By: Frank Esposito
November 26, 2013
Growth rates are OK for some North American compounders and concentrate makers as 2013 draws to a close — but others are hoping for improvement in 2014.
Strength in the automotive market — as well as in building and construction — has boosted sales totals at several firms. Other consumer-oriented markets have been a bit inconsistent. And all of this has come against a background where U.S. GDP growth has improved but remains under 3 percent — and where the country's unemployment rate also is lessening, but still remains above 7 percent.
Some gains for public firms, markets
Among the ranks of publicly held compounders and concentrate makers, PolyOne Corp. has had a very solid year, while A. Schulman Inc. and Ferro Corp. have shown mixed results this year. Avon lake, Ohio-based PolyOne has seen nine-month sales growth of 4-8 percent in two of its compounding-related units — Global Color, Additives & Inks and Performance Products & Solutions. Its third related unit — Global Specialty Engineered Materials — has surged ahead almost 30 percent in nine-month sales.
For its 2013 fiscal year — ended Aug. 31 — Fairlawn, Ohio-based Schulman saw sales growth of 7.5 percent in the Americas. Its sales volume in pounds — including resin distribution — grew 7 percent in that region. Nine-month sales growth for Mayfield Heights, Ohio-based Ferro was flat in its Specialty Plastics unit and down almost 9 percent in its Polymer Additives unit.
The earnings story also was mixed among those three firms. Nine-month operating income was up 29-34 percent at the three PolyOne units. But Americas gross profit for fiscal 2013 fell almost 4 percent at Schulman. For Ferro, nine-month gross profit was flat in Specialty Plastics but down 23 percent in Polymer Additives.
"The impression that I get is that sales are continuing to grow," said John Jones, owner of the JR Jones Inc. consulting firm in Wyomissing, Pa. "Auto and construction are definitely up, and packaging is less subject to the whims of the economy, generally speaking. Other markets are more cyclical."
Bert Lederer, executive vice president at engineering resins compounder Teknor Apex Co. in Pawtucket, R.I., agreed that automotive "continues to be a source of strength. Teknor has been seeing its thermoplastic vulcanizate products grow and take share in those applications. Its nylon and thermoplastic polyurethane materials also are growing in under-hood auto applications.
The auto comeback also has been good news for Asahi Kasei Plastics North America in Fowlerville, Mich. The firm generates more than 80 percent of its sales from the auto market, mainly in polypropylene compounds. Recent growth allowed Asahi Kasei to install a new extrusion line in early 2013, boosting its capacity by 10 percent.
"Auto has really picked up," President John Moyer said. "And the age of cars on the road is still high, averaging around 11 years. That means more people will be looking to buy cars, and the population is still growing."
Moyers added that a U.S. auto build rate of 15-16 million per year "is very maintainable, and could actually increase if unemployment gets better."
"North American automotive continues to grow," said John Van Hulle, Global color, Additives and Inks president at PolyOne. "Lightweighting is the biggest driver — not the number of cars being built. We're doing a lot with interior parts and areas where carmakers want to eliminate painting."
Materials firm Ampacet Corp. of Tarrytown, N.Y., again is seeing growth from the packaging sector in 2013, helping the firm see global volume growth of 5-6 percent vs. 2012. "We're doing very well in packaging with OEMs like Procter & Gamble and Unilever, mostly in rigid packaging," president Robert DeFalco said. Packaging also "continues to be a strength" for Schulman, according to executive vice president and chief operating officer Bernard Rzepka. "We've achieved a lot in packaging, but we can do more," he said.
Rzepka cited agriculture as a market where Schulman "needs to be better." The agriculture sector is recession-proof and is providing opportunities for materials makers in masterbatch film and packaging, as well as in trucks, drums and tractors, he said.
PolyOne Global Specialty Engineered Materials president Craig Nikrant said he's "extremely pleased" with what his unit has done this year. We've highlighted specialty solutions and evolved away from commodity applications and found growth in areas like electrical/electronic, consumer and industrial," he said. "You can do well even in a bad economy if you focus on the right applications."
Color firm Penn Color of Doylestown, Pa., recently unveiled a new liquid color liquid color product line that was developed as an enhanced colorant option for PET processors. Market development director Robert Kaminski described the new product as "a highly economical and user friendly colorant system that offers easier clean up with water as the wash medium. The product now is available in Europe but should be available in other regions in late 2014 or early 2015.
Medical and health care has remained a resilient market for PolyOne and other firms. Van Hulle said PolyOne has had success in that sector with a portfolio of pre-certified colorants that can be used in IV clips and similar products. "Medical suppliers spend so much time to get device approved that they don't want to have to spend a lot of time selecting a color," he explained.
Questions beneath the surface
But beneath the new products and market approaches, there's an undercurrent of concern among some compounding and concentrate executives. It comes from inconsistent and unpredictable customer demand, as well as from low single-digit economic growth and frustration with government policies — such as those that led to a multi-day shutdown earlier.
"I have a have hard time calling 2013 solid," said John Manuck, chairman and chief executive officer of color and additive concentrate maker Techmer PM in Clinton, Tenn. "It's more spotty. Some markets are up, but some are down."
Manuck added that Techmer's material suppliers began asking him about business conditions as early as March, after seeing lower-than-expected growth. "Most statistics that you see are positive, but not super-positive," he said.
