Use your imagination
As traditional markets grow more challenging, it's only natural for compounders to cast their nets in different directions.
Winona-based RTP answered that challenge by venturing into commercial nylon and polycarbonate sheet production last year. The firm installed its third sheet line earlier this year, according to marketing manager Joe Arras.
At Ferco Color in Ontario, Calif., diversifying meant launching liquid color production last year. And color concentrates maker Ampacet Corp. of Tarrytown, N.Y., is aiming for both quality and quantity. In March, the firm started an ongoing schedule of introducing four new product grades per month. Previously, an entire year with six new grades would have been a good year, said senior director of business development Frank Iannotti.
But the dream compounding-sales assignment of the year may have taken place in Fairlawn, Ohio, where top-five compounder A. Schulman Inc. launched a partnership to design a new golf cart with injection molder Thomson Plastics of Thomson, Ga., and Club Car Inc., an Augusta, Ga.-based golf cart maker.
Augusta, of course, also is the home of the Augusta National Golf Club, which hosts the prestigious Masters Tournament every year.
Schulman will supply 80 percent of the plastic on the new design, including compounds used in trims, canopies, bag holders and battery containers. In all, six different Schulman products will be used.
``This was a clean-sheet program, where we worked with them to redesign the golf cart from the ground up,'' Schulman President and Chief Executive Officer Terry Haines said.
``This is a nice example of an application where we can supply several different materials.''
Other new Schulman products include Aquasol-brand polyvinyl alcohol being used in biodegradable detergent pouches, and ``cool concentrates'' that reduce the surface temperature of plastic lumber on outdoor surfaces.
A Chinese backlash?
The presence of China as a low-priced supplier of finished plastic parts and myriad other products is a fact of life for compounders, with many of the major firms opening plants there or at least planning to.
PolyOne will open its third plant there, in Shinzhen, in the first quarter of 2005. The plant will make products for color, engineered materials and formulating businesses. Schulman's first Chinese plant opened this month as well.
But at the same time, a number of compounders mentioned a potential move in the other direction.
``The China effect is still there, but some work in China has come back to Mexico,'' LNP's Crew said. ``People want speed, but they can't always get that in developing countries.
``A lot of tools have shifted to Asia in the last two or three years,'' he added. ``But some of it is coming back. Some customers don't like the lead times and logistics in Asia.''
Ferco President Jennifer Thaw said her firm has witnessed a number of molds coming back from China because of product pirating.
``Some people are moving molds from China to Mexico because they're concerned about protecting their markets,'' Thaw said.
And the timing demands of the fickle packaging market also could help to keep more of that business in North America than originally was believed.
``Some business has moved to Asia, but there's been a slow shift to more local manufacturing as companies are changing the looks of their products more often, Clariant's Sirois said.
``Packaging will stay in the region and not move to China,'' Reynolds said. ``Innovation in packaging has value at the brand level.''
John Jones, an industry consultant with Forrestal Consultants International in Princeton, N.J., described color as ``a big marketing tool that's increasing faster in the U.S. than in other parts of the world.''
``In the U.S., color is more aesthetics than function,'' Jones said.
Sirois said he's also a bit surprised by North America's ability to keep injection molding business.
``We didn't expect injection molding to hold up as much as it has,'' he said. ``We thought it would move more offshore. But that just shows how large the industry is, that we'd hear so much about it leaving and there's still a lot here.''
M&A might be back after all
A return to the acquisition sprees of the 1990s might not be around the bend, but mergers and acquisitions activity is expected to pick up, particularly among small to midsize compounding firms.
``We're in a boomlet,'' said Bill Ridenour, president of Polymer Transaction Advisors Inc. in Newbury, Ohio. ``The trend of specializing to preserve margins should increase the pace of M&A activity in compounding, particularly in concentrates, that are less price-sensitive.''
Such activity in the past year has seen the big boys of the industry remain on the sidelines. Ferco's Thaw said she's been approached six or seven times by large compounders in the past three years with offers to buy her company, but none of those offers have come in the past six months.
``It's a matter of digesting what you've got,'' Ampacet's Iannotti said. ``[Large firms] might start to invest again when the smoke clears in 2005 and 2006.''
Recent North American deals include:
* Lucent Polymers of Evansville, Ind., buying the assets of Prime Source Polymers, a Warren, Mich.-based firm that went out of business late last year.
* Private equity firm Metapoint Partners LP of Peabody, Mass., buying Nylon Corp. of America (Nycoa) in Manchester, N.H.
* Leonard and Emili Slott buying Vi-Chem Corp. of Grand Rapids, Mich., from Nicholas Plastics Inc. Leonard Slott had managed the Vi-Chem business for several years.
* Accel Color Corp. of Avon, Ohio, buying Polytech Color & Compounding of Ontario, Calif. The purchase was Accel's second in four years. It now operates five plants.
Even so, buyers aren't blindly rushing in. Sellers also might be discouraged by low valuation multiples.
``A lot of people are rethinking what's the optimum organization that they need,'' AMI's Reynolds said. ``They're realizing that it takes a lot of hard work to make M&A effective. You have to match an acquisition to your values. There's a lot more analysis of what they want to acquire and what they want to pay.''
``If you want to sell today, you're not going to get top dollar,'' Manuck added. ``The market's not right for that again.''
Goals to meet before we sleep
Self-improvement continues to keep compounders awake at night. PolyOne's Mitchell said his firm is trying to improve its speed.
``Our color matches now average five days and we'd like to improve that to 24 hours, as well as improve our ability to do small lots of 50-500 pounds,'' he said. ``We can do this by using compounding technology to provide a formulation rather than by experimenting.''
PolyOne also recently has reduced its cent-per-pound cost to make its products.
``It takes less people per pound to make it and we're getting more throughput on newer equipment,'' Mitchell said.
At Teknor Apex, the firm is hard at work to offer better stability in medical compounds for profile extrusion, said Vice President Bert Lederer. While at LNP, Crew said his firm is trying to cut its changeover times in half.
``In the custom compounding business, changeover time is the Holy Grail,'' Crew said.
Eyes on the prize
Things may be looking better, but no one's suggesting that the compounder's lot is an easy one. Schulman's Haines said his firm ``has had to walk away from a lot of business'' in commodity polypropylene, even in automotive and housewares, because of margin conditions. That took place even though Schulman set a sales record of $1.1 billion in fiscal 2003.
``There's a lot of capacity where we couldn't make money,'' Haines said.
Haines might be comforted by the words of Techmer's Manuck, who's tried to keep things in perspective over a lengthy compounding career.
``We'd all like to have a new whiz-bang, sci-fi product with a 90 percent profit margin, but that's not reality,'' Manuck said. ``You need patience to look for incremental improvements in your old products while you're introducing new products.
``It takes a while.''