CHICAGO (Aug. 17, 6:10 p.m. EDT) — Federal government statistics say the broad U.S. manufacturing sector is enjoying profits that are higher than the economic boom of the late 1990s — but at NPE 2006, plastics machinery executives weren't buying it.
Nearly all equipment officials said they were surprised by the numbers, from the Bureau of Economic Analysis. The Wall Street Journal reported the data in a story published just before NPE, which drew more than 64,000 people from the plastics industry to Chicago from June 19-23.
The newspaper said manufacturing profits last year nearly quadrupled since 2001, while profits for all types of companies doubled. Economists explained that the rebound has been helped by a wave of consolidation that culled out weaker players, steady cost cutting and, in some areas, a revival of pricing power. Plus, the downturn hit manufacturing harder than other sectors, so naturally, the rebound has been steeper.
Although the U.S. plastics industry has stabilized and capacity utilization is running at a healthy clip, high resin prices — tied to natural gas and oil — have pinched profits at companies and put up a yellow light of caution for customers looking to buy new machines.
So what about those big fat profits?
“It's not in the plastics industry, I can tell you that much, ” said Martin Stark, president of Bekum America Corp., in a June 19 interview at NPE. “And everybody else will probably tell you the same thing. Because we are still struggling with downsizing, with the consolidations of our customers, that is changing the market. I tell you, this has been a tough four years in the industry. ”
Tell anyone in injection molding machines that manufacturing profits are back where they were six years ago, and they flash back to 2000, when U.S. shipments topped 6,400. Last year's total: 3,706. It doesn't compute.
Molders are busy again, but resin costs are hurting sales, said Liam Burns, general manager of injection press maker Negri Bossi USA Inc. in Newark, Del.
“I hear comments that their actual sales have increased, but their profits, their margins, have decreased,” he said. “Every time you think the machinery market has recovered, something else happens. The resin price keeps hitting the profits.
“They are definitely in the market for machinery,” Burns said. “At this show, I was very surprised at the level of active buyers that are here. So that's all very good. But you still hear the constant background of resin prices and other concerns.”
Erosion of margins by its customers has officials at blow molding machinery firm Kautex re-evaluating its research and development priorities.
“We have gone through quite a debate internally over the last month or so about what our R&D priorities should be in the future,” said Olaf Weiland, managing director of Kautex Maschinenbau GmbH of Bonn, Germany.
“The top priorities are strictly being derived from looking at the main cost drivers for our customers,” he said.
“So we look, for example, at the main cost driver, resin costs, and then look at each R&D project, and each project has to answer the question, what can it contribute to reduce the resin costs at the customers' end? Of course we cannot reduce the purchase price ... but we can minimize scrap, for example. The second main cost driver is energy costs today. We can do a lot as a machine manufacturer to reduce the energy consumption per kilogram of polyethylene, for example, being processed in our machine.”
The company is taking steps, for instance, to manufacture more standardized packaging machinery in China instead of Germany. The lesson for most machinery makers is that you can't be everything to everybody anymore, officials said.
Wolfgang Meyer, president of Kautex Machines Inc. in North Branch, N.J., said that as firms become leaner, they don't have the resources anymore to maintain the equipment on their own.
“They demand more and more involvement of the machinery maker,” Meyer said.
Finding a silver lining
Friedrich Kanz, president of injection press supplier Newington, Conn.-based Arburg Inc., said high resin prices actually punish molders in China and other low-cost countries more than the United States. Resin fluctuations have less of an impact on sophisticated products such as multicomponent parts, he said.
Kanz said higher capacity utilization should mean that profit levels are better. “We see, pretty regularly, that the capacities of the respective companies are much more strongly utilized than they were two, three years ago,” he said.
Another bullish executive is Peter Pollack, regional manager of Nissei America Inc.'s Chicago technical center.
“We go into quite a few factories. Now I'd say the majority of them, the parking lots are full. They're pumping. They're making a lot of product. But they haven't really been replacing machines like they used to,” Pollack said. “They're still very, very uneasy about the economy, and they don't want to buy new equipment until it's the last minute, when they know they have the order.”
OK, what about resin? “The price is tough for anybody to swallow,” Pollack said. “But what we also see is some of those areas are really doing well, are very profitable. These are very expensive parts and they can sell them at a high profit. That can offset some of the other areas where there's really not a lot of profit. Some of our biggest growth is medical/pharmaceutical.”
Anaheim, Calif.-based Nissei America also does well selling presses to automotive, especially molders that serve Japanese automakers, he said.