The good news: After years of operating at 60-70 percent capacity, North American film and bag makers are finding that business is improving.
The bad news: The reason is, many companies have cut capacity.
The film and bag industry cannot be generalized easily right now. Some companies struggle and close plants. Some voraciously acquire midsized producers. External pressures topple some small companies; others thrive. Some build companies in China and others expand in the United States.
This year saw the continuation of Lyndhurst, N.J.-based Sigma Plastics Group assimilating seemingly everything in reach. It expanded its Lyndhurst and Shelbyville, Ky., sites. It purchased PCL Packaging Corp.'s Jacksonsville, Fla., plant. (PCL wanted to focus on carryout bags instead of polyethylene manufacturing.) Sigma also bought out its Compton, Calif., joint venture with Vanguard Plastics Inc.
All of that was in addition to purchasing Mid-Atlantic Bag Inc. and Republic Bag Inc. in late 2004. Sigma Chief Executive Officer Alfred Teo said the company is not finished.
``We are negotiating with some people,'' he said. ``We are expanding carefully.''
Other companies expanded, too. Clifton, N.J.-based Champion Plastics spent more than $1 million to expand blown film capacity. ISO Poly Films Inc. of Gray Court, S.C., spent $20 million on a 30,000-square-foot addition. Wisconsin Film & Bag Inc. purchased Desert Plastics LLC's Summit, Miss., plant and dubbed it Southern Film & Bag. Minneapolis giant Bemis Co. Inc. of Shawano, Wis., purchased Dixie Toga SA of Sao Paulo, Brazil.
For each company that expanded or acquired, another downsized. Tyco Plastics in Princeton, N.J., closed British plants, and its blown film business is on the market. ExxonMobil Chemical Co. shut down half of the oriented polypropylene film production at its plant in Stratford, Conn. The company intends to sell the building in favor of newer facilities in LaGrange, Ga., and Shawnee, Okla.
ExxonMobil also is looking to sell its Qenos Pty. Ltd. joint venture in Melbourne, Australia.
Why are some companies succeeding while others are falling to the wayside?
Sigma's Teo said processors can't blame resin price hikes.
``Every time the raw materials go up, you pass it along,'' he said. ``How are you going to make a profit eating 50 percent of a resin increase?'' Then again, not everyone runs a billion-dollar company that can leverage its prices. Smaller companies are thriving by specializing.
``The guys who invest in technology are going to make it,'' ISO Poly President and CEO Jon McClure said. ``The leaders [in the industry] are focusing on technology because it amounts to lower prices.''
McClure practices what he preaches: Of his 50 employees, five are devoted solely to research and development.
The key to survival is specialization, said John Callaghan, division head of Champion Plastics, a unit of XL Plastics Inc. in Clifton. ``There isn't room for a lot of noncustom,'' he said. ``With noncustom, it's hard to beat China's prices.''
Even custom bag makers had some harder times.
``During April, May and June we were running around 70 percent [capacity],'' said Jack Riopelle, president of custom bag maker Wisconsin Film. ``It was a very soft period. Now we're running around 90 percent.''
Of course, China is the 800-pound gorilla looming over any discussion of the plastics industry. Every company in the field has to acknowledge the gorilla - even if they disagree on how to react to it.
Some companies have decided to ``join 'em'' instead of trying to ``beat 'em.''
Ampac Packaging LLC of Cincinnati opened a plant in Nanjing, China, that manufactures shopping bags.
Bemis, Ball Corp., Pactic Corp., Pechiney SA and Tredegar Film Products Inc. all opened flexible packaging or film product plants in Asia. The appeal is obvious: cheaper labor and land costs, which lower product costs. It's difficult for U.S. operations to compete.
``You don't really have a lot of choices, said packaging analyst Huston Keith, principal of Keymark Associates Inc. in Marietta, Ga. ``Either you get the government to level the playing field, or anything that's not efficient, you shut down.''
Keith did point out that some niches are, for lack of a better word, China-proof. In general, lead times and quality limit Asian operations, so North American plants can focus on higher-end products with more rigorous qualifications, such as food packaging and medical.
ISO Poly's McClure agreed.
``Food and medical are both very good growth markets across the board,'' McClure said.
``The requirements are higher, the specifications are more stringent. The more complex the film, the less competitors, the higher the profit margins.''
Another hot growth market, according to Thomas Blaige, CEO of Thomas Blaige & Co. LLC in Chicago, is the retortable pouch. Retortable pouches are ``multilayer, reinforced, have high graphics and they can be heated,'' said Blaige.
The pouches are complex with multiple barriers and not easily produced.