The U.S. plastics molding industry is scrapping older machines, but still is plagued by too much capacity, analyst Jeff Mengel said at Plastics Encounter Midwest.
Mengel, a partner with Plante & Moran PLLC, presented information from the consulting firm's last benchmarking study, which covered 2002-03. Southfield, Mich.-based Plante & Moran is updating the report.
Mengel pegged the rate of capacity utilization at 40 percent, when measured on 24 hour-a-day, seven-day-a-week production.
He cited industry estimates that about 85,000 injection presses are running in U.S. factories today. That's a ``huge reduction'' from 110,000 in 2000, he said.
``We need to see that reduction because we have way too many machines in North America,'' he said in his presentation May 24. ``You cannot survive with good pricing at 40 percent utilization.''
Mengel delivered more bleak news: Measured on that 24/7 basis, 25 percent of molders have a shockingly low utilization rate of less than 25 percent. That drags down competitors if they try to match desperation bids.
``What do you bid things at?'' he said. ``Whatever you can get it at, is what it comes down to.''
Mengel's expertise is in automotive, but he said the benchmarking study covers the broader industry. Though high resin prices leave little room for error, he sees somewhat brighter times ahead. One reason is that weaker firms have gone out of business.
``I've heard tales that between 15 and 30 percent of [molders] have closed the doors, merged with someone else, or liquidated'' in the past several years, he said.
Eight is the average age of presses running at U.S. molders, he said. But 25 percent of molders surveyed have presses that average more than 12 years old.
Auctioneer sources said a press older than 10 years does not have much value, Mengel said. High scrap-metal prices are encouraging firms to cull aging industrial beasts from their herds.
Mengel thinks the updated report will show higher utilization rates, but plastics molding still is a challenge. ``I believe utilization will go up. I do not believe profits will go up, going forward,'' he said.
Automakers are very reluctant to allow price increases, even as resin has moved higher. That cuts into earnings, he said.
Molders should have a strategy to manage and deploy fixed assets intelligently. ``You want strategy to drive your business, not cash flow,'' Mengel added.
Mengel said molders ``have to be awesome'' in three areas:
* Accurate quoting is critical, especially in industries where large customers want annual price cuts. The average molder sorts through 400-500 quotes a year. Quote levels are increasing dramatically in automotive, as processors are under financial stress and tools are transferred throughout North America-and to China.
``You've got to do it so you're focusing your efforts on the right quotes, and doing it right. And you also don't want to add six or eight people to handle it,'' he said.
* A quick launch is mandatory. ``Every time you have a launch that's screwed up, you'll never make that money back again.''
* Molders also have to get lean on the time-consuming process of production part approval.
