In plastics, screw and barrel sales are a leading economic indicator for broader capital spending.
Until companies start to spend dollars to replace worn-out screws with brand-new ones, you can't expect them to buy new injection molding machines, extruders or blow molders.
When capacity utilization is really low, firms pull screws, barrels and other parts off of idle machines. When they start to spend on screws, that means business is picking up.
I think there's another predictive relationship between screws and barrels, and primary machinery consolidation in industries suffering from overcapacity.
On Sept. 28, the screw and barrel world was rocked when the biggest player, Xaloy Inc., bought Spirex Corp., the second-biggest. What struck me were the comments of smaller players.
You'd think that one big behemoth should be bad news for all the other guys, right? Wrong.
Executives at the smaller companies praised the Xaloy-Spirex combination. There's too much capacity, they said, especially during the meltdown of sales amid the big recession.
That's the same thing plastics machinery people are saying. Injection press makers have been complaining about overcapacity for quite a few years now. It's a major topic of conversation for machinery executives, even as nothing really has happened.
That could change.
Capital spending on industrial machinery is a cyclical business, but this is the worst U.S. machinery market since Plastics News began publishing in 1989. Machinery makers have cut costs through layoffs and short work weeks, and some skipped this year's NPE show to conserve cash. A number of sector veterans have retired early or left the industry.
The pain could encourage some primary machinery makers to merge and cut capacity. Just two days after buying Spirex, Xaloy said it would close two plants and move production to existing facilities.
Xaloy is owned by a private equity firm, Industrial Growth Partners, which provided the money to buy Spirex from the Colby family. Industry observers say the two companies have talked over the years. Certainly, an economic downturn that's been compared with the Great Depression has a way to focus minds.
Look for the machinery sector to consolidate.
Some good machinery news came out of the recent Fakuma trade show in Germany. Thanks to an improvement in business, Swiss injection press maker Netstal-Maschinen AG will return to full-time work schedules beginning Nov. 1. Netstal, which pulled out of NPE2009 in Chicago, also reduced its workforce this year.
Company officials report that Netstal's PET preform molding press business is strong.
Maybe that's an indicator of better times ahead.
Bregar is an Akron, Ohio-based Plastics News senior reporter.
Copyright 2009 Crain Communications Inc. All Rights Reserved.