Plastics processors in the United States and Canada increasingly find that they have a choice to make: Do they stick with local resin makers, or do they source their material from outside the region?
``We still buy a majority of our resin from domestic suppliers, but in three to five years it could be the other way around,'' said Tom Rouleau, corporate strategic purchasing manager for Morton Custom Plastics LLC, an injection molder and thermoformer based in Harrisburg, N.C.
``All of the [original equipment manufacturers] we deal with need cost reduction, so they'll entertain engineering changes using similar material,'' Rouleau added.
But imports growing
by leaps and pounds
``The amount of material coming in from Asia is increasing every year,'' said Alan Woll, chief executive officer of resin distributor Network Polymers Inc. in Akron, Ohio.
``Every major Asian producer of ABS says, `I want to sell X amount of my production in the U.S. and I want to increase that number by 10-30 percent every year.' ''
Government data backs up Woll's claim, showing that ABS imports into the United States and Canada grew by more than 20 percent in 2002. Among major resins, the ABS market also has the highest proportion of foreign material, with roughly 22 percent of all the ABS processed in the United States and Canada in 2002 originating elsewhere.
A review of government and industry data shows that nylon and polycarbonate also have high concentrations of foreign material - 13 percent for nylon and 9 percent for PC. Foreign nylon volume grew 32 percent between 2001 and 2002, while foreign PC volume climbed 25 percent.
Imported polystyrene at 6 percent and PET bottle resin at about 7 percent also hold decent shares of U.S./Canadian consumption.
Imported PET volume jumped more than 130 million pounds - a 77 percent rise - between 2001 and 2002. But demand in that sector can be fickle, said Todd Murray, strategic planning manager for PET maker KoSa of Houston.
The import market ``is growing, but the growth rate's not consistent,'' Murray said. ``Sometimes there's a discount, but sometimes there's not.''
And although imported PVC volume grew by more than 100 million pounds in 2001-02, such material still accounts for just more than 1 percent of total consumption.
And the price is
Price is typically a factor, with a number of sources indicating that engineering resin brought in from Asia typically can sell at discounts of 5-20 percent from domestic resin.
Foreign resin makers often are able to beat their domestic counterparts on price because of government subsidies, newer and more efficient plants, and lower costs for labor, utilities and environmental compliance, Woll said.
But some suppliers will argue that price isn't that great a factor in material selection anymore.
The days of selling solely on price ``passed many years ago,'' said Kevin Chase, owner of resin distributor Chase Plastics in Clarkston, Mich. ``Now the delta difference is minor. The globalization of the majors changed that,'' he said
``Foreign suppliers originally used lower prices to gain a foothold, but that's balanced out,'' Chase said. His firm generates about one-third of its sales and volume from overseas material.
Drew Phillips, Houston branch manager for Los Angeles-based importer Calsak Corp., agreed with Chase, saying that although resin makers from some countries still can be ``very aggressive'' on price, their reliability is sometimes questionable.
Aggressive importers ``can be here today and gone tomorrow,'' Phillips said.
But you'd have a hard time convincing executives at Morton Custom Plastics that pricing is not a major factor. The firm now is sourcing an engineering resin from a South Korean supplier for 40 percent less than what a North American supplier was asking for a similar material, said MCP President and Chief Operating Officer Haskell Knight.
Morton uses the material to mold parts for a major North American industrial company. For years, the customer had specified that a specific resin from a North American supplier be used, but that's no longer the case, he said.
As a result, Morton will buy 80 percent less material from the North American supplier this year.
``I don't understand it,'' Knight said. ``Everybody buys [plastic feedstocks] natural gas and benzene globally, so I don't know why there's such a difference [in price].
``It's almost like [North American suppliers] are trying to recoup the cost of lost opportunities,'' he added. ``They're moving toward being boutique, high-end suppliers.''
The world outside
Increased globalization also is exposing North American processors to resin suppliers they have not been in contact with historically.
``A customer will have a tool cut in Taiwan and come into contact with resin suppliers,'' Calsak's Phillips said. ``That in turn will spur more business in resin from that region.
``There used to be the connotation of `That's a cheap import,' but now we have people coming to us.''
