(Jan. 24, 2005) — It's silver lining time. All the work that plastics processors have done the past few years — becoming leaner, adding automation, learning specialties like micromolding and multicomponent molding — it's all starting to pay off.
Since mid-2000, despite what we've heard from Washington, the U.S. manufacturing sector has been in a slump, and plastics processing has been right there with it, down in the dumps.
The question was always, when the economy comes back, will plastics processing be along for the ride? Or will competition from overseas, especially China, mean processing will never be the same?
We're starting to get the answers to those questions. The news looks pretty positive.
Of course business isn't exactly the same as it was before 2000. Some of the U.S. plastics industry's best customers have moved their manufacturing offshore, and a great deal of that business is not coming back. Adios to molding toys and small appliances. Sayonara to computers and cell phones. Goodbye housewares.
Still, overall, processors are optimistic about 2005. A poll we did in mid-December found that 66 percent have either a very or somewhat favorable outlook about the economy. About 80 percent expect their own companies to be either more profitable or about the same as in 2004.
Processors' biggest worry? Not what you might think — competition from imports came in second place. The top concern was raw material pricing.
Processors in a variety of end markets cited resin pricing as a major concern. And while high natural gas prices play a role — that drives up feedstock costs — the bottom line is that resin pricing is driven by supply and demand. Prices are up because processors are buying more, but suppliers have not yet boosted output to match demand.
Traditionally, that is a problem that works itself out. First, as demand rises, prices rise. When the numbers are attractive enough, suppliers decide to invest in new capacity. When more resin starts to flow, prices come back down. The gap may take several years, so suppliers need to address it soon or risk hurting more than a few of their customers.
But will resin suppliers react to the North American economic upturn in the traditional way? Many suppliers are investing a lot in new capacity now, but they're not doing it in North America. Asia, where demand is growing faster, is getting nearly all the attention.
North American processors need some love too, and no doubt they'll get it before too long. The market here is too big to ignore. And processors here have proved that they can stand up to international competition and survive. Sounds to us like a safe bet on a good customer.