CHICAGO - The men and women charged with helping companies lay out their future plans are in disarray.
They agree on little, except that an economic recovery is coming this year - sometime, possibly, probably. Their forecasts run the gamut, from sometime late in the first quarter to the end of the year, while a few pessimists believe business will not bounce back until 2003.
When the recovery arrives, they expect it to bring pent-up consumer demand just waiting for permission to spend again - a demand that will drive plastics toward a new production peak.
``We believe we are at the bottom of the cycle in the plastics industry,'' said Robert J. Bauman, vice president of Nexant Inc./Chem Systems, a White Plains, N.Y.-based research group. Bauman spoke during the Executive Enterprise Institute's Plastics Industry Mergers & Acquisitions Forum, held Dec. 6 -7 in Chicago.
``In fact, our forecast was that the first half of 2001 would be the bottom of the cycle, and the second half, we showed recovery. That was, in fact, what was happening. We really were poised for recovery in 2001. The problem is the events of Sept. 11, and it all goes to the same premise: This is an adventure in business.''
The events of Sept. 11 will delay the recovery by at least six months, he said, but once it appears, the polymers business probably will be on a two-year upswing through 2003 and into 2004.
The plastics business began its fallout about a year before the terrorist attacks, and had suffered along with the rest of the global economy through a tough 2001. The United States officially entered a recession in the spring of 2001.
Through the summer a steadily increasing number of companies shut down plants and cut payroll. Those numbers only grew in the wake of the attacks. For 2001, the U.S. corporate employment base dropped by an estimated 1.3 million jobs.
Capital investments bottomed out while purchasing orders hit their lowest levels since 1991, said Jeff Kolke, industry manager for plastics and chemicals for GE Capital Commercial Finance in Danbury, Conn.
The real recovery will come, Bauman said, when firms are ready to restock their inventories. Right now, inventory levels are about 40 percent lower than normal. When consumers are ready to buy again, and original equipment manufacturers bring their production back up to normal levels, business will take off.
``There is a strong, pent-up demand in America,'' he said. ``Americans want to spend. They're just sitting back right now. They're waiting, they're watching. Once they get the consumer confidence level back up, we really believe there will be some [demand] out there.''
Bauman expects more companies to follow automakers' examples to boost purchasing, by presenting deals the average buyer cannot pass up for big-ticket items.
``Look at the car industry,'' he said. ``Sales were down until October. Offer consumers a no-interest loan, and people will pick themselves up away from the television and go out.''
Furniture companies, appliance makers and electronics specialists probably will follow the same route.
Bauman expects double-digit-percentage increases in domestic polymer sales once the recovery hits, as processors rush to rebuild their inventories. That sales growth could hit 15 percent in the early stages, and settle in at 8-10 percent through 2003.
At the same time, the surge in consumer confidence may receive a boost from government spending or success in Afghanistan, but Kolke noted it will take longer for equipment makers to see a real return to business as usual.
In with the used
Companies eager to boost the bottom line or cut costs are buying and selling refurbished machines, he said. His company was involved with the closure of one California operation that had machinery appraised at $3.2 million. The actual bids totaled only $1.4 million.
``It will take some time for capital investments to improve,'' he said. ``They are going to want to wait for the economy to come back before they buy new equipment.''
Bauman anticipates materials suppliers will seek up to four price increases through the recovery, although only half will be permanent as resin producers push ever harder for guaranteed sales to improve capacity levels, even if that means taking less money for their products.
``Market share is the biggest driver in this business, not profitability,'' he said. ``We have seen companies do really stupid things to protect that market share. They will sell below cost and borrow money to fund it to maintain market share.''
But as the economy recovers, Bauman predicted, the entire plastics industry, from raw materials suppliers to processors, will ramp up production. All of that output easily could lead to an oversupply in inventory that will suffer when the next inevitable economic slide hits, potentially by 2005.
The result, he said, will be shorter growth peaks and deeper business troughs, and more businesses at risk during those downward cycles.
``Companies can now expand with greater efficiency, lower costs and greater capacity and there are more and more companies doing it,'' he said. ``Each cycle drives on more capacity. Companies need to position themselves for survival during the down times.''