The plastics industry, languishing in recession, could be about to turn up - just keep your eyes on the turning of the screw.
As 2002 unfolds, screw and barrel sales will be a leading indicator of capital spending trends, according to officials of that sector. As of January, the future remained cloudy. Screws and barrels - like other spare parts and new plastics machinery - felt the pain last year, as processors slashed spending.
``All of last year showed a general decline, quarter by quarter. I think we were all surprised at the depth of how things slowed down, as quickly as they slowed down,'' said Thomas Doland, president of New Castle Industries Inc.
Officials from 12 screw and barrel makers interviewed for this story agreed that requests for quotes picked up as the year ended, indicating business may have bottomed out. Processors tend to fix up existing machines as they come out of a recession.
At General Plastex Inc. in Barberton, Ohio, David Mantyla thumbed through a stack of quotes, some several months old.
``People are saying they've gotten their money [approved] and we're probably going to see orders. I think we'll be on the front edge of [recovery] because of what we do,'' said Mantyla, vice president. ``Based on past history, maintaining of the machines is going to take hold ahead of purchasing new machines, and if that's the case, then part of that maintenance will be the screws and barrels.''
Right now, the enemy is the same whether you're trying to sell a $5,000 screw or a $350,000 injection molding machine: a glut of machinery sitting idle at U.S. plastics factories. Processors simply shut down a machine with a worn-out screw and barrel and move the work to another machine, or they cannibalize parts. Also, screws are tougher than ever before, so they take longer to wear out.
``If it turns around, we believe it's going to take awhile,'' said Peter H. Jones, president of Wexco Corp., a bimetallic barrel maker in Lynchburg, Va.
In a recovery, resin demand will increase quickly. But while resin is the lifeblood of the plastics industry, screws and barrels are like its pumping heart. With few exceptions, every resin pellet is conveyed by a screw on the way to becoming an end product. A worn-out screw can't make good parts.
Screw makers were hammered during the past 11/2 years by slumping demand from both new-machinery manufacturers and aftermarket sales to processors - a ``perfect storm'' slam that caught people off-guard.
Several executives called the sharp, broad-based downturn the worst in memory.
``None of us saw it coming. It surprised us how much it went down,'' said industry veteran Gunther Hoyt, vice president of sales and marketing at Xaloy Inc. in Pulaski, Va.
Paul T. Colby of Spirex Corp. said that in previous slowdowns, processors cut back on buying new machines, but they kept spending on maintenance.
``In the early '80s recession, we were growing 15-20 percent a year because people were repairing their existing machinery,'' said Colby, president of Spirex in Youngstown, Ohio. ``It wasn't as easy to ride this one out as it was some of the others.''
These days, the capital spending landscape is much harsher, as tight-fisted companies watch every dollar.
``A guy has to make a case that he has to make a repair on a machine because none of the other machines can make that part,'' said Fred Scocchera, vice president of sales and marketing at New Castle Industries. The New Castle, Pa., company, traditionally known for extrusion screws, is responding to the downturn by moving more aggressively into injection molding, rubber and food processing.
Machine time open ... and there's plenty of it
Everybody agrees on the reason behind the slowdown: low capacity utilization rates. For the past year, U.S. plastics and rubber machinery utilization has been stuck in the mid-70s. That means that, on average, one of every four machines is not running. Some plants are running at an even lower level, according to screw and barrel executives.
``There are quite a few plants with half the machines not running. That's very dramatic,'' Hoyt said.
For the past 35 years, the average for plastics was 85 percent. In 1995, capacity utilization roared to 91.4 percent, sparking a furious period of equipment buying.
Today, some plastics factories resemble stolen-car chop shops as processors strip parts from idle machines to keep other machines running.
``In some cases, it's so bad that they've got 10 machines and they're running five of them,'' Mantyla said. ``Then one of the five they have starts to cause them problems. They'll say, `Well, we're not buying a screw and barrel for it; we're just going to move the mold over to machine No. 6 that is working.' ''
Obviously, that can't go on forever. Statistics from the Federal Reserve appeared to show a nascent turnaround as 2001 came to an end. After four straight months of decline, capacity utilization edged up to 76.6 percent in December for plastics and rubber processing. In nondurable goods, printing and publishing was the only other sector to increase in December. All others fell.
But the rate still is too low to spark broad capital spending, industry officials said. And one month is not clear evidence of a turnaround.
The other key statistic comes from the Society of the Plastics Industry Inc.'s Committee on Equipment Statistics. Screws and barrels both have fallen, in step-down fashion, from the third quarter of 2000 right through the third quarter of 2001.
