U.S. plastics processing shipments will continue to grow during the next three years, according to a new study by CIT Group Inc. Following a 4 percent increase in real shipments in 1999, CIT predicts 4.5 percent growth this year, 3 percent next year, and 3.5 percent in 2002. By that year, real shipments should hit a record $144.8 billion, predicts CIT's 10th Annual Plastics Industry Outlook. When inflation is included, shipments will exceed $150 billion in 2002.
CIT makes the major assumption that the United States will avoid a recession during the next three years. Although it has been more than nine years since the U.S. economy last experienced a decline, federal monetary policy is not causing imbalances in the economy, which precipitate recession. Although inflation has picked up slightly, "the near-term risk of recession has nearly completely evaporated," according to the report.
A major issue facing processors is high resin prices, which have been rising for more than a year. As of April, thermoplastic resins were 27 percent costlier than the low point in December 1998. High resin prices are troubling because they push up finished product prices. This can lead to reduced demand for finished products.
Polymers typically represent 15-20 percent of a processor's costs, according to the CIT study. Most of the price hike reflects higher oil costs, but high capacity utilization at resin production plants is also buoying prices.
CIT predicts world oil prices, now about $30 a barrel, have peaked. They might drop a bit but at the worst could remain near current levels for a year. Capacity utilization at resin plants, however, could continue to put upward pressure on resin prices if they continue to run at high rates.
Environmental regulations are less a concern than resin prices but still significant, the study states. Many processors are compelled to reduce emissions, which will draw funds away from expansion and modernization. More landfill restrictions could cause switches from plastic packaging back to paper or glass. The phthalates and PVC controversy is still being debated.
CIT said its other major concern for processors is the productivity gap between plastics processing and manufacturing as a whole. In the 1990s processor productivity grew only 2.3 percent a year compared with 4.1 percent for manufacturing. CIT believes there is insufficient automation in processing because of cheap labor. Using more robotics and computers is CIT's solution.
The U.S. continues to have a positive trade balance in processed plastic products. Last year, U.S. processors exported $10.3 billion worth of goods, $1.2 billion more than the country imported. CIT predicts the trade surplus will rise to more than $2.1 billion in 2002.
The North American Free Trade Agreement has been a major force in exports. Since NAFTA came into effect in 1994, processing exports to Mexico have grown 200 percent. Canada and Mexico account for nearly 50 percent of processing exports.
U.S. imports from the two countries have been rising as well, but the United States enjoys a trade surplus with them. Imports from China, meanwhile, hover at about 19 percent of total imports, although they have been growing in concert with total imports.
The U.S. plastics machinery market is still strong but not as big as its 1995 record high of $3.61 billion. It rose about 1.5 percent last year to $3.01 billion, and CIT predicts real consumption will grow this year by 4 percent. Next year and 2002 should see increases of 2.9 percent and 3 percent, respectively. High processor capacity utilization presages more machinery purchases, CIT explained.
Imports accounted for more than half of machinery purchases.
