If change is truly good, the North American resin distribution market had a great year in 2009.
Major changes and shifting allegiances hit the market, highlighted by Sabic Innovative Plastics US LLC linking with Ashland Distribution, and DuPont Co. striking a deal with PolyOne Corp.
But distribution-related resin sales showed change for the worse in 2009. In the U.S. and Canada, distribution-related sales of high density polyethylene, polystyrene and linear low density PE were down 2-8 percent for the year, according to the American Chemistry Council in Arlington, Va. Distribution-related sales of polypropylene, PVC and LDPE fared even worse, slipping 10-17 percent.
As a result, distribution's share of U.S./Canadian domestic LDPE and LLDPE sales fell between 2008 and 2009. Distribution's market share was flat in PP and actually grew slightly in HDPE in the same comparison.
Most of those markets came roaring back in the first quarter of 2010 — benefiting from being compared with an awful first quarter in 2009. First-quarter distribution sales of HDPE and LLDPE were up 15-20 percent, with sales of PP, LDPE and PVC rocketing up 35-70 percent, according to ACC. PS was the only material not to enjoy a first-quarter distribution comeback, falling 30 percent.
A number of distribution executives contacted recently by Plastics News shared their views on where they think the resin distribution market is headed as 2010 approaches the halfway point. Here's what they had to say:
Choosing sides
The Ashland-Sabic deal was announced in March 2009, with the PolyOne-DuPont agreement following five months later. Officials with all of the involved companies have said one didn't lead to the other, but that perception still lingers within the industry.
Direct results of the Ashland-Sabic deal included Dublin, Ohio-based Ashland parting ways with both Bayer MaterialScience LLC's polycarbonate line and styrenic resins made by BASF Corp., both of which compete with materials made by Sabic IP.
The PolyOne-DuPont deal also led to the dissolution of Ashland's distribution agreement with Wilmington, Del.-based DuPont. At the time, officials with both Ashland and DuPont said that the Ashland-Sabic deal did not lead to the PolyOne-DuPont agreement. A DuPont official said the firm began reviewing its distribution network several months before the Ashland-Sabic deal was announced.
In a recent interview, Ashland Vice President Michael Gilbert said his firm “is really pleased” with the growth it's experienced since linking with Sabic, adding that Ashland now does twice as much sales volume with Pittsfield, Mass.-based Sabic as it previously did with Bayer and BASF combined.
2009 “was the most difficult business environment 75 years,” Gilbert said. “We had to take big, bold strategic moves.”
Michael Rademacher, PolyOne senior vice president and general manager, agreed that Ashland “made strong changes” during 2009, adding that “sometimes you have to make a change that's in the best interest of the business.”
Rademacher also pointed out that his Avon Lake, Ohio-based firm has benefited both from the Ashland-Sabic deal and from its own alignment with DuPont. Benefits from those deals include new customers in the industrial, consumer and automotive markets, he said.
The agreement between DuPont and PolyOne makes PolyOne the primary North American distributor of several materials, including DuPont's market-leading nylon resins as well as acetal, liquid crystal polymer, polybutylene terephthalate and others. Ashland will continue to be a distributor of other DuPont products, including ethylene vinyl acetate copolymers and Surlyn-brand ionomers.
Competitors also weighed in on the impacts of the various deals. M. Holland Co. President and CEO Ed Holland said the changes “created some scrambles” in the distribution world, while Chase Plastic Services Inc.'s Kevin Chase and Muehlstein North America's David Skoczen said it probably is too soon to tell what kind of impact the moves will have.
“This transformation isn't over with,” said Chase, president of the Clarkston, Mich.-based firm. “The majors made their decisions; now the second tier will see it.”
“The industry will continue to evolve and consolidate,” added Skoczen. “There isn't any more [resin] capacity being built in North America, so there will be more competition for the remaining business.”
