By: Frank Esposito
December 10, 2013
It’s widely believed that when Alexander the Great saw the breadth of his domain, he wept — for there were no more worlds to conquer.
If that really happened, Alexander would have been better off as a North American resin distributor, because to hear them tell it, they still have a lot left to accomplish.
(Resin sales data from Alexander’s reign as ruler of Macedonia, Persia and Egypt from 336-323 BC was unavailable.)
Regional resin distribution executives who recently talked with Plastics News said that although 2013 has been a good year for the most part, some of them expected stronger growth — and some hope those expectations will be met in 2014.
Distribution firm M. Holland Co. of Northbrook, Ill., finished its 2013 fiscal year — ended Sept. 30 — below budget in pounds because of resin availability.
“There always used to be material available,” M. Holland owner Ed Holland said. “You could call [resin makers] at the last minute. That’s not true today. It’s almost like [resin makers] are making resin to order.”
“Coming out of the gate after a strong 2012, we expected high single-digit growth, so  has been a little disappointing,” said Kurt Schuering, president of Avon Lake, Ohio-based PolyOne Distribution. The business — a unit of compounding and concentrates leader PolyOne Corp. — ranks as one of North America’s largest resin distributors.
Through the first nine months of 2013, PolyOne Distribution posted sales of $818 million, up almost 4 percent vs. the same period in 2012. The unit’s operating income was flat in the same comparison at just under $50 million.
Schuering added that the automotive and building and construction markets were “hot spots” for PolyOne in 2013, but he also said the firm had concerns about the health care market — its largest distribution sector — because of potential impacts of the Affordable Care Act and a tax on medical devices.
Resin availability also has affected PolyOne in 2013 through product rationalization, where resin makers have eliminated some grades in their portfolios. This has led to fewer grades being available and customers needing to requalify materials, Schuering explained.
And even though H. Muehlstein & Co. Inc. has enjoyed double-digit growth in 2013, it’s been “a challenging year,” according to senior vice president and general manager David Skoczen.
“With [resin] producers so successful in getting prices up, it’s been another year where sales volume is an everyday challenge,” he said. “It’s very competitive.”
Wilton, Conn.-based Muehlstein is owned by Belgian conglomerate Ravago Group, which also distributes resin in North America through its Ravago Holdings Americas unit. Ravago’s purchase of PET distributors Burcham International and Meckler & Associates in late 2012 has been “very accretive” to total sales, Skoczen said.
At Chase Plastic Services Inc. in Clarkston, Mich., owner Kevin Chase said that uncertainty in Washington D.C. and from state governments “is driving us nuts and stalling any kind of recovery.”
“I saw a forecast of 2 percent economic growth for the next eight years,” he added. “That’s not really growth. What happened this year is limited growth. It’s nice that the auto market came back and that we’re building a few more homes, but [growth] is not robust. It’s preventing us from taking off.”
Chase’s firm is doing well in spite of these limitations, with sales and volume in pounds both on track to be up 8 percent versus. 2012. Automotive in particular has been good to chase in 2013.
“Some transnationals are building assembly plants here [in North America] and they’re willing to look at domestic suppliers,” Kevin Chase said. “It’s a nice opportunity for us.”
The year has been “fairly good” for Nexeo Solutions LLC as well, with the firm posting sales growth above U.S. GDP growth rates of 2.5 percent, according to Shawn Williams, senior vice president of plastics for Nexeo, which is based in The Woodlands, Texas.
“We saw growth in automotive and health care and had a geographic expansion by opening a sales office in Mexico City,” he said. “The long-term outlook for automotive is strong, not only for builds but for material replacement opportunities. We’re going to have a long run in the auto market.”
But Williams added that customers haven’t added much processing capacity in 2013.
“If you look within some segments, specific customers may have added production, but there hasn’t been a lot of growth overall,” he said.
Although exact totals are unavailable, it’s widely believed that Ravago/Muehlstein, Nexeo, PolyOne and M. Holland are the region’s four largest resin distributors.
Beyond 2013, the larger narrative for North American resin distributors will be the impact of large amounts of new resin capacity set to hit the region in the next five years. Most of the new announcements have centered around polyethylene, although additions to polypropylene, PVC and PET capacity are expected as well. PE, PP and PET additions could impact distributors. Not much PVC is sold through distribution channels.
The PE, PP and PVC additions are being driven by newfound supplies of shale gas that are providing plentiful ethane and propane feedstocks. PET additions are being driven by feedstock logistics for that material and by an ultra-competitive PET market.
Ravago recently acknowledged the expected impact of this new resin when it formed Genesis Polymers, a new business channel that will focus on bulk commodity sales to North American processors. RHA president James Duffy said in a news release that Genesis is being launched with future North American polyolefin capacity expansions in mind.
“Shale gas revitalized the [resin] market,” said Williams at Nexeo. “But the first question is will all this new capacity be built. We’re well-positioned either way. Some [resin] suppliers have downsized their sales staffs, but we’ve added to ours because we’re expected to play a key role.”
He added that with the new resin, North American resin markets “should have stable supply, with less volatility and fewer turnarounds.”
“Longer-term, I have to believe that having two low-cost regions [in North America and the Middle East] will bring more stability in pricing and production for the polyolefins market,” added Schuering at PolyOne.
