U.S. trade association chief Don Duncan and injection molding executive Hoop Roche used fairly stark brush strokes to paint a picture of the American plastics industry for members of the international trade media Oct. 21 at K 2004 in Dusseldorf.
On the upside, Duncan, president of the Washington-based Society of the Plastics Industry Inc., said global gross domestic product should grow 4 percent in 2004 - the biggest annual spurt since 2000. North America and Asia will lead the way, but each major geographic region will contribute positively, he said.
Duncan suggested the U.S. plastics manufacturing industry will continue to grow next year, but more slowly than in 2004. He predicts U.S. plastic products manufacturing will rise 2.5 percent next year, down from the 3.4 percent increase estimated for 2004. Still, he noted, any growth is an improvement from the 0.5 percent decline last year.
Duncan also projects that U.S. plastic resin production for this year will leap 6.2 percent, sharply reversing the 1.3 percent slide in 2003. He predicts U.S. resin production will continue to grow in 2005, but at a rate closer to 2.8 percent.
Strong consumer, capital and defense spending are helping to fuel modest U.S. economic growth. But strong head winds threaten, including a record federal trade deficit, rising inflation and geopolitical concerns such as the Iraq war.
Soaring natural gas and oil prices are having the most dramatic impact. Extraordinarily high energy prices are driving up the cost of plastic raw materials to such an extent that Duncan fears they may create a long-term competitive disadvantage for U.S. plastics manufacturers. While U.S. natural gas prices may yet peak to new highs of $12 or so per million Btu, he predicts the price next year will settle between $6 and $7 - still sharply higher than the average price of $4.50 since 1999.
Duncan said U.S. oil prices will settle in the low-to-mid-$40s per barrel next year, down from the record mid-$50s prices occurring now, but also well above average prices in recent years.
He also cited concerns over a ``new, dark turn'' that has trial lawyers increasingly aligning with environmental activists on key regulatory matters that affect the plastics and chemical industries. He fears such a trend will polarize and radicalize the important debate about such issues.
Meantime, Roche, chairman and chief marketing officer of Erie Plastics Corp. in Corry, Pa., followed Duncan to the podium and provided an unblinking, molder's-eye view of the landscape.
Roche described U.S. plastics processing as ``bruised, battered, downsized ... sobered,'' while suffering through a ``jobless and profitless recovery.'' He said the U.S. government is unsympathetic and has failed to enforce or administer trade laws fairly. Additionally, the ``perfect storm'' of a classical cyclical recession, combined with rising energy and resin prices, and the profit-margin pressures caused by what he called the ``WalMartization'' of America, has dealt a body blow to U.S. plastics processors.
On top of that, processors' overinvestment in equipment in the booming 1990s has translated today into ``too many facilities, too many presses and too many suppliers.'' He estimates average U.S. injection molding capacity utilization at no more than 60 percent, when at least 75 percent is needed for reasonable industry health.
As a result, Roche said, ``predatory pricing has spread from the automotive sector to all other purchasing groups.'' Those factors are causing attrition among weaker players and prompting widespread consolidation.
``There is still some room for niche players, but it must be a niche they can defend with more than just price,'' he said. In the case of Erie Plastics, which expects sales this year of $85 million to $90 million, Roche wants his 44-year-old, family-owned firm to be ``a big niche player.''
He said Erie - a leading maker of rigid packaging - must develop more proprietary, patented products. At the same time, companies must focus on quality and productivity initiatives, and on adopting more professional management techniques. He cited Brian Jones, president of Clinton, Mass.-based molder and contract manufacturer Nypro Inc., as the sort of professional manager the industry needs.
Again using Nypro as role model, Roche noted that ``globalization has become a good thing.'' He said he perceives a growing interest within the U.S. plastics industry in international trade missions - such as the two-week plastics mission he led for SPI to China in late June. He described the mission as ``a powerful experience.''
``I do see minds opening up,'' he said, noting that more plastics executives than ever ``are looking around the corner, wanting to learn more.'' He said alliances are ``a big positive,'' and cited Erie's experience with a growing joint venture in Hungary.
Roche noted that growth is a bit easier to finance now, as lenders are offering great interest rates and have become more accessible - but only for companies that are performing. In other words, he said: ``Distressed situations need not apply.''
Tough times, meanwhile, have stimulated innovation, according to the Erie chief. He sees a renewed focus on new products, processes, markets and technologies combined with risk-taking and entrepreneurial spirit.
Roche said that innovation also is prompting the need for greater protectionism - but not in the usual sense of tariffs or trade barriers. Rather, he wants to see U.S. processors protect themselves ``from cannibalizing each other.'' Companies need to protect their technology, unique processes and trade secrets more aggressively. He said fewer U.S. processors are opening their plants to tours. Erie Plastics has not gone that far, but it no longer allows photos to be taken in its plants.
Long an outspoken industry statesman, Roche sees a dramatic reshaping of the U.S. plastics industry, with the survivors being ``predominantly large, strong, totally capable, global, professionally managed'' firms that specialize in certain markets and offer multiple processes and secondary capabilities.
``We're not retreating,'' he declared, ``we're coming back stronger and much wiser.''