Network's Woll shared an anecdote that could serve as a template for many industries and regions.
``Four years ago, we had a customer move half of his business to China,'' Woll said. ``He found he could supply material for 20 percent less, build tools and injection molding plants cheaper, and buy much less expensive machines. He saved two-thirds on overall cost and probably will eventually move all of his business over there.''
Woll's firm currently does about 15 percent of its business in foreign material, but if current trends hold up, it could be doing as much as 25 percent in that market in the next five years.
And while old resin-buying habits may be hard to break, Chase said it is necessary to do so to compete in today's market.
``Guys that are buying only American material are living in a box,'' he said. ``You have to look at what you can do globally and have a mind-set where there are no boundaries. You have to partner with your customers to get the best product you can in order to compete.''
From here to there
Concerns about reliability of supply because of shipping halfway around the world don't seem to intimidate potential customers anymore.
``If there's ever a problem, it's usually only with the first order, if you're ordering something specific like a pink PC/ABS cell-phone color,'' said Chase, whose roster of Asian suppliers includes LG Chemical Ltd., SK Chemicals Co. Ltd., Mitsui Plastics Inc. and Idemitsu Petrochemical Co. Ltd. ``Starting with the second order, it usually only takes six to eight weeks to get material.''
But shipping rates and other expenses still play a vital role at Calsak, which imports material for such Asian producers as Chi Mei Corp., Teijin Ltd., Sumitomo Corp. and Denka Inc.
``When you factor in ocean freight and recent fuel surcharges - and you've already got razor-thin margins - something like [shipping costs] can make the difference in getting the business or not getting the business,'' Calsak's Phillips said.
To date, polyolefin resins have been largely unaffected by the import market. Imports made up less than 1 percent of total consumption last year of polypropylene and high density, low density and linear low density polyethylene.
But some believe that could change, particularly in light of the massive amounts of polyolefin capacity set to come on-stream in the Middle East in the next several years as Saudi Arabia and other countries look to maximize supplies of low-priced natural gas.
With U.S. per-unit prices of natural gas bouncing around $6, prices in the Middle East remain between 75 cents and $1. That advantage - combined with rumors of Saudi Basic Industries Corp. planning to buy a North American polyolefins maker - could put Saudi PE on the horizon, say some industry watchers. At the very least, they say, it could slow the flow of North American exports into Europe and other parts of the world.
Last year, exports accounted for about 14 percent of total U.S/Canadian PE and PP sales and captive use, according to the American Plastics Council in Arlington, Va.
Industry consultant Robert Bauman of Nexant Inc. in White Plains, N.Y., doesn't expect to see a flood of Middle Eastern PE arriving in North America any time soon.
``All of the existing Mideast [PE] capacity is already at its lowest feedstock cost,'' he said. ``If it's not coming in at 50 cents per unit, it's not going to come in at all.''
But Bauman added that one exception would be if Sabic acquires a North American producer and uses that infrastructure to import natural gas in bulk to terminals.
Market watchers at Chemical Market Associates Inc. in Houston ``don't see the Saudis becoming a major importer in the short-term,'' said CMAI polyolefins director Howard Rappaport.
``It could take several years,'' Rappaport said. ``There's going to be more of a proliferation of finished plastic goods coming in. The major hurdle [for Middle Eastern polyolefins] has been logistics and handling and freight costs, since there's nothing in place to handle bulk delivery. The cost difference has to be capable of absorbing those costs.''
More import volume also could materialize in PVC and PS, where customers can take material in bags, or from Japanese firms specifying that Japanese resins be used in their U.S. operations, added Bauman.
Longer-term, U.S. export business could bear the brunt of the blow, according to Rappaport. Part of the challenge will be North America's inability to compete on production of PE feedstock ethylene. Ethylene production costs in the Mideast will be $100-$150 per ton between 2002 and 2007, CMAI said, but they will be $300-$350 per ton in the United States during the same time.
``The U.S. will be able to export less because of higher natural gas costs, which are expected to be above $4 for several years,'' he said. ``With that in mind and with new Mideast capacity coming on, the opportunities for export will be diminished.''