The plastics industry faces a lot of challenges: the economy, natural gas prices, environmental issues, worker safety and workforce development. Plastics News sat down with Society of the Plastics Industry Inc. President Don Duncan in his Washington office recently to talk about the climate the industry is operating in. Here's an edited transcript.
Q: Let's start with the economy. Hoop Roche [chairman and chief executive officer of Erie Plastics Corp. in Corry, Pa.] wrote an op-ed piece in our newspaper where he said he considers small and medium manufacturing in crisis. He put a number of factors on that: weak manufacturing economy, world trade, particularly China, price pressures from customers. He said the government needs to develop solutions to help manufacturers. Do you agree with that and what role do you see for SPI as a Washington trade group in that?
A: The key phrase here is that it has got to be a joint effort. I don't think you can expect industry to solve these problems completely by themselves, nor do I think you can expect the government to provide all the solutions. We at SPI feel that we have to be globally competitive. We have to do the kind of things that allow us to be globally competitive. When there are structural things that don't allow for the proverbial level playing field, and when those structural things are the prerogative of the federal government, then I think we have every right to ask the federal government to assist in getting the playing field level again.
One of those areas I think deals with currency, particularly if you look at the balance of trade problems with China and the tremendous proliferation of trade between China and the United States. One of the issues is whether or not the Chinese currency is properly valued. I think that's fair game for the government to deal with. I don't think we as an industry can do much other than complain about it or whine about it. But I think somebody in the government needs to say, ``Is it right? What should it be?''
Q: What do you see as possible solutions?
A: I think there are different answers for different segments. If you look at the steel industry putting these tariffs up, it's hard to believe that's a solution. If you take the population as a whole, the population is equally split on whether that's a good idea or a bad idea.
If I had to identify just a single concept that I believe we as a manufacturing industry and we in the plastic industry should look to [in order] to maintain the strength of our industry, it would be that area of technology and innovation. Everything else then becomes a specific here or a specific there.
I think the people in California feel the perfect storm has already been over them for some time. If you believe that and if you say there's a potential for that perfect storm across the country, you have to be concerned.
Capacity utilization for the plastics industry is running at 72-74 percent. That's kind of a composite number but it's not a bad number to work with. The historic, what I would call ''equilibrium'' levels of capacity utilization, in our industry are around 84-85 percent. If you look at the processing community, what you usually find is as the capacity utilization gets above 85 percent, that triggers the capital expenditures to bring in new equipment and new capacity and drops utilization down a little bit.
So here we are, 10 or 12 percentage points below the normal desirable equilibrium level. That's not a bad band to be in, 70-85 percent. If we were down in the 60s or certainly in the 50s, that would be catastrophic. Under normal conditions you would expect us to rebound out of an economic situation like we're in growing at faster than normal growth rates. If our historic trend line has been 4-5 percent and you come, under traditional post-business cycle conditions, you come out at 7 or 8 percent, it only takes one or two years to get back up to what you would consider acceptable capacity utilization. If we're only going to come out at 1.5-2 percent, it takes a lot longer to get back up to those conditions.
Here's what I'm more concerned about: If you superimpose over the U.S. plastics economy a growth rate of say 2 percent, [and] that's going to be the new growth rate coming up, slow, steady growth, I think a lot of people would be happy to take that right now. That's the demand. If you couple this with some arbitrary assumption about how much of that growth will be captured by foreign producers, that reduces the growth that is available for the domestic producers. That is cause for concern. By producers I meant processors. I don't have a good feel yet for what the impact of foreign-produced plastic items, that comes from plastics processors, what that looks like yet.
Q: Let's talk about safety. You come out of a strong safety culture at DuPont Co. Precise Technology Inc. is implementing the STOP program [a DuPont developed industrial safety program] in their plants. Their injury and illness rate is less than half the industry average. If you really focus on it, you can drive the number down. Why is it that not everybody seems to take safety as seriously?