Barrel shipments may have hit bottom in the third quarter, dropping just 3 percent from the second quarter. Screws fell by 19 percent, Washington-based SPI said. SPI expects to release fourth-quarter numbers in late February.
Industry observers - including officials of machinery manufacturers - will watch the SPI screw and barrel numbers for early signs of capital spending.
Plastics analyst Bill Wood thinks sales of new machinery could follow three to six months after a solid pickup in sales of components, such as screws. ``The logjam analogy works. Two or three or four logs have to break free, and then all of a sudden there's activity in the market. And those logs will probably be the components and spare parts,'' said Wood, who runs Mountaintop Economics & Research Inc. in Colrain, Mass.
`Visibility' is cloudy
Doland at New Castle thinks the fourth quarter will show a small decline.
``I think things tended to bottom in the fourth quarter,'' he said during an interview at the company. ``I think we'll see a slow, moderate increase in business.''
Hoyt of Xaloy said injection barrels, which ``really went down hard'' last year, seem to be improving, as are barrels for extrusion.
``It looks like screws are pretty flat. Barrels are getting better,'' he said.
Conventional wisdom says that capital spending on injection presses is the first area to go down, but injection also recovers first. Hoyt said he thinks that will happen in 2002, but slowly.
Jeffrey Kuhman, president of Glycon Corp., said choppy business levels make forecasting difficult.
``There's just been no consistency,'' he said from Tecumseh, Mich. ``There's nothing I can point to ... to show a recovery.''
Screw and barrel makers disagree on the impact of the Sept. 11 terrorist attacks. Colby said Spirex's business fell through March 2001, then it leveled off.
``Everything was going relatively well until Sept. 11. That put things to a grinding halt for about a month. Now it seems to have picked back up again.''
Ernie Z. Thury, president of 4D Engineering Co. in Gardena, Calif., said his business actually ``was kind-of limping along'' for a few months, but then picked up Sept. 11.
Thury pointed out that high-level molders have continued to buy new replacement screws during the recession. But other U.S. molders that compete against cheap imports from China and other countries ``are hurting big time right now.''
He is optimistic about 2002. ``You're not justified buying a new machine, but you are justified in buying a screw and barrel,'' Thury said.
Louis Berger, vice president of Inductametals Corp. of Chicago, called Sept. 11 ``a real wake-up call'' for business leaders: ``They're finally looking ahead instead of wondering what happened yesterday and today.''
One Inductametals customer is running just 30 of its 52 injection presses
``He is now going to the other machines and he's measuring the screws and barrels. ... When business picks up, he wants to be able to just turn those machines on,'' Berger said.
Sales to processors have held up well at Westland Corp. in Wichita, Kan., but President Dave Larson wants to wait a month before declaring a recovery.
``Once it stabilizes out, then even if the economy is bad, people still have to mold and produce parts,'' he said. ``Now I think we're starting to see a return to some of that normal business.''
Randy Conner, president of Hayward, Wis.-based Concor Tool & Machine Inc., said some customers are sending screws and barrels in for rebuilding, but ``people are still waiting to see how things turn out.'' Concor's business has held up because it tackles challenging applications such as metal injection molding and liquid color change, he said.
James Frankland, in charge of replacement screws for Milacron Inc. in Cincinnati, reports a ``decent uptick'' in quotes. ``We've definitely got a lot of stuff that seems like it might break through,'' he said.
Sales of replacement screws and barrels and rebuilt extruders have been flat at Davis-Standard Corp., although Paul Banks, business manager for aftermarket products, is not sure if the reason is a slow market or fierce price competition.
``The fourth quarter picked up to a certain extent. And it's carried over to the first quarter of this year,'' he added.
Banks said Davis-Standard's technical center in Pawcatuck, Conn., has been busy as companies try out new screw designs.
Spare parts, including screws and barrels, picked up in the fourth quarter at Van Dorn Demag Corp., according to Al Tolliver, director of Van Dorn's Molder Action Network in Strongsville, Ohio.
``If we get a good 90 days' increase in parts activity, it is a good indication that machine utilization is up. I would like to see another month or so of increased activity,'' he said.
Even in normal economic times, executives say, predicting screw and barrel sales isn't easy.
``We call it the SWAG approach: the scientific wild-ass guess,'' Doland said.
Pent-up demand could even cause a surge of orders, some executives said. Because the fast trip down surprised everybody, there could be a surprise bounce back up.
``I wouldn't rule it out,'' Hoyt said. ``But my God, after 2001, I wouldn't rule anything out.''