Gary Metzger, president of Amco Plastic Materials Inc. in Farmingdale, N.Y., said that his firm gained some business in styrenic resins as a result of the Ashland-Sabic deal. Muehlstein's Skoczen, whose firm is based in Norwalk, Conn., added that PolyOne and M. Holland benefited from that deal as well.
“Change is good if you're on the plus side of it,” Metzger said.
John Moisson Jr., president of Jamplast Inc. in Ellisville, Mo., said the changes could prove difficult for some customers, especially those who had specific materials specified with original equipment manufacturers, and then had to switch suppliers.
“A lot more changes could be in the works,” added Holland, whose firm is based in Northbrook, Ill. “Producers are still evaluating their channels to market and they're looking more to distribution.”
Those were big deals that affected big players. Muehlstein generally is regarded as North America's largest resin distributor, followed by Ashland, PolyOne and M. Holland. Of those four, only PolyOne releases annual results for its distribution unit. In 2009, that business had sales of $625 million for PolyOne.
Growing out of it
After the misery of the fourth quarter of 2008 — which lingered through the first half of 2009 — resin distributors have welcomed a healthier market in the last 12 months.
Gilbert said Ashland's sales grew 24 percent between the last quarter of 2009 and first quarter of 2010 — and his firm's sales in March and April were 50 percent above the levels seen in those same months in 2009.
Ashland's growth resulted from its strategy to partner with customers to offer product solutions, to simplify their business, and to help them generate cash, according to Gilbert.
First-quarter volume at Resin Distribution Inc. in Ayer, Mass., set a company record and was 10 percent higher than the previous quarter, according to co-owner Regis Magnus, who said the jump resulted from growth in housewares and film. PolyOne's first-quarter distribution sales were up almost 60 percent vs. the same quarter in 2009. Jamplast also set a company sales record in March.
Holland said his firm is 20 percent ahead of last year's pace, as business with its traditional customers has improved while the firm has picked up new products and new suppliers. At Chase, auto-related sales are up 10 percent vs. 2009, even though they're well shy of that sector's 2006-08 levels. Kevin Chase said his firm also has benefited from “a major pipeline refill in raw materials and finished goods.”
Muehlstein's sales volume was up in the first quarter, according to Skoczen, who said the economy “is getting stronger, and we're moving into the traditionally stronger part of the year.”
One challenge facing the North American resin distribution field in 2010 has been the availability of resin inventory in the supply chain. PolyOne's Rademacher said this tightness has been the result of resin plant outages and other challenges, such as cold temperatures in the Gulf Coast region.
“They've cut way back on inventory on the resin production side because of the deep recession in '09,” Rademacher said. “Producers cut lines down and monetized inventory. They lost huge sums of money in the fourth quarter of 2008, and that's affected how much inventory they carry.”
Because of that inventory situation, PolyOne “is imploring customers to work hard with their customers to forecast, so we can get orders in with producers, especially with more-specialized products.”
“Planning is essential,” Rademacher added.
Osterman & Co. Inc. was able to avoid some of the pitfalls of 2009, thanks to having a strong presence in the film market and less exposure to molded parts and durables, according to John Dwyer. Dwyer serves as vice president of prime polymers and engineering thermoplastics at Osterman, a commodity and engineering resins distributor based in Cheshire, Conn.
“The film business had a better backlog of orders and seems recession-proof,” Dwyer said.
Credit check
The credit-worthiness of distribution customers always will be a concern, but distributors seem less frantic about that subject this year than they were at the same time a year ago.
“Credit has definitely improved,” Kevin Chase said. “Our customers went through a lot of pain to right-size and get financially healthy, but they're holding off on reinvestment. In many cases, banks still are not willing to lend.”
“In general, the market rebound has helped a lot of our customers,” said Gilbert at Ashland. “They managed through 2009 and credit eased up. There's some borrowing available to expand. Credit is healthier, but not robust.”
At M. Holland, Ed Holland said that credit “is still a hot button, but a lot of bad actors are gone because we're further in the cycle.”