A: I don't know that I either can or want to answer that question. Let me do a Donald Rumsfeld on you. What you meant to ask is ``Why are people who are successful, successful?'' I know something about the people who are successful. The answer to your question is, it starts at the top.
When I was growing up in this environment, I still got it stitched across the inside of my eyeballs [that] safety is a condition of employment.
Q: Do you think you'll get an energy policy that will be beneficial to the plastics industry?
A: I have to answer that by saying I hope so. It's such a significant part of our industry. I'm certainly encouraged by what I see the industry doing as a result of this unbelievable price spiking of natural gas this year. All the major players have been helping the administration and Congress understand what the implications are for our industry. You know the rest of the world isn't seeing this kind of spike, and it comes down to where we started off this discussion, [on] our overall competitiveness. Historically one of the most competitive segments of our industry has been resin producers. Yet all of that technology and productivity that made them competitive can be wiped out by natural gas prices. If that gets wiped out, their ability to be competitive in the world market, or their ability to protect the home market, can be severely compromised.
Q: At the Global Plastics Environment Conference in Detroit in February, you spoke about society's increasing ability to detect chemicals in our blood, down to the parts per trillion, and how that was going to scare people, particularly if we don't know the significance of what that means for our health. How do you see those chemical health issues impacting material selection?
A: The way I see it impacting our industry and material selection is producers of plastics products are going to have a bigger job of making sure that enough technical information about the safety of their products is available to the public in a way they can understand.
One thing I've learned from the [perfluorooctanoic acid] debate is the ability to translate something from the traditional toxicological studies and screening studies is very difficult. When you have a slam dunk thing, no question everything turns brown and shrivels up, you don't need a lot of interpretation. But the fact that you find something in parts per trillion in an organism [and] that is very difficult to extrapolate to humans, how do you interpret that? It becomes even more confounding when you have 50 years of experience with no known problems.
As we go to the future there is going to have to be more partnering with more groups like [the Environmental Protection Agency and the Food and Drug Administration], groups that have the primary responsibility for answering these questions. We have a responsibility for making sure that the appropriate data is collected and analyzed. The only thing that the people will honestly believe is if there's a body out there honestly charged with looking out for their well-being.
Q: Are you surprised that the plastic bag industry is getting targeted in California? The state is considering a tax on much disposable packaging. At the same time, that industry is complaining a lot about how it's getting beat by foreign imports.
A: It's not just plastic bags, its paper and cups. It's pretty easy to be jaundiced about that situation out there, in terms of what is the real driving force. Is this a $200 million California budget enhancement program? Or is it a real, honest-to-goodness concern about reducing litter? ... We have to be careful that we don't just write off California as being California. We think this is very serious. [Editor's note: After the interview, the legislation was held up in committee.]
Q: You had some budget cuts last year at SPI. How is the organization's financial health now?
A: Very good.
Q: Even in a down economy?
A: The operative word is right now. We do not have the privilege of deficit spending. We run a balanced budget. We spend what we take in. We don't deplete our reserves. We're at equilibrium now. ... We're a level that's lower right now than where we were three years ago. I'll be blunt with you - it's about 30 percent lower than it was three years ago.
Q: How do you see SPI's work-force programs developing and changing?
A: As important as it has been, [we're] more focused [and] better integrated now. I think in the beginning we saw a bigger role for the federal government. Now we see that this program will be run at the state and local level. We've reorganized ourselves along those lines. It's now being run out of our southern regional office, which gives it more of a regional flavor. If anything we're more active but the focus is more toward the state. That's something we've learned.
I think another part of work-force development is the Epcot thing. [SPI is preparing to launch an exhibit at Disney's Epcot Center in Florida.] We have two major objectives with Epcot. One is to create a more favorable impression on plastics as a whole. The other is to make plastics more attractive to people as a career choice, particularly for younger people. That's kind of a way to talk about work-force development.
It's one of the reasons we are there. Disney is so good at this. They make an indelible impression. I'm in the plastics business because I had a chemistry professor who made it the most exciting course I had in school.