Growth of the U.S. plastics industry should continue to outpace the overall economy this year, according to CIT Group's annual outlook.
``Plastics is still a very dynamic, evolving industry. I don't see any maturity setting in ... for some time,'' said Michael Paslawskyj, CIT's vice president of economic research.
The report said the Asian economic crisis will have a ``minimal impact'' on U.S. plastics businesses. Mexico, on the other hand, has become a major factor in the industry's growth, due largely to the North American Free Trade Agreement. Paslawskyj said the Mexican recession is over and that economy is growing again.
``Exports of processed plastic products to Mexico have doubled since NAFTA was signed four years ago, and rose nearly 20 percent to a record $2.13 billion in 1997,'' Paslawskyj said. ``With just $29 million less than exports to Canada, I expect that in 1998 Mexico will displace Canada as the largest foreign consumer of U.S.-made processed plastic products.''
In plastic products, the U.S. continues to enjoy a healthy trade surplus with Mexico — $1.6 billion — even as imports from Mexico keep rising.
CIT, of Livingston, N.J., released the report July 15. For 1998, the study predicts 4.4 percent growth of industry shipments of manufactured plastic goods. The U.S. gross national product should be just above 3 percent this year.
Paslawskyj has become more optimistic than he was a year ago, when he thought the category would grow 3.9 percent in 1998.
``The economy's a lot stronger this year than we thought it would be,'' he explained. ``We ended 1997 pretty good, then started this year in great shape.''
CIT's ``8th Annual Plastics Industry Outlook,'' covers 1998 through 2000. The report assumes no U.S. recession this year.
Paslawskyj said the rate of growth of plastics shipments should slow slightly in 1999 before accelerating another 5 percent in 2000 to reach a record $128.6 billion. Plastics should hold up even if the U.S. economy goes into a recession in 1999 or 2000, he said.
U.S. consumption of plastics machinery should return to the plus side this year, after two years of slowing demand.
Domestic demand will grow between 2.5 and 3 percent in 1998, 1999 and 2000. By 2000, machinery demand will reach $2.54 billion, 8.5 percent above the level of 1997.
Machinery makers outside the United States should gain U.S. market share — 45 percent, up from the current 41 percent — because a strong dollar makes their products cheaper in the United States. But lost sales for U.S. machine makers will come mostly in low-priced commodity machines.
``U.S. manufacturers will continue to dominate in expensive, large equipment that usually has fatter margins,'' Paslawskyj said.
Meanwhile, Paslawskyj said 1997 U.S. Customs Bureau import data — which has received criticism from machinery builders for overstating the strength of imports — ``was believable for the first time since 1993.''
Imports totaled $965.8 million, with $696.5 million from machines and $269.3 million from parts. That total is an 11 percent decline from the Custom Bureau's 1993 import figures.
The CIT report played down the Asian crisis, at least in terms of processed plastics products to Indonesia, Malaysia, South Korea and Thailand.
``They don't export very much to us and we don't export very much to them,'' Paslawskyj said.
Even their devalued currencies make labor costs much cheaper in those countries, companies there cannot afford to import raw materials and equipment to make plastic products, he said.
Paslawskyj ends his report with a not-very-shocking statement: U.S. electricity deregulation will cut the industry's electric bills as much as 15 percent. U.S. plastics processors spent $2 billion on electricity in 1996, so a 15 percent cut would equal $300 million.
