An anemic construction industry in 2009 slammed suppliers of extruders to manufacture building products — but a recession-driven capacity purge, coupled with the move by Congress to extend the homebuyers' tax credit, could point to a brighter 2010, industry officials said.
Recovery has already begun for packaging machinery makers, where executives reported an uptick in interest — and some orders — in the second half of 2009. But those interviewed said tight financing continues to cloud the picture for blown and cast film lines and sheet extruders, large pieces of equipment that carry big price tags.
The National Association of Home Builders projects that U.S. housing starts will plunge to just 564,000 this year, down 37 percent from 2009. That's less than a third of the total 1,812 housing starts in 2006.
Sales of newly built homes improved for five straight months before falling in September as the deadline to receive the federal $8,000 first-time homebuyer tax credit approached. In November, Congress voted to extend the tax credit and add a $6,500 credit for move-up buyers.
Since 2007, a good deal of capacity has been taken out of the U.S. vinyl window and siding sector. In 2009, Andersen Corp. of Bayport, Minn., and Weather Shield Manufacturing Inc. of Medford, Wis., closed window plants. Several of Perrysburg, Ohio-based Jancor Inc.'s shuttered factories changed ownership. In Mississauga, Ontario, profile and film extruder CPI Plastics Group Ltd. went into receivership.
“The good news is, customers are running product now,” said Paul Caprio, president of KraussMaffei Corp. in Florence, Ky.
“There was a lot of capacity with the housing downturn, and it absolutely has filled a lot of the capacity in the facilities. But there isn't that massive growth that has required a need for additional equipment. So we're still in that mode of filling the capacity at customer sites,” Caprio said.
PVC resin statistics from the American Chemistry Council in Arlington, Va., show double-digit declines through August for key plastic construction products. Vinyl siding was down 17.5 percent from the year-ago period, pipe and tubing declined 14.9 percent, and windows dropped 11.4 percent.
“The construction industry is certainly struggling, although capacity utilization is improving,” said Glenn Anderson, vice president and general manager of Milacron Inc.'s global extrusion business.
Plant closings have put extrusion machines up for auction, and that is affecting new machinery projects, Anderson said. Officials at Batavia, Ohio-based Milacron project flat U.S. extrusion sales for 2010.
Kurt Waldhauer put on his psychiatrist's hat on to diagnose the market: “Machinery placements have been spotty. The best way to describe the machinery market today is schizophrenic — people just aren't sure what they want to do,” said Waldhauer, president and CEO of American Maplan Corp. in McPherson, Kan.
Waldhauer said Maplan had decent second and third quarters, but business has dropped off toward the end of 2009.
“There are a lot of projects that we had that haven't been canceled, but they've been delayed,” he said.
Maplan saw solid business in replacement screws, barrels and spare parts, as companies upgraded existing extruders to cut manufacturing costs.
Waldhauer said the pipe market is down, and he is disappointed that the Obama administration's 2009 economic stimulus package did not include money to fix aging water pipes. But new interest in U.S.-based nuclear power could boost sales of thick-wall polyethylene pipe, now approved for handling process water around nuclear plants, Waldhauer said.
Canada has avoided a U.S.-style housing bust, but Canada's machinery sector still relies on U.S. customers.
“Overall, my business is down on the construction front for sure,” said Dirk Koch, vice president of sales at Deltaplast Machinery Ltd. of Concord, Ontario. He said customers are making building products, but capacity utilization remains low.
“We've purged some of the industry out already, but I think we're kind of at a stabilization point right now,” he said.
Still, customers worked on research and development during the downturn, and Koch is starting to see improvement in pipe and custom profiles.
Boston Matthews Inc. of Norwood, N.J., reported business increased in medical and automotive. “We've had an awful lot of automotive projects put on hold, but they're starting to come to fruition now,” said Richard Brooks, marketing director for the firm's British parent.
American Kuhne Inc. went against the grain. The extruder maker in Ashaway, R.I., had a very good fourth quarter of 2008 — when fears of a financial meltdown froze much capital spending — but slowed down in the fall of 2009, according to David Citron, sales and marketing director.
“We actually had good, consistent bookings from the beginning [of 2009] through the summer, and just recently, September and October have been a little slow,” Citron said. He reported strong business in larger extruders for film and sheet.
What about 2010? “We certainly are expecting continued growth, but I think it will be modest growth,” Citron said.
Packaging machinery
An improving second half has makers of packaging machinery optimistic about the new year. That's a big change from a year ago.
“I think we're past panic,” said Andrew Wheeler, vice president of Windmoeller & Hoelscher Corp., in a recent interview at company headquarters in Lincoln, R.I. “The projects seem to be really active right now.”
W&H had a “very good year” in both printing and film equipment, Wheeler said. “In a down market, people are looking to excel, not just be 'somebody else,' because the somebody elses are the ones that lost the business.
“But the ones that excel — the ones that are getting equipment that allows them to compete with the best producers — they're the ones who are able to succeed,” he said.