But PE supplies will continue to be tight until the new capacity comes on line, according to Ed Holland at M. Holland. That will call for “a change of behavior” among some customers, including more forecasting and better planning, he said.
“Some customers haven’t evolved as quickly on inventory as others,” Ed Holland added. “They’re going to have to [evolve] in order to survive, because the volume of feedstock changes keeps getting bigger. Dealing with supply and volatility takes up more of management’s time.”
The other part of the resin narrative holds that new and affordable supply will lead the region’s processors to install more capacity — in the form of film lines, blow molding machines, injection molding machines and other types of processing equipment — as the new material spurs innovation and leads to increased demand for finished products, both within the region and in export markets.
“I can buy into some of that reshoring talk, but our customers are being cautious — they haven’t really done anything yet as far as adding capacity,” said Skoczen at Muehlstein. “I can see some business coming back to North America from the Far East.”
He added that within North America, the packaging sector could help some of that new resin find a home when it arrives.
“Packaging has been very solid,” Skoczen said. “Customers are looking for innovations, and there’s a lot of development work in the pipeline. That market is still evolving.”
But in spite of strong long-term expectations, distribution executives said that they sensed some hesitancy among their resin-consuming customers in 2013.
“Some major processors are going out and going after new programs,” said Kevin Chase at Chase. “But smaller companies that tend to have 20 or 30 machines, they look at uncertainty and say they might not be able to buy new equipment or build a 25,000 square-foot addition or hire two or three more sales people.”
The trend of resin buyers buying more frequently but making smaller purchases also continued in 2013, according to PolyOne’s Schuering.
“They’ve got challenges with working capital and cash flow,” he said. “And price volatility also is affecting them. Big customers tend to be tied into a [resin pricing] index but distributors have smaller customers, and those customers are very susceptible to price swings of 14-16 cents per pound.”
Customers “don’t want to take on too much material so they don’t get stuck with high-priced resin,” Schuering added.
Muehlstein’s Skoczen raised the possibility that customers still might be rattled from surviving the recession. “2008 and 2009 still seem not far away,” he said. “It was a traumatic experience for a lot of us — and customers now are cautious about how to expand.”
Their customers might not have been active in recent months, but distributors were much more active in buying and selling competitors in the last 18 months. The pace of acquisitions increased as distributors looked for competitive advantages.
Ravago has led the way in this category. In addition to its pair of PET-related acquisitions, the firm bought distributor/compounder Amco Plastic Materials Inc. in late 2011, elastomer processor/trader Goldsmith & Eggleton Inc. in early 2012 and just in October purchased resin distributor A-Top Polymers Inc. In other plastics deals, Ravago in 2012 formed Ravago Avangard Innovatice, a recycling services joint venture, and in July bought the expandable polystyrene resin business of Styron LLC.
M. Holland entered the M&A field in late 2012 when the firm — which was founded in 1950 — made its first-ever acquisition by buying resin distributor Christler Chemical & Plastics Inc. And Ed Holland has said his firm is looking to make more such deals if they fit what his company is looking for.
Even materials firm A. Schulman Inc. — which has a far larger distribution presence in Europe than it does in the U.S. — got into the act in May when it bought Network Polymers, an Akron, Ohio-based compounder that also distributes some engineering resins. Fairlawn, Ohio-based Schulman then evened out its trans-Atlantic mix in September when it added British compounder/distributor Perrite Group.
PolyOne has chosen to grow organically in the last two years, adding warehousing sites in Costa Rica and China.
Distributors also are increasing their ranks internally. Chase said his firm will add a sales rep this month and two more in 2014. Schuering added that PolyOne “will continue to invest in our industry teams” in the areas of health care, transportation, electrical/electronic and wire and cable.
Ed Holland said that adding sales reps has been an ongoing process for his firm as its growth rate has picked up in recent years.
“You can’t just keep adding more and more customers to the same number of sales reps,” he said. “We want to be a major resource for our customers.”
Holland also added a film line at a Chicago-area lab in 2013 and plans to add more lab equipment and personnel in 2014.
As expected, in-fighting among regional distributors remains alive and well in 2013.
“A customer might see polycarbonate from you at one price, and then the next guy goes a nickel down,” Kevin Chase said.
Looking to 2014 sales, Skoczen said that Muehlstein “has quiet confidence” that it can match its 2013 performance next year. Schuering added that PolyOne is looking to get back to high single-digit growth next year. “We’re pretty optimistic that we can grow beyond GDP in focused markets,” he said. At Nexeo, Williams said that his firm in 2014 “expects to deliver little above the growth we had this year because of our vertical market approach.”
Chase is more blunt about his firm’s expectations: “We can do 8 percent again next year,” he said. “We have to because our suppliers are demanding it. We have to figure out a way how to.”
None of the distribution execs contacted for this story said that their firms were actively planning to add material suppliers to their line cards in 2014. Kevin Chase said that his firm “is always looking” for new suppliers,” while Skoczen said Muehlstein was curious about new suppliers that might enter the market when resin expansions arrive.
“We might focus on some new grades in areas like electronics,” PolyOne’s Schuering said. “We have the industry’s leading line card right now, with the best suppliers across the board.”
Williams was presenting a similar message at Nexeo. “We’ve changed a few suppliers in the past and might be looking to fill some niches,” he said. “But overall we’re excited to be aligned with industry leaders in key market segments.”