Housing starts have plunged to historic lows, leading to a cascade of plant closings by makers of vinyl windows and siding, and lower operating rates for PVC pipe. What does that mean for sales of machines that extrude those products?
Hans-Jurgen Matthesius has a one-word answer: ``Disaster.''
``I don't think in 2009 the economy will improve before the real estate crisis is over and the overhang in real estate is sold,'' said Matthesius, president of Cincinnati Extrusion Inc. in McPherson, Kan.
More upbeat were executives at packaging machinery producers — blown and cast film lines and sheet extruders. However, new-equipment sales into that recession-resistant market also have slowed, as customers turn cautious. Several executives of big-ticket packaging machinery, such as multilayer blown lines, also say the financial crisis has cost them some business, as a few customers have trouble securing credit and are forced to delay, or even cancel orders.
There could be some good news on the horizon.
As the U.S. economy struggles through a recession next year, the construction-products side could get a boost from President-elect Barack Obama's plan for a major infrastructure spending effort, to rebuild roads and bridges, modernize schools and boost alternative energy. That could translate into more sales of highway drainage pipe, new vinyl windows and other products.
For machinery, a few building-product sectors remain healthy, including polyethylene pressure pipe, trim board, foamed insulation and fence, officials said.
But the crushing home construction data cannot be denied. U.S. housing starts in October fell to a seasonally adjusted annual rate of 791,000 — the slowest pace for any month since the government started keeping track in 1959. That is a 40 percent plunge from 1.34 million in 2007.
Subprime mortgage lending, bundled with other types of debt into complex investment instruments, kicked off what quickly spread into a global financial crisis.
Faced with a glut of unsold new homes, and more foreclosed homes dumped on the market fueled by the subprime mess, builders are gloomy. The National Association of Home Builders said builder sentiment in November fell to its lowest point since Washington-based NAHB started the survey in 1985.
And remodeling is not picking up the slack, as NAHB's remodeling market index has declined.
Used business
Factory closings are piling up as 2008 comes to an end. Late in October, Jancor Cos. Inc. abruptly closed all its plants and announced plans to liquidate them. The Perrysburg, Ohio, firm's operations comprise vinyl siding makers Heartland Building Products Inc. and Infinite Building Products Inc.; vinyl window makers Kensington Windows and Survivor Technologies; and Out- door Technologies Inc., which extrudes fence, deck and railing.
Ply Gem Industries Inc. of Kearney, Mo., announced in November it was shuttering two window and door fabrication plants. Also, vinyl window makers Silver Line Building Products and Milgard Windows each closed a plant.
Leesburg, Va.-based Rehau Inc. will stop making municipal PVC pipe and cross-linked polyethylene plumbing pipe to focus on higher-profit markets such as fire protection, underfloor heating, and alternative energy.
Crane Building Products in Columbus, Ohio, closed an Ohio plant and sold its vinyl fencing business to U.S. Fence Inc.
Machinery executives say they expect a glut of used building-product extruders sold at auctions next year. Injection molding press officials have suffered through equipment auctions — mostly at defunct automotive molding plants — for several years. Extruder makers have been largely spared, until now.
``The overall volume of used machines will be higher, and then of course, people might think of adding older machines rather than buying new ones. So of course it hits the market,'' said Reiner Bunnenberg, vice president of the extrusion division at KraussMaffei Corp. in Florence, Ky. ``But if people are looking for the latest and greatest technology, they will go to new machines.''
Bunnenberg said the building-products sector has too much idle capacity. ``They're cannibalizing the machines in order to see the maintenance. That's the biggest issue.''
Kurt Waldhauer wishes any infrastructure program would include rebuilding the nation's water pipes. ``The United States loses 2.4 billion gallons of treated water every day. So it's a significant issue. It's going to take multiple billions of dollars' worth of investment,'' said the president and chief executive officer of American Maplan Corp. in McPherson, Kan.
Waldhauer said PE pipe makers are investing in extruders, as they expand into pipe for use at oilfields and natural gas wells. ``PVC pipe has held its own. It's not had tremendous growth, but it hasn't had tremendous contraction,'' Waldhauer said.
The Maplan executive thinks home construction recovery may come next fall, but that segment of extruder sales will take longer to come back. ``Machinery leads into a downturn and lags coming out of it, because of excess production capacity,'' he said.
