shipments of manufactured plastics products.

Michael Paslawskyj, a CIT Group vice president who authored the report, predicts slower, but reasonable increases of 3.9 percent and 3.6 percent for 1998 and 1999, respectively.

Paslawskyj plans to discuss the findings as part of an NPE 1997 conference session on business and the economy Tuesday afternoon.

CIT expects real U.S. shipments to reach $120 billion in 1999, up 12.3 percent over last year's record. The nation's gross domestic product is projected to expand at 2.5 percent annually during the same period of time.

Paslawskyj credits the Federal Reserve for keeping the economy straddling the line between inflation and recession; however, he notes that the odds of a recession occurring later are higher, in light of variables such as fiscal policy mistakes or other external factors.

In a departure from previous reports, Paslawskyj focused on the environmental battles heating up in the plastics industry.

While optimistic, he sees the recent challenges by environmentalists seeking to limit or ban the use of plastics as the single most-important long-term issue facing this industry.

``Industry is doing a credible job in getting its message out and people are getting a better image of plastics—but I don't think that is enough,'' he said in a recent telephone interview.

He condemned ``environmental extremists'' for their efforts to restrict plastics use or ban PVC, for instance.

``John Q. Public is not aware of how important plastic is in his or her life and I think they would be shocked if they saw the costs that would be incurred by the economy if plastic was banned.

``That's why I am spending time on it,'' Paslawskyj said.

``The report provides several instances where plastics have replaced wood, glass, paper and steel with environmental benefits.

In addition, it cites several applications where plastics technology is making inroads, such as in automotive windshields, railroad ties and bridges.

The U.S. trade position in manufactured plastic products, meanwhile, improved sharply in 1996 as exports rose 9.5 percent and the trade surplus widened to $625 million. Imports rose 6.9 percent.

The report predicts that by the end of 1999, the trade surplus will almost double last year's level, reaching $1.24 billion.

CIT predicts that in 1999 manufactured plastics product exports will reach roughly $8.68 billion, up 17 percent over the 1996 level.

Conversely, the report said it expects imports will decline to 6.1 percent from last year's estimated 6.4 percent.

Mexico and Canada continue to be the United States' primary trading partners in plastic products.

In 1996, the three countries' combined trade in plastics goods was more than $5.8 billion, which represents 41 percent of all U.S. plastics trade activity.

Paslawskyj claims that U.S.-based manufacturers are the big winners under the North American Free Trade Agreement.

From 1991-96, according to Paslawskyj, Mexico's imports of manufactured plastic products leapt 84 percent, from $216 million to $398 billion; while U.S. exports to Mexico of such goods nearly tripled during the same period, from $617 million to $1.78 billion. He said he attributes the latter, in large part, to a reduction in high Mexican tariffs on imported U.S. products.

On the machinery front, CIT Group suggests that ``the plastics machinery boom that began in 1993 apparently cooled last year,'' and predicts that apparent real consumption will ease further this year.

Paslawskyj estimates that real U.S. consumption slid about 2.3 percent from the record $3.44 billion reported by the government in 1995—though CIT claims those numbers ``may contain serious flaws.''

Nonetheless, using the government-reported import numbers as a ``directional benchmark,'' the CIT report suggests that this year demand will slip another 9 percent, to $3.32 billion.

``The biggest surprise when compiling this report was that the government had not gotten its data problems in some kind of order,'' Paslawskyj said. ``I think the machinery numbers are much too high. We used domestic consumption as a directional benchmark, as opposed to a level benchmark.

``I believe the direction is correct,'' he said.

U.S machinery imports rose, he said, simply because the yen was strong, thereby boosting the dollar value of the imports. He believes the number of units imported rose, too, but only modestly.

``The other problem,'' according to Paslawskyj, ``was that domestic producers were running flat out in 1994 and 1995, so a lot of purchasers had no choice but to turn to imported machinery.''

He attributed the two-year slowdown to the reduction in plastics manufacturing growth in 1995 and 1996, and to a settling of the market after massive equipment purchases during the past few years.

In the five years since 1992, real consumption of plastics machinery in the United States has totaled about $13.8 billion — 30 percent more than the second-best five-year period.

``After this minor pullback is completed, we expect real machinery consumption to once again expand,'' he said.

In 1999 CIT sees apparent real consumption reaching about $3.48 billion.

The Customs Bureau's discrepancies are even more severe in plastics machinery parts, according to Paslawskyj.

He noted that it seems implausible that imports of such components would nearly double between 1993 and 1995.

After factoring in its own, more-subdued calculations, CIT Group estimates real plastics machinery consumption last year at closer to $3 billion, or about 13 percent lower than the government's figures.

Even so, contends Paslawskyj, ``it is still a very impressive number.''

Paslawskyj will discuss CIT Group's latest report further in an NPE conference session which is running Tuesday at 1:30-5 p.m. in Room S404ABC.