Processors took a wild ride in 1998. Cruising with a booming U.S. economy and lower resin prices, more than a few felt their stomachs drop with the Southeast Asian economic nose dive.
The fast pace of mergers and acquisitions only added to their queasiness. In light of all that, it's understandable why some processors might be reluctant to face a new year.
But many are looking forward to it. According to a recent Plastics News fax poll, 61.5 percent have a favorable outlook for 1999. More than half expect their firms to be more profitable than last year, and 87.1 percent plan to buy machinery. The issues foremost in processors' minds are customer growth, a lack of qualified workers, and raw material costs.
Customer growth tops the list for the second year in a row: A whopping 77 percent named it a major issue. Some, like R.L. Francken, president of thermoformer Containerware Inc. in Phoenix, are uncertain at best about what the new year will bring.
``Our customers are electronics companies,'' he said. ``Things may be picking up for them, but the situation is very iffy.''
Containerware is one of 298 firms that responded to the survey by Dec. 14.
Many concerns about customers stem from hits taken in Southeast Asia.
``The Asian financial crisis has severely affected some of our major customers,'' said Bill La Barge, president of thermoformer Machine Guard & Cover.
He said his firm, and others that supply machinery makers, were the first and hardest hit. Some of his customers with business in Asia were left holding machines, and narrowly escaped bankruptcy.
``The customers that were stiffed are taking longer to pay,'' he said. ``But if they haven't gone under yet, they're fine.''
Though problems in Asia have affected sales and cash flow for the Holland, Mich., firm, La Barge remains fairly positive.
``New accounts are more than making up the difference,'' he said.
But customer cutbacks remain a concern for some in light of the industry trend toward mergers and acquisitions.
Charles Warr, president and chief executive officer of Rex International Inc., expects some downturn in 1999. He fears future mergers will cause cutbacks and create larger firms with more buying power to lower prices.
Rex International is a film extruder in Thomasville, N.C.
Another lingering concern — the availability of qualified workers — continues to keep processors awake at night. About 53 percent cited it as an important issue for '99, placing it second in this year's poll.
Considering recent unemployment numbers from the Bureau of Labor Statistics, that should come as no surprise. In December, the U.S. jobless rate edged down to 4.3 percent. In November, seven states had unemployment rates below 3 percent, with Minnesota and Nebraska at the lowest seasonally adjusted rate — 2.4 percent. That leaves slim pickings for the 44.4 percent of processors that expect to increase staffing levels in 1999.
``Labor shortages continue to be a prime concern,'' said Tim Tait, general manager of Profile Solutions Inc. of La Follette, Tenn. ``Educated, skilled workers are in extremely short supply.''
Raw material prices and availability, last year's No. 2 concern, fell to No. 3 this year, with 40.4 expecting resin pricing to play a significant role in 1999 business.
The issue may be overshadowed by others due to the 1998 drop in U.S. polyethylene and polypropylene prices. Through November, PE had fallen a total of 11 cents per pound, and PP had slipped an average of 6 cents per pound.
Because processors have little control over many factors that affect business, most seem to be taking advantage of one that they can control: year 2000 compliance. More than 77 percent said they are substantially or completely finished with the work needed to get their computer systems up to snuff. Only a handful — 4 percent — said they have not started work on the project.
Despite the prospect of year 2000 problems, a looming millennium and the memory of chaotic 1998, no one expects the sky to fall just yet. In general, processors seem upbeat about the new year.
``We see tremendous opportunity in 1999,'' said Mike Hagen, vice president of operations for Pinnacle Plastic Products, a blow molder based in Bowling Green, Ohio. ``Resin is readily available. With low current interest rates, we can add capital projects, as requested by our customers, without the normal scrambling to find a good return on investment.''
The unscientific survey was faxed to 1,383 processors in the United States, Canada and Mexico, and yielded a 21.6 percent response rate. Processors were chosen from Plastics News' rankings of injection and blow molders; film and sheet makers; pipe, profile and tubing extruders; thermoformers; and rotomolders.