(April 25, 2005) — In the April 11 issue of Plastics News, we ran two front-page stories that stand among the biggest so far this year:
* Advanced Drainage Systems Inc. is buying a competitor in corrugated high density polyethylene pipe, Hancor Inc. The result will be North America's largest HDPE drainage pipe maker, and the largest plastic pipe extruder, period.
* Newell Rubbermaid Inc.'s global purchasing head, Paul Box, gave juicy details about how company officials want to “lessen our dependence on resin.” We've covered these statements before from Joseph Galli, chief executive officer. But Box gave a higher level of detail than we've ever seen before, showing slides of well-known Rubbermaid products made of wicker and metal — and he delivered this message at a major resin conference!
That's what the two stories have in common — high resin prices, which also play a big role in the special report on materials in this week's issue.
Jacked-up resin prices are undercutting the North American plastics industry's recovery by shaving profit, already pretty thin, right down to the bone. There is some good news, since commodity resins seem to be moderating. Unfortunately, higher demand — thanks to the improving economy — and low supplies — the result of a lack of investment in new capacity — mean prices still are much higher than a few years ago.
There's a ripple effect down through the entire plastics industry. Not making a decent profit makes it harder to justify buying the new injection molding machines, extruders and blow molding machines you need to compete, so you risk falling behind. And so on, and so on.
Wal-Martization, a relentless resistance to accept price increases for end products, has been well-documented.
Newell Rubbermaid makes consumer products and faces formidable competition from other housewares makers, both domestic and imported. ADS and Hancor also face pricing pressures, of course, although not on store shelves. When you drive down the highway this spring, take note of the big coils of black corrugated pipe and large-diameter pipe ready for installation. Government buyers take the low bidder — and higher polyethylene prices put pressure on pipe extruders that are competing with manufacturers of steel and concrete pipe.
ADS President and Chief Executive Officer Joe Chlapaty spelled it out clearly. A bigger Hancor/ADS will have greater clout when buying resin. Hancor brings other good things to the table, including a solid product-development effort, an innovative branding effort to differentiate its products, and its close working relationship with Ducks Unlimited. But clearly, the harsh new reality of resin buying was a prime motivator for ADS to bulk up and buy its largest competitor.
“These are very challenging times for the high density corrugated business. There appears to be a permanent paradigm shift in energy and raw material costs,” Chlapaty said. “The combination of ADS and Hancor will allow the [new] company to effectively deal with tremendous cost pressures that have been brought to bear as we attempt to compete with alternative materials.”
So now you know what laundry baskets and drainage pipe have in common.