North American compounders and concentrate makers are fighting their way through a 2007 market that's been unpredictable and a little frustrating.
Their weapons of choice in this battle have been new products and an increased focus on specialization. They've used these tools to deal with downturns in the automotive and construction markets. A robust packaging field has helped to ease some of the burden.
Plastics News recently checked in with several industry executives to see what the score was so far this year. Here's what they had to say from the front lines.
The fall before the rise
Sales of most major commodity resins to compounders were down in the first quarter, according to the American Chemistry Council in Arlington, Va. Compounders bought 10-19 percent less high density, low density and linear low density polyethylene in that period. Sales of PVC and polypropylene to compounders also were down 1-3 percent. The only compounding-based resin sales gain was reported in polystyrene, where sales jumped 16 percent.
No specific data was available for compounding-related engineering resin sales, but market watchers said the picture there was similar.
``If you look at volume, many of our traditional customers have been a little bit slower,'' said Bert Lederer, executive vice president of Teknor Apex Co., a compounder of PVC, thermoplastic elastomers and engineering resins in Pawtucket, R.I . ``Without the new business we're bringing in, our sales would be down. Customers are managing inventory tighter because raw materials are up.''
It's been a similar story at compounding leaders A. Schulman Inc. of Fairlawn, Ohio, and PolyOne Corp. of Avon Lake, Ohio.
``Auto builds are off 11 percent in the first five months of the year, and that's about 37 percent of our sales,'' said Barry Rhodes, executive vice president and chief operating officer of Schulman's North American operations. ``We're working to grow our transplant automotive business. We've got some significant business with Toyota and we're growing with Hyundai and Kia.
``Right now, it seems like customers are waiting on a downturn in pricing on basic resins until they start buying again,'' he added. ``They're running inventory as lean as possible and looking for price erosion in polyolefins.''
North American sales volume in pounds was down 2 percent in the first half of Schulman's 2007 fiscal year, as sales in the region fell about 5 percent.
``Auto is definitely slow,'' said Steve Maki, vice president of research and development at RTP Co. in Winona, Minn. ``But we're still making inroads in colors for interiors, conductive materials for fuel parts and long-fiber compounds for metal replacement.''
At PolyOne, PVC compounds Vice President and General Manager Rob Rosenau agreed that 2007 has been a little tougher than 2006.
``From a volume and revenue standpoint, our PVC compound sales are down around 10 percent,'' Rosenau said. ``That's primarily based on the heavy influence of residential construction in our product mix, especially in products like window profiles and pipe fittings.
``Things have picked up a little bit as the year has gone on. We're seeing better than seasonal improvement.''
Through April, U.S. residential housing starts were down 16 percent vs. the same period in 2006, according to the Commerce Department. The number of residential building permits issued also was down 28 percent in the same comparison.
``The pattern of building permits clearly shows that the dramatic downward correction in housing production still is under way,'' said David Seiders, chief economist with the National Association of Home Builders in Washington.
Officials at Americhem Inc. of Cuyahoga Falls, Ohio, said their firm is being affected by the automotive and housing markets.
``Things started to slow down in September and October, but we saw a surge of orders in May,'' said Rick Juve, the firm's president and chief executive officer. ``It's not clear if that was from inventory adjustments or not.
``Construction has been down for us, since we sell into everything from vinyl siding to decking to fencing,'' he added. ``Automotive business also is off for [original equipment manufacturers] at GM and Ford.''
Higher-end compounds based on engineering resins also are being affected.
``North America has been slow,'' said Nitin Apte, general manager of GE Plastics' LNP compounding unit in Exton, Pa.
``We saw inventory adjustments go into April and May. The semiconductor market is down after being up for the last three or four years. We're writing new business, but not at the rate we had been.''
Apte added that one GE Plastics LNP customer had planned to launch a product using new LNP materials last year, but instead decided to work off old material inventory even though, according to Apte, ``he knew the new material is better.''
RTP has tackled those challenges by developing value product lines using lower-cost feedstocks. The materials often are made from a grade of the same resin that has wider specs, according to RTP's Maki. In a similar program, the firm has had success replacing short-glass-fiber nylon compounds with long-glass-fiber PP compounds in auto parts and industrial housings.
