CHICAGO — A temporary recession could be on the way, but plastics companies should have little to fear from it.
Economist Michael Paslawskyj spoke those words of reassurance Nov. 18 during the Plastics News Executive Seminar in Chicago.
``Since the [stock] market melted down a little this summer, there is caution surrounding the economy everywhere you go,'' said Paslawskyj, vice president for economic research with CIT Group Inc. in Livingston, N.J. ``Any way you look at it, things are different than they were six months ago.''
Paslawskyj and several other speakers cautioned the seminar audience on what to expect from plastics in general and certain industries in particular if the economy continues to sway.
While not exactly bullish on the economy's future health, Paslawskyj said he does not expect a deflationary spiral to sink the United States into a severe recession.
Paslawskyj ticked off several observations to support his fairly optimistic predictions: Service industry prices are not falling, strong capital investment continues, most major U.S. trading partners are growing and deflation and economic growth do not necessarily make poor bedfellows.
The last item converges with Paslawskyj's core belief: A minor, short-term recession could be just around the corner. The odds are 30 percent, he said, that a recession will begin in the first quarter of next year and last until about October.
And if that happens, look to the Far East to pin blame.
``If the Asian flu becomes pneumonia, it could lead to an indirect recession,'' Paslawskyj said. ``But if Japan stimulates its economy, it will lift others.''
Yet, a U.S. downturn might not contaminate the growth of the plastics industry, Paslawskyj said. The economist said shipments and exports, especially to Canada and Mexico, continue to outpace those of other industries.
For instance, real shipments of manufactured plastic products are expected to grow by 3.9 percent this year, compared to an average of 1.5-1.9 percent for the overall economy, he said. And exports of plastic products to Mexico have boomed, with more than $2.1 billion sent there in 1997, a 23 percent growth rate from the previous year.
Shipments to Mexico quickly are catching up to those to Canada, the largest recipient of U.S. plastic products, he said.
Some dangers could arise, however. What Paslawskyj called ``the Chinese import juggernaut'' continues to grow, with about $1.4 billion in plastics goods shipped to U.S. shores last year. And fewer exports are going to Asian countries in crisis such as Indonesia, Malaysia and South Korea.
Productivity also remains an issue. Many plastics processors still need to embrace automation to lower costs, he said.
``Why can't we see more robots on machines?'' Paslawskyj asked.
Other speakers also reported good-to-middling outlooks for the growth of plastics in the industries they cover.
It is a two-steps-forward, one-step-back scenario, for instance, that faces plastics processors in the electronics industry, said Mark Rosenker, vice president for public affairs with the Electronic Industries Alliance in Arlington, Va.
The high-tech industry has been on a growth jag that, while slowing slightly, remains at lofty levels. This year, the trade association expects U.S. electronics shipments to rise 9 percent to about $500 billion. That is down slightly from the double-digit growth throughout most of the decade, Rosenker said.
While Rosenker could not break out the plastics portion of those productts, he said a high percentage of the materials used — including housings for personal computers, cellular phones and fax machines — comes from plastic resins.
Yet, that impressive electronics march has been slightly tempered by a growing trade imbalance, he said.
This year, the United States will export $97.8 billion in electronic parts while importing $117 billion. That trade deficit has existed for the past five years, Rosenker said.
``We're sending significant work to Mexico,'' he said. ``And China is becoming a powerhouse in electronics and a host of industries. It's going to continue, and we expect [U.S.] exports to be off by 2 percent in 1998'' from 1997 figures.
Rosenker anticipates that, in a highly competitive business, more electronics companies will be seeking lower-cost parts to keep a cap on prices. That could mean more resin buying and molding work going overseas, he said.
However, sophisticated parts, where price is not as large an issue, should remain in the United States, he said.
``The market goes where it can get parts the cheapest,'' Rosenker said. ``It's a global business that will probably keep shifting [production] to different countries.''
The automotive market faces a different set of challenges, said Phil Sarnacke, a Midland, Mich.-based business development manager for Phillip Townsend Associates Inc.
While plenty of work awaits U.S. processors, they continuously must stave off threats from steel and lightweight materials such as aluminum and magnesium, Sarnacke said.
Growth for plastics in vehicles generally will continue, albeit at different rates for various parts of a vehicle, he said. For instrument panel substrates — the structural member under the covering skin — polypropylene use will continue its rise, growing about 4.9 percent during the next five years.
In fuel systems, the figures are rosy for engineered thermoplastics. Fuel tanks, made of high density polyethylene, will capture more than 65 percent of the U.S. market by 2002, though steel still is used on a majority of current tanks, Sarnacke said.
Similar growth is expected for air-intake manifolds, where nylon resins rapidly are taking market share from aluminum parts, he said.
But plastics will continue to face an uphill climb for exterior body panels, Sarnacke said. Recently, plastics has grown only about 1.6 percent annually in that area, he said.
Yet, with the possibility of a plastic-bodied car coming out in three years from the new DaimlerChrysler AG and the growth in body panels on new Saturn Corp. vehicles, that could change. Resin numbers could rise from about 63 million pounds used by automakers worldwide today to about 100 million pounds used by 2002, Sarnacke said.
``There are a lot of new body panels coming,'' he said. ``Automakers are looking at lighter cars with smaller engines to reduce emissions''
Plastics already has established a firm hold on bumper fascias, or the bumper's skin. While thermoplastic olefins rule that market, automakers now are considering complete plastic bumpers that can be blow molded or injection molded, Sarnacke said.
Painting also could be on the way out.
New materials, including an ionomer from DuPont Automotive, could replace expensive painted bumpers with those using molded-in color, Sarnacke said.