DeFalco at Ampacet agreed that there's a bit of uncertainty in the market. "We're watching our customer base run hand-to-mouth," he said. "They're reluctant to invest heavily. I think to a certain extent it has to do with what's going on with the government."
At Teknor Apex, Lederer also is seeing the business world impacted by what he called "this silliness going on with the government."
"Right now, we're seeing some sluggishness," he said. "The [government] shutdown took a lot of money out of the economy. Government cutbacks in some programs may have undermined people's confidence."
And Schulmaan's Rzepka agreed that the market "seems a bit fragile — going from one good month to one not-so-good. "There's confidence in the car market but not in markets elsewhere," he said.
Manuck added that Techmer's average order size is down about 10 percent in 2013, which he attributed to customers' forecasts being off. "Everyone plans for growth, but they don't always do it," he said.
New products at K and beyond
On the new product front, several compounders and concentrate makers were very active at October's K Show in Dusseldorf, Germany. Techmer promoted its Techsurf-brand additives and its gamma ray-sterilized compounds.
PolyOne showcased its Percept-brand authentication technologies. Percept is designed to help companies protect revenues and lower the risks involved with poorly made or unsafe products.
Color giant Clariant International Ltd. launched HiFormer, a liquid masterbatch system that includes product development, color matching and on-site implementation. New products from Schulman at K 2013 included flame-retardant masterbatch concentrates and a new nylon 6 powder for rotomolding.
Teknor used the show to announce a restructuring of its TPE brands. All TPEs applicable to a particular end-use sector will now be grouped under a single brand, regardless of how widely the compounds differ in terms of polymer chemistry.
Post-K, Van Hulle said PolyOne has focused on Amosorb Plus, an oxygen-scavenging additive for improved recyclability in PET packaging. Nikrant emphasized new grades of the firm's Gravitech-brand and Stat-Tech-brand lines of materials based on engineering resins. "We're seeing a good shift of applications away from glass-filled nylon to other specialty products," Nikrant said.
Other new additive products from Penn Color include UV stabilizers, slip agents, and anti-blocks. "We'll be evaluating new markets where Penn Color hasn't previously had a strong market share," Kaminski said.
Checkbooks in hand
If a market's rate of mergers and acquisitions is any way of judging its health, then North American compounders and concentrate makers are doing just fine. There's been a flurry of buying and selling activity — and firms are looking to do more.
PolyOne generated the biggest headlines in late 2012 when it paid almost $400 million for Spartech Corp. a maker of plastic sheet, compounds and related products. In a smaller late-2012 deal, PolyOne bought reinforced composites maker Glasforms Inc. of Birmigham, Ala., for $34 million.
Schulman has made a pair of deals so far in 2013, buying two compounding/distribution firms — Network Polymers of Akron, Ohio, and Perrite Group of Cheshire, England — for a total of about $100 million. Schulman now has made eight acquisitions in the last four years. The firm also bid almost $600 million for Ferro, but the offer was turned down by Ferro management.
Another 2013 compounding deal involved Tokyo-based Mitsubishi Chemical Corp., which bought Comtrex LLC, a maker of PVC compounds and thermoplastic elastomers based in Warren, Mich. Comtrex employs about 40 and has annual sales of about $20 million. Mitsubishi officials said the Comtrex acquisition "is in line with [the group's] medium-term management plan" of increasing its manufacturing and sales into TPEs, cross-linked polymers, adhesive polymers and conductive polymers.
In July, Techmer purchased compounder TP Composites Inc. of Aston, Pa. Manuck described TP as "a great fit for our engineering compounds business." TP operates almost 40,000 square feet of production, warehousing and office space. The 19-year-old firm employs about 50 and makes filled, impact-modified and colored compounds based on a wide variety of thermoplastics. Its compounds are sold into military applications, business machines, transportation and other markets.
Most recently, investor Sunil Kumar and his daughter Monica in late October announced their purchase of nylon resin maker and compounder Nylon Corp. of America (Nycoa) for an undisclosed price. Manchester, N.H.-based Nycoa has annual sales of about $40 million. The firm makes specialty grades of nylon and compounds nylon and other engineering resins. It has both continuous polymerization and batch reaction capability.
"There's a fair amount of money going into buying other companies," consultant Jones said. "Growth through acquisition has been a little more active lately."
"Buying market share is a less risky way to grow," he added. "It's less risky than building new plants and buying new equipment."
Asahi Kasei is looking for companies to acquire," said Moyer. "We've looked at some, but they haven't been in the right location to grow our business," he said. "We have the north [U.S.] covered, but not the southeast or Mexico. We could use another location in the U.S."
Schulman also is looking for companies to buy in colors and engineering plastics, not only in North America, but in Europe and Asia as well, Rzepka said.
Ampacet's DeFalco agreed that the existing market "is looking at acquisitions first." He added that Ampacet has evaluated "quite a few" potential acquisitions recently, although the firm historically has grown through building new plants or expanding existing ones. Earlier this year, Ampacet added new extrusion lines at plants in Canada and Mexico.
PolyOne "is looking for opportunities that make sense, possibly smaller, bolt-on acquisitions," according to Nikrant. "We're not going to stop looking."