``We have customers that need the value products because they're facing a severe threat to their business,'' said Maki, whose firm had sales of about $265 million in 2006. ``But some can't do it because they have tight specs.''
Compounders also are being challenged by price increases on a number of additives, including plasticizers.
``There have been significant plasticizer price increases, and they're expected to continue,'' said Lederer at Teknor Apex. ``We're paying more for plasticizer than for resin in some cases.''
Attempts to pass on the plasticizer increases ``could make customers look at alternate materials,'' Lederer added.
``It's affecting flexible PVC in a lot of applications. It's being caused by tightness in industrial alcohol supplies, but plasticizer essentially is liquid polymer, so the impact on the plastic industry is pretty big. It makes people look at the finished product differently,'' he said.
Pockets of plenty
Even amid these challenges, a few compounders are celebrating in 2007.
``We're absolutely booming,'' said Wayne Marquis, president of ECM Plastics Inc. in Worcester, Mass. ``We're having a fantastic year. Sales were up 10 percent last year and should be up more than 10 percent this year.''
Marquis credited growth at ECM - which employs 110 and has annual sales of between $25 million and $50 million - to a new extrusion line and pulverizer, increased international sales and a gradual shift from color work into blends and alloys.
``When we started 10 years ago, color was 80 percent of our business, and now it's half,'' he said. ``We're doing smaller, more frequent runs in areas like [ultraviolet] masterbatch for wire and cable, film and injection molding.''
ECM also is adding its 16th extrusion line in August. The new twin-screw line will enable the firm to handle more complicated polyolefin formulations.
Sales also are up 25 percent at Ohio Valley Plastics Inc. in Evansville, Ind. President Gary Smith said his firm has prospered this year by adding a new compounding line - its sixth - for recycled PP sold into the furniture market.
OVP also has benefited from its noncompounding operations. The firm added a new profile extruder to make booster-seat parts in Crawfordsville, Ind., and recently landed a contract to handle plastic recycling for a Toyota truck plant near Evansville.
``Everybody wants to recycle, and they all want to find the best way to do it,'' Smith said.
And even as PolyOne's PVC compounds look to get back on track, the firm has improved lead times by 40 percent for those products since 2005. Rosenau said PolyOne met this goal by looking at how it schedules production and changeovers at its plants. The firm also has increased its on-time performance by ``a significant amount'' and now can go 17-18 days from order to shipping, he added.
Schulman also is taking an unconventional route with its Invision-brand thermoplastic sheet. The first commercial application of the product - being made in Sharon Center, Ohio - has been approved in front and rear applique on the 2008 Chrysler Jeep Wrangler. Rhodes said construction has begun on an Invision plant in Findlay, Ohio, where production lines should be installed later this year.
The technology looks to eliminate paint with in-mold color. Nonautomotive uses for Invision - including parts for the lawn and garden and marine markets - also are in development.
Dwight Morgan has seen the best and worst of the compounding market at Accel Color, the firm he owns and operates in Avon, Ohio. Accel idled its plant in Knoxville, Tenn., in March after experiencing what Morgan called ``cash-flow issues resulting from operating multiples sites.''
The firm still has plants in Avon; Naperville, Ill.; and Ontario, Calif. Morgan hopes to reopen in Knoxville sometime in 2008. Some extrusion lines have been moved from Nashville to Avon.
But as Tennessee faded for Accel, Avon has grown. The firm recently spent about $900,000 on a 25,000-square-foot expansion there that includes a new blending room and warehousing space. A pair of new twin-screw lines will be installed this summer, and some extrusion lines also have been moved from Tennessee to Avon.
``The last few years have been challenging for the colorants business because of persistent high resin prices and volatility,'' Morgan said. ``Growth has slowed with the export of so many molds to China.''
``The shock from Hurricane Katrina [in 2005] prompted a lot of molders to go to less-expensive materials,'' he added. ``They went from opaque to translucent, from translucent to clear, from pigment to black and white to offset high resin prices.''
Accel, which employs 80, expects sales of more than $20 million this year, a rise of about 10 percent from 2006.