Wheeler thinks W&H will do well in 2010, “if the last four or five months of this year are any indication.”
Processing Technologies LLC picked a good year to introduce its Globaline range of sheet production lines, geared at short runs.
“This is being received very well. It's a cost-effective sheet extrusion system,” said Dana Hanson, president of Aurora, Ill-based PTI. His firm will keep product introductions coming in 2010, with a new dryerless PET twin-screw sheet line set for January.
Hanson said the financial crisis that hit in late 2008 carried over into early 2009: “What we've seen since NPE [held June 22-26 in Chicago] is a steady rise in our business levels.
“Our current backlog is at record levels,” he said. “We're looking at 2010 being a very good year.”
Another sheet line maker, Welex Inc., also reported a second-half improvement, thanks to recession-resistant business in single-serve and other types of food packaging.
“The first half of the year, it was really slow,” said Hayes Stripling, vice president of sales at Welex of Blue Bell, Pa. “It seemed to pick up mid-year with some of the capital getting released.
“Our backlog going into 2010 is a lot brighter than it was last year.”
Flexible packaging for meats, cheese, produce and frozen foods has gotten a boost from the eat-at-home trend during the downturn. Customers have turned to private-label brands to save money.
“That's a positive influence on packaging in general. People are staying in, so they're spending more at the grocery store, there's no question,” said David Nunes, president of Hosokawa Alpine American in Natick, Mass.
Nunes said Alpine American did sell some lines during what was a slow first half for the industry, including a seven-layer blown film line and some twin-head bag lines. The company generated a healthy business from upgrades of air rings, dies and controls, and new screws and barrels.
“All in all, it turned out to be a pretty good year,” he said.
But Nunes, like several other machinery executives, said financing remains a challenge. “After the NPE show in Chicago, there were at least two projects that we felt very good about, that were moving forward [but] there were financing issues getting in the way of it,” he said.
Equipment financing is a concern of John Sharood, chairman of Gloucester Engineering Co. Ltd. in Gloucester, Mass.
“It's an element that is continuing to depress industry sales,” he said. Sharood added that the Washington-based Export-Import Bank of the United States — the federal government's export credit agency — also has tightened its terms, slowing Gloucester Engineering's sales to some parts of the world.
Gloucester Engineering made news this year by creating a joint venture with Mumbai, India-based Kabra Extrusionstechnik Ltd. to access the Indian machinery market.
Overall, Gloucester Engineering has gained customer interest for microlayer film, “a very hot topic in the cast film market right now,” Sharood said. Multilayer blown film is still a solid business: “Again, it's people who are able to self-finance the projects, but we're seeing strong interest both in new lines and in upgrades,” he said.
Standup pouches continue to grow, displacing cans and paper packaging, according to several machinery leaders.
“Everything from dog food, all kinds of liquid refills for detergent ... pouches are taking over that market,” said Bud Smith, president and CEO of Brampton Engineering Inc. in Brampton, Ontario. He said processor flexibility is one reason why film lines keep getting more layers.
“A lot of people can make three-layer film cheaper and easier on a seven-layer line that they can on a three-layer line,” he said. Film producers also can run higher-layer films if needed, he said.
“We had a record year in 2008, but it was a tough (first) six months of 2009, and we're coming out of that quite nicely now,” Smith said.
Jim Murphy, president of extrusion systems at Davis-Standard LLC, said the strength of packaging has helped offset a slow year for the construction and automotive extruders at the company in Pawcatuck, Conn.
“Our outlook is for stabilization and we're hoping for growth in the spring and summer of 2010,” Murphy said. “The crisis is over, but our customers have to get comfortable with their business levels first.”
In packaging equipment circles, 2009 will be remembered for a major business story out of Germany: Reifenhäuser GmbH & Co. KG Maschinenfabrik bought Kiefel Extrusion GmbH from Bruckner Technology Holding GmbH. The new U.S. headquarters for both is in Danvers, Mass.
“[2009] definitely was down from 2008, but here in the latter half of the third quarter and fourth quarter, things have been picking up,” said Steve DeSpain, vice president of sales and marketing for Reifenhauser Kiefel Extrusion. “We secured a couple of orders, and our activity has really started to pick up dramatically.”
The weak U.S. dollar is hurting European suppliers by making their equipment more expensive in the U.S., said Steve Gammell of Macchi North America Corp. in Gainesville, Ga., the U.S. unit of Italy's Macchi SpA. “It definitely has an impact,” he said.
Gammell said quoting activity has increased since the NPE show, “but it doesn't seem like many people are ready to gamble just yet based on the economy, or they may still be having problems getting financing.”
Smaller companies — those that do not have access to lines of credit — face tougher credit, he said.
Sandi Holgate, North American sales manager at Alpha Marathon Film Extrusion Technologies Inc., said the industry is in a “slow recovery” as customers continue to upgrade equipment while putting off ordering turnkey lines.
Alpha Marathon is based in Woodbridge, Ontario.
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