Officials of Davis-Standard LLC also report good sales to oil and gas exploration and mining, for pipe and conduit. Wire and cable machines have done well in the exploration market, as well as electricity transmission, said Jim Murphy, president of extrusion systems for the Pawcatuck, Conn., company. Davis-Standard also has shipped machines to extrude insulation board to customers worldwide.
Packaging, including blown and cast film, and extrusion coating lines, generates about half of Davis-Standard's worldwide sales. Resealable pouches continue to become more common in grocery aisles, according to Murphy.
``Flexible packaging grows faster than [gross domestic product],'' he said. ``The real advantage that it has is it's taking share from glass and aluminum.''
In October, Davis-Standard opened a sales and engineering office in Gloucester, Mass., focused on extrusion and converting equipment.
American Kuhne Inc. celebrated two milestones this year: the 1,000th extruder sold since the company was founded in 1997, and a midyear move into a new building in Ashaway, R.I.
Sales and marketing director David Citron reported that American Kuhne has done well this year selling lines for wire and cable, medical and industrial tubing and PE pipe for gas and oilfields.
In a slow market, officials want to gain market share, Citron said. ``We're forecasting fairly high, single-digit growth. We're not forecasting any double-digit gains.''
Advanced Extruder Technologies also is moving into a new building this month, a 15,000-square-foot factory that will double its size in Elk Grove Village, Ill., said President Fred Jalili.
The company has a diverse customer base. ``The biggest market for us continues to be recycling, and the second-biggest is packaging. That has helped us quite a bit to figure out this up and down in the construction market,'' Jalili said.
Deltaplast Machinery Ltd. makes extruders in Concord, Ontario. The American housing crunch does hurt Deltaplast customers that export to the United States. ``But the Canadian housing market is still chugging away. It's cut back somewhat, but it hasn't fallen off,'' said Dirk Koch, vice president of sales.
Koch said the firm is doing more turnkey systems, including tooling and downstream equipment. ``We do a lot of niche work, so we get involved in a lot of special projects which helps our bottom line,'' he said.
Even so, Koch said too much extrusion capacity means improvement will have to wait until the second half of 2009. ``I'm betting on 2010 again being a strong year,'' he said.
Harrel Inc., which makes small extruders for medical tubing and other markets, is celebrating its 50th anniversary this year. Holton Harris founded the East Norwalk, Conn., firm in 1958.
``It's slower for us this year, just like it has been for everyone. But we're still finding business out there,'' said operations director David Maydar.
President Joseph Scuralli said exports and ``an uptick in exotic applications'' have helped weather the U.S. storm at Wayne Machine & Die Co. The Totowa, N.J.-based company makes small extrusion lines for laboratories and limited production.
The exotic business includes extruders that process very-high-temperature materials, and high-torque extruders. ``Where there's money to be made, in the applications end, that's where we're able to sell high-value systems, at this point right now,'' Scuralli said.
A number of U.S. customers are pushing orders into the first or second quarter of 2009. ``A lot of people I'm talking to are afraid to invest,'' he said.
Boston Matthews Inc., another small-extruder maker in Norwood, N.J., has done well with its Munchy recycling machines. High resin prices this year and a new environmental awareness has raised interest in recycling, said Richard Brooks, marketing director for the firm's British parent.
Buying new
The picture is brighter for packaging-related extruders — executives in that segment also report packaging manufacturers are upgrading existing lines, rather buying many new ones. A trend for eating meals at home, to save money, should help film machinery hold up next year, they said.
``I don't want to say that packaging is `recession-proof,' because I don't think anything is. But it recovers quicker and has better legs in the rough seas, if you will,'' said Dana Hanson, president of Aurora, Ill.-based Processing Technologies LLC, known as PTi.
Some machinery companies have seen the credit crunch up close. ``We've seen delays. We've seen people still struggling to get financing that can't quite nail it down yet. So it has hurt the industry,'' said John Sharood, chairman of Gloucester Engineering Co. Ltd. ``But the biggest problem has been nervous CEOs saying that they're really just waiting another quarter to make the final decision,'' Sharood said.
But some companies are buying. Berry Plastics Corp. recently bought a Gloucester 11-layer line to make stretch film at its plant in Pryor, Okla.
``We're also seeing a lot of activity this quarter for aftermarket work, upgrades, rebuilds, and add-ons to existing lines,'' Sharood said. Film companies are working to downgauge film, boost output and convert single-layer machines into multilayer lines.
