All a company needs to be successful in today's North American plastic concentrate market is the ability to be narrow, yet wide. Global, but right down the road. Value-added, yet cost-conscious.
It's enough to make a concentrates executive run for cover.
``When we started our company [in 1998], we tried to get our roots in to survive the coming storm,'' Accel Color Chief Executive Officer Dwight Morgan said at Thermoplastic Concentrates 2004, Feb. 11-13 in New Orleans. ``Little did we know we were facing a hurricane.''
That hurricane has taken the form of a shrinking customer base, higher resin prices and negative growth since 2000. As a result, the rules of the concentrates game have changed.
``In the past, even when other [plastics] sectors were hit, concentrates kept going,'' said Andrew Reynolds, research director of conference host Applied Market Information Ltd. ``But that hasn't been the case in the last three years.''
Reynolds expects concentrates markets in North America and Europe to rebound, averaging 4 percent annual growth between 2003 and 2008, but that growth won't compare to the 11 percent annual growth rate expected for Southeast Asia in that span.
Even Morgan, whose Avon, Ohio-based firm has bucked the trend and grown to include four plants, said it is unrealistic to expect the plastics market to resume its traditional growth rate of double gross domestic product or better.
``In concentrates, most of the large substitution opportunities are already exploited,'' he said.
Tom Bolger, vice president of color and additive masterbatches for market leader PolyOne Corp., pointed out that the base of small injection molders served by many North American concentrate makers is drying up, as companies fall to foreign competition or are acquired by bigger players.
Bolger also clarified that although Avon Lake, Ohio-based PolyOne has closed five color concentrate plants in recent years, its concentrate capacity actually has increased. Prior to the cutbacks, PolyOne's 12 color concentrate plants had annual capacity of 110 million pounds on 112 extrusion lines. Today, the seven remaining concentrate plants have annual capacity of 150 million pounds on 67 lines.
``Increases in technology are allowing us to do more with less,'' Bolger said. ``In a lot of cases, we've replaced older twin-screw lines with megacompounders.''
Bolger estimated current operating rates for North American concentrate makers to be around 40-55 percent, but given the market's product diversity, operating rates might only be able to go as high as 70-75 percent overall.
2003 was another tough financial year for PolyOne, as the company lost more than $250 million, even though sales grew almost 4 percent vs. 2002 to almost $2 billion. PolyOne had lost $59 million in 2002. The firm no longer is reporting sales and operating results from three business units that were put up for sale late last year. Those units had 2002 annual sales of more than $600 million.
In North America, PolyOne's color and additive concentrate sales dropped 5 percent to about $140 million in 2003, even though its sales volume in pounds was flat in that segment. In a Feb. 4 news release, PolyOne officials said this trend occurred because of a shift in product mix towards more general-purpose products.
Bolger added that when PolyOne adopted a market-focused approach three years ago, the firm ``lost sight of the fact that every aspect of the business is integral.''
``You can't rely on finance and accounting and everything else to operate in each business,'' he said. Instead, PolyOne now is going back to its traditional focus, color compounds and concentrates, PVC compounds and engineered materials.
Moving forward, industry consultant John Jones said the color market will be ``more competitive than ever,'' with the smallest and largest companies competing for many of the same accounts.
``It doesn't take a lot of equipment to start making concentrates,'' said Jones, a former AMI executive who earlier this year joined Forrestal Consultants International of Princeton, N.J. ``You need a good selling force and technical expertise.''
But Accel's Morgan countered that it might be more difficult for concentrate start-ups to make a go of it than it was in prior years.
``There was a time when guys could start compounding businesses on a shoestring in their garages, ramp up and become millionaires,'' he said. ``But it takes more capital now and with lower growth rates it's harder to reach positive cash flow.''
According to Morgan, that was the case with Polytech Color & Compounding, the Ontario, Calif.-based business that Accel acquired in December. Polytech founder Brian Cochran ``ran out of adequate capital'' three years after starting the company, Morgan said, leading to the sale to Accel.
Black concentrates will show the highest percentage growth over the next several years, Jones said, while white concentrates still will be heavily impacted by the growth of imported shopping bags. White materials still will be able to find growth in caps, closures, liners and nonfood packaging, he added.
Morgan and Reynolds each argued that heightened attention to the needs of the individual consumer will be vital for success in the concentrates market.
``Branding is driving market changes,'' said Reynolds. ``You have to understand the difference between the buyer of a 20-ounce beverage bottle and the buyer of a 2-liter. The buyer of the 20-ounce will be younger and on the move, while the buyer of the 2-liter more often is doing family shopping and has a totally different set of values.''
Morgan cited the impact of the ``new-age consumer,'' a wealthier customer with a short attention span, worldly tastes and a need for instant gratification.
``Wal-Mart isn't the villain, it's the result of the new-age consumer,'' he said. ``The same goes for companies like Sherwin-Williams, Dell Computer and Starbucks.''
