Weak demand from key markets and seesawing resin prices over the past 30 months have shaved profit margins from compounders' accounts, forcing them to find more enterprising ways to turn a profit. As an example of how tough markets have been, A. Schulman Inc.'s fiscal 1996, which ends Sept. 30, will mark only the second year since 1982 that the Akron-based firm will not report record financial results.
Schulman, one of the largest suppliers of compounded resins to the automotive industry worldwide, has a reputation of being one of the canniest compounders around.
However, the company recently reported that competitive pricing pressures, higher tax rates, losses at its operations in Mexico and weak demand from key markets - primarily brought on by the first-quarter auto workers' strike at General Motors Corp. - took their toll, and cost the company its record-breaking streak.
Exton, Pa.-based LNP Engineering Plastics, a unit of Tokyo's Kawasaki Steel Corp., also has seen its prospects falter in the past few months.
``Our markets have not grown at the levels we had forecast,'' Richard J.
Burns, executive vice president and chief operating officer, said in an interview June 7 at company headquarters.
``The United States' manufacturing economy is slow; auto builds are slightly down, General Motors had that strike and now has a large inventory of vehicles on hand, and the market for business machines and electronics equipment is off.
``We forecast business ma-chines and electronics equipment growing at 20 percent this year, and it's now at an 8-10 percent growth rate,'' Burns said.
On top of that, he noted that engineering thermoplastics are in greater supply now than at any time in the past 18-24 months, and that prices are softening.
Even compounders who were not affected by the auto industry and the General Motors strike said in recent interviews that their results have been affected by the rising and falling prices of plastic resins during the past few months.
Bert Lederer, president of Teknor Color Co. and group vice president for Teknor Apex Co. of Pawtucket, R.I., said in a recent interview it has been fortunate that interest rates have remained relatively low.
``We have added people and production capacity, and we increased our productivity and added to our capital equipment,'' he said.
``We have made investments in the business,'' Lederer said, and those investments have helped his company maintain an edge on its competition, and a profit margin.
Teknor provides proprietary compounds of thermoplastic elastomers and PVC blends and alloys and does toll compounding for a variety of markets.
Lederer pointed out that his customers' markets for finished and semi-finished goods have not been as hearty as the virgin resin markets, so passing resin price increases on to his customers is difficult, if not impossible.
Another PVC compounder who spoke only on condition that neither he nor his company be identified, agreed, saying that he warily eyed export sales of virgin resins during the first four months of this year.
PVC resin producers primarily cited increased demand from export sales as the reason for their price increase announcements in the first half of this year.
``If our prices are going up because [resin producers] are selling to China and Southeast Asia, our customers don't see that, and they don't want to talk about price increases when their markets are flat,'' he said.
Even with the price fluctuations that have caused business to be more difficult than usual, the industry is predicting that demand for compounded resins will grow at twice the rate of growth in the world's economy, making compounding a desirable business to be in.
Clariant Corp., based in Charlotte, N.C., purchased Bay Resins, a compounder headquartered in Millington, Md., in May, and now is planning further acquisitions.
Mike Smith, vice president of Clariant's Performance Plastics sector, said he expects compounding to contribute nearly 40 percent of that unit's sales in the near future.
Compounding now contributes less than 10 percent to the sector's sales.
Smith said he plans to make the company grow through acquisitions.
Old hands in the compounding business obviously share Smith's enthusiasm:
*A. Schulman President Terry Haines pointed out in a recent interview his company is planning to build its first compounding facility in Asia by the end of this year, and may venture into China after that facility is established.
*Burns of LNP, one of the oldest compounding companies in North America, noted that his company made two significant acquisitions in Europe in the past two years, and that it remains in a growth mode.
``In the Asia-Pacific region, we are looking at where we may put our next plant,'' Burns said.
The ``next'' Asian facility would come close on the heels of the 30,000-square-foot plant LNP opened in Seremban, Malaysia, in May.
*Lederer noted that his company is growing through the acquisition and adaptation of new technologies, such as micro-bead concentrates that ease difficult colorant dispersion problems by reducing the size of the color concentrates.
Also, Lederer said, his company is tackling the uses of resins made with metallocene catalyst technologies.