Steve DeSpain of Kiefel Inc. agrees. ``People are trying to squeeze more pounds of film out of their factory,'' he said.
The slowing economy is prompting people to eat more meals at home, instead of spending money at restaurants. The helps business for multilayer barrier film, said DeSpain, sales vice president at the film equipment maker in Hampton, N.H.
``It has a positive impact on our customers, because especially in food packaging, barrier-type packaging, this is definitely a growing market,'' he said.
Another growth area: shrink film used to bundle bulk products for sale in warehouse clubs, say, a dozen cans of corn. ``We're seeing more and more of that, especially the bulk buying markets,'' DeSpain said.
David Nunes, Hosokawa Alpine America president, said the firm is holding its own, thanks to a diverse customer base.
``These days, as long as you're in the black, it's positive. It wasn't a boom year but it was fairly steady,'' Nunes said.
Natick, Mass.-based Alpine America has done lots of upgrades — dies and air rings, improved internal bubble cooling, gauge controls.
Nunes doesn't like the headlines about plastic bag bans, which he said stem from litter and lack of collection. ``The whole industry has to be diligent, on staying on top of these things and putting out the brush fires before they become a forest fire,'' he said.
At the same time, Bud Smith, president and CEO of Brampton Engineering Inc. in Brampton, Ontario, said the ``green'' movement is pushing packagers to move from rigid to flexible packaging, which should boost demand for blown film machinery.
``We have customers who have sold out capacity and have money to spend on equipment, but they are being very cautious and are waiting to see what unfolds with this financial situation,'' Smith said. Once packaging makers use up their inventories of high-priced resin, it will free up money to invest in machinery since resin is now much less-expensive, he added.
Smith thinks packaging customers — and machinery makers — both will experience consolidation in 2009.
At Gainesville, Ga.-based Macchi North America Corp., sales manager Steve Gammell reports barrier films and medical films are two growing areas. Food packaging companies have demand for their products, but business is tough, Gammell said.
``Everyone's hurting margin-wise. There's not a single company out there that isn't,'' he said.
With resin prices coming, a new U.S. president and government moves to free up bank loans, Gammell said that Macchi is looking forward to NPE 2009, midyear in Chicago. ``It might turn out to be at just the right time,'' Gammell said.
Alpha Marathon Film Extrusion Technologies Inc. has a new owner — a group of its employees, who bought the assets in March after the former company went bankrupt. Alpha is building a five-layer medical packaging line right now at its plant in Woodbridge, Ontario, said Sandi Holgate, national sales manager.
Still, customers are holding off, uncertain about 2009, she said.
``We see a lot doing upgrades, or going out and buying used,'' Holgate said.
Parkinson Technologies Inc. of Woonsocket, R.I., reports strong sales of its biaxially oriented film lines, machine-direction orientation systems and winders. The company's pilot plant also is busy, with bioresin development and other emerging technologies.
Parkinson expanded its manufacturing by adding machining centers this year.
A cautious outlook
``We are cautiously optimistic on our own performance in 2009,'' said PTi's Hanson, who reports a solid backlog of work through the first part of the year. ``The difficulty is you don't have a lot of visibility beyond three to six months,'' he said.
Coextruded sheet lines continue to be PTi's best business. At NPE 2009, PTi will show its new Globaline, a sheet line designed for sale around the world.
``We're doing a tremendous amount in the packaging market, and most of those lines are for coextruded sheet,'' Hanson said.
Gerry Sposato, sales and marketing vice president at HPM in Mount Gilead, Ohio, said sheet line business into packaging and medical is fairly strong. But the weak home-building market has hurt sheet machinery sold to appliances, he said.
Frank Nissel said Welex Inc. had a ``very good'' first half, but then U.S. business slowed. The Blue Bell, Pa., firm has done well by exporting sheet lines.
However, the Welex chairman said the U.S. market ``is rapidly becoming very slow.'' One problem: Banks are slow to release loan money, even for companies with good credit.
What does Nissel think about 2009? ``It's going to be a tough year. I've been in business now for 50 years, it's never been this bad,'' he said.
Even though people do ``have to eat,'' the packaging industry, and the machinery makers that serve it, swim in the same pond as the overall economy.
``What happens on Wall Street affects Main Street. You hear that a lot,'' said Murphy, of Davis-Standard.