Wheeling and dealing
The North American compounding sector still is drawing financial interest from its own ranks and from outside investors. Five acquisitions have been announced since November.
Included on that list are:
* Private equity firm Wind Point Partners of Chicago buying controlling interest in color and additive compounder Matrixx Group Inc. of Evansville for an undisclosed price.
* Private equity firm Spell Capital Partners LLC of Minneapolis made a pair of deals, first buying color concentrates maker Breen Color Concentrates Inc. of Lambertville, N.J., then adding PVC compounder Prime PVC Inc. of Marion, Ind. No price was disclosed in either deal. In early 2006, Spell had bought PVC Compounders Inc. of Kendallville, Ind. An industry source estimated that total annual sales at the three compounders that Spell has purchased are about $60 million.
* Schulman buying Delta Plast AB, an Astorp, Sweden-based color concentrates maker with two plants in Europe.
* Liquid color maker ColorMatrix Corp. of Berea, Ohio, acquiring color concentrates maker and compounder Colorant-Chromatics AG of Cham, Switzerland.
The nature of most of those deals highlights the challenges of being a small or midsized compounder or concentrates maker with a regional focus, said Bill Ridenour, president of Polymer Transaction Advisors Inc. consulting firm in Newbury, Ohio.
``We're going to see further shrinking of high-volume compounding capacity in polyolefins, talc and glass, which are old-line products,'' Ridenour said. ``There's not enough margin in high-volume products, so you have to either exit or consolidate to improve profitability.
``To be successful in color compounds and concentrates, you either need to get larger or have a strong proprietary line,'' he added.
``Or you need to be a small-order shop with some proprietary content in your products, like UV or other additives, so you can still make good money.
``The bread and butter of small shops is to find out what your customer needs and supply it.''
Packaging to rescue
So far in 2007, compounders still can count on the packaging market to chase the blues away.
``Packaging has remained hot for us,'' said Steve Snow, North American business director for Clariant Masterbatches in Holden, Mass. ``It's not moving to low-cost production areas. Items like personal-care products need to be filled locally. It's refreshing to see a big vibrant sector remain in North America.
``A big trend is brand expansion,'' Snow added. ``There used to be one or two variations of a product, but now manufacturers are selling in many shapes and sizes.''
``Packaging is still strong domestically,'' agreed Ridenour at PTA. ``The American consumer is still strong, and packaging is such a large market that depends on consumer habits. It's not like buying a refrigerator or car. These are everyday spending habits.''
At PolyOne, North American color and additives General Manager John Van Hulle said the firm is seeing ``more redesigns more frequently'' from its packaging customers.
``Everyone is trying to get that extra sizzle on product, and one of the ways to differentiate is packaging,'' Van Hulle said. ``They're looking for metallics and brighter, deeper colors. Anything the packaging folks think might set their product apart.''
He added that higher prices don't seem to affect customer behavior as much in the packaging sector as in other areas.
Lederer added that Teknor Apex has seen recent requests for metalized colors into packaging for health and beauty products. Snow added Clariant witnessed activity in products that aren't traditionally colored, such as medical devices.
Maki is seeing the same medical color trend at RTP.
``With more people having medical devices and equipment in their homes, they want these devices to look nice,'' said Maki, who serves as the firm's vice president of research and development.
Several compounding and concentrate firms have boosted capacity in the last few months or plan to do so shortly. Companies beefing up their output include:
* PolyOne, which installed a new Coperion ZSK Megacompounder line at a renovated 100,000-square-foot space in Avon Lake. The firm also moved five lines from other plants to the new site, which will produce lots ranging in size from 500-20,000 pounds.
* RTP, which added a long-fiber reinforced thermoplastic pultrusion line in Indianapolis and has installed at least one new twin-screw line at each of its eight global plants this year. The firm also added two LFRT lines at its plant in Suzhou, China.
* Ovation Polymers Inc. of Medina, Ohio, which installed its second twin-screw line and plans to add a third later this year.
* Dyvex Industries Inc. of Carbondale, Pa., which spent more than $1 million on a new twin-screw line and other equipment, including a cryogenic grinding attrition mill and gravimetric feeding systems.
* GE Plastics LNP, which added a twin-screw line in San Luis Potosi, Mexico, and LFRT capacity at a plant in Brazil. The firm also moved an LFRT line from San Luis Potosi to Columbus, Ind.
* Techmer PM LLC of Clinton, Tenn., which has added high-output, high-speed twin-screw lines in Clinton and in Rancho Dominguez, Calif.
* Clariant, which is continuing its aggressive schedule of replacing between 10 and 20 of its 90 North American compounding lines each year.
* Americhem, which added 15 million pounds of capacity in Dalton, Ga., via new manufacturing equipment. The firm also will complete a 30,000-square-foot research center in Cuyahoga Falls, Ohio, later this year.
Thinning the ranks?
But underlying these plans is a concern that the compounding market hasn't consolidated at the same rate that its customer base has in recent years, particularly in color concentrates. This has some market watchers expecting a possible shakeout.
``In North America, about 90 million pounds of color masterbatch demand has been taken out in the last couple of years, but there are still a lot of independent color masterbatch companies,'' said Morgan at Accel. ``There's been more consolidation on the customer side, so the supplier side has to follow eventually.''
``Everybody would like to see consolidation, but it's not affecting our business decisions,'' said Van Hulle at PolyOne. ``If a customer is being supplied by a regional player, we still want to get in there and compete with them for that business.''
PTA's Ridenour added that the North American compounding industry ``is maturing now, with only certain niches growing.'' He cited TPE compounds as a product that still can grow in excess of gross-domestic-product rates in the region.
A way to survive
With the focus on specialization getting tighter each year in the compounding field, Techmer President John Manuck might be tempted to say, ``I told you so.''
``The whole industry has turned in favor of value-added, and that's where we've always been,'' said Manuck.
Techmer's specialty approach - as well as early work with transplant automakers - has put the firm on track for 6-8 percent growth in 2007 after posting sales of more than $160 million last year.
``As a compounder, you can invest in capacity and go after volume or you can build a staff of people to innovate and come up with new products,'' Manuck said. ``At a lot of places, if a plant manager is doing a good job, you can only measure that by how many pounds the plant is running. But at our plants, we want to make a lot of different products. It's all about value.''
Specialization also is allowing PolyOne to introduce several custom-tailored grades of chlorinated PVC compounds, while still participating in a traditional market like wire and cable.
``Wire and cable has been a yo-yo, and now it's on the part of the yo-yo where the U.S. is regaining position,'' PolyOne's Rosenau said. ``Resin and raw materials have come to parity with rest of world, and you have to have enough flexibility product-wise to meet demand when that happens.''
A similar approach prompted GE Plastics LNP to walk away from long-fiber PP business in recent years, even though taking that step cost the firm ``a lot of automotive volume,'' according to Apte.
Automotive generated 20 percent of GE Plastics LNP's sales in 2004. That number was expected to hit 25 percent by this year, but instead is around 13 percent.
``We're getting specs on new programs for under-hood work this year and in 2008,'' Apte said. ``But we don't want to let auto be more than 20 percent of sales because of lower margins.''
Zeroing in on specialty work has allowed GE Plastics LNP - with annual sales of about $500 million - to get 30 percent of its revenue from products that have been commercialized in the last three years.