And although credit may be improving, the unexpected run-up in resin prices in the first part of 2010 has put some financial pressure on customers, according to Skoczen. At Osterman, Dwyer said credit concerns “have eased up a bit,” but only since his firm and its customers reassessed how they ran their businesses.
For their part, Rademacher and Magnus aren't ready to let their guard down on terms of credit just yet.
“Credit availability is still an issue for our customers and for commercial business in general,” Rademacher said. “With prices up and an inability to extend their product lines, it's difficult [for customers] to buy more product. So order size is decreasing.”
“Credit is still a big risk,” Magnus added. “It's something we monitor daily. We still walk away from people.”
Grow, grow, grow
Resin distributors also expanded through partnerships, acquisitions and personnel moves in the first half of 2010. Market activity included:
* Muehlstein parent Ravago Group buying Performance Polymers Inc., a commodity and engineering resins distributor based in Leominster, Mass. Performance most recently had been owned by Univar NV of the Netherlands.
* PolyOne striking deals with materials suppliers Ineos ABS Corp., MRC Polymers Inc. and Diamond Polymers Inc.
* Ashland adding materials from Solvay Advanced Polymers and Cereplast to its line card, while adding a half-dozen inside sales representatives.
* Holland making several moves, including the addition of new materials from BASF, Bayer MaterialScience LLC, Rhodia SA and Nova Chemicals Corp. The firm also has added credit and technical staff.
* Chase Plastics adding specialty materials from Kraiburg TPE Corp. and Mitsubishi Engineering Plastics Corp.
PolyOne and Ashland also strengthened their presence in the medical field.
“Health care has been a focus for us for more than five years, and now it's 20 percent of our sales,” PolyOne's Rademacher said. “We've built up a base of [medical] business — we didn't just decide to do this when the recession hit.”
In the last 12 months, medical has surpassed automotive as Ashland's largest end segment. Medical firms “are requesting our combination of committed quality and consistency of supply,” Gilbert said.
At Jamplast, some of the firm's work in bioplastics has begun to produce results. Bioplastics growth “was flattening in '09, as a lot of companies went from growth and development mode to survival mode,” Moisson said. “They pulled in product development and expansion.”
“But in the last four to six months, we've seen an acceleration of development. Some projects that have been in the works since '07 — some in durables, some in packaging — are going commercial.”
Finding a role
Like those of most business operators, the minds of distribution executives never can be totally at ease. Kevin Chase, for one, is concerned about the impact recent political moves could have on his business.
“Business is still pretty strong, but there's huge uncertainty on a lot of things because of government programs like health care and the elimination of the Bush tax cuts,” he said. “That could stop this recovery dead in its tracks. On top of unemployment, we could have a have 5-10 percent tax hit on Jan. 1.”
“We want to create jobs and opportunities, but we have to be extremely fiscally conservative. We laid off 12 people in '09 — and we had never laid anyone off — and we've only been able to hire three of them back.”
“Things are still fuzzy and unclear, and it's affecting decisions to hire or expand,” Chase added. “Every small business owner I talk to is in the same position.”
In that type of market, it's even more important for distributors to understand their expanding role in the plastics world.
“I was out of the market from '94 to '03, and when I came back, I was amazed at how much business had been turned over to distribution,” said Magnus at RDI.
PolyOne's distribution unit did a customer survey last year that revealed that customers' primary needs were reducing costs, increasing productivity and cutting down on material substitution.
“You have to come in with solutions, not just price per-pound,” PolyOne's Rademacher said. “You have to understand total cost and real value. It's not uncommon anymore to do a material substitution with a product that's got a higher cost per-pound because of overall value.”
Resin makers “have realized that resin has become a variable expense, and that they can benefit from doing business with a partner,” said Skoczen.
Metzger said, “It's a tighter marketplace. Resin majors don't want to carry inventory either. They're making what they need.”
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