The hopes and dreams of late 2009 became reality during 2010 for many North American compounders and concentrate makers.
In late 2009, executives at many such firms said they hoped the economic trials that began in late 2008 had run their course, and that 2010 would see growth and the start of a return to normalcy.
And, for the most part, that's what happened. North America-related sales for 2010 — and in some cases for late 2009 — were up at least 5 percent and as high as 22 percent at publicly held compound/ concentrate firms PolyOne Corp., A. Schulman Inc., Ferro Corp. and Spartech Corp. Numerous private firms have said their results were as good or better. Most of those firms also reported sizable increases in operating income related to those businesses.
U.S./Canadian resin sales to compounders also were up in the first seven months of 2010 vs. the year-ago period, according to the American Chemistry Council in Washington. In some cases, the gains were eye-catching — more than 45 percent in polypropylene, more than 70 percent in PVC and more than 95 percent in high density polyethylene.
Regional sales of polystyrene and low and linear low density PE to compounders also were up 13-15 percent, ACC said.
Executives at several compounding and concentrate firms of various shapes and sizes recently spoke with Plastics News about what allowed the 2010 comeback to occur — and about what the market might hold for them and for their customers in 2011.
How it happened
Pleasant surprise — mingled with relief — was the ruling emotion for execs contacted by PN.
“There's no doubt that people didn't see the severity of the slowdown happening,” said David Bouton, North American vice president and general manager with color and additive concentrates maker Americhem Inc. in Cuyahoga Falls, Ohio. “But they also didn't see the rebound happening as quickly.”
For Americhem, the rebound has led to double-digit sales growth in 2010 and hopes that sales could grow at twice the rate of gross domestic product in 2011.
Wayne Marquis was more effusive in his praise for 2010 at ECM Plastics Inc. in Worcester, Mass. “The market came roaring back,” said the firm's president. “2010 was our busiest year ever.”
Joseph Gingo, chairman, president and CEO of compounder and concentrate maker A. Schulman Inc. in Fairlawn, Ohio, was more blunt in assessing his firm's 2010 fiscal year.
“If you couldn't beat '09, you shouldn't have a job,” he said. “We had our third-best income since 1989 [in fiscal 2010]. We're not up to the 2008 fiscal year, but we approached it very well.”
Sales came back through a combination of returning work from customers that had hunkered down during the economic storm and from new business that was cultivated in the midst of the downturn. The bounce-back also wasn't limited to one or two markets.
“It looked like things were up across the board,” said Paul Angus, engineered polymers global business director at Ferro Corp. in Cleveland.
“Auto builds were up, and in appliance, we expected growth of 2-3 percent and we doubled that.”
“It varied by industry,” said Teknor Apex Co. executive Vice President Bert Lederer. “Auto started coming back early, and there was modest recovery in building and construction.
“Many companies learned how to operate as smaller companies at lower cost,” added Lederer, whose Pawtucket, R.I.-based firm makes compounds based on engineering resins, thermoplastic elastomers and PVC. “Volume isn't back to 2008 yet, but a lot of companies are healthier based on the strength of their balance sheets.”
For North American market leader PolyOne Corp., the slight uptick in housing also helped its Performance Products and Solutions unit, which includes PVC compounds.
“We clearly saw an improvement in the housing sector during the first half of the year,” unit President Rob Rosenau said in an e-mail. “However, it has become increasingly apparent that much of this improvement was driven by the government incentives that remained in place through April. Following the expiration of those incentives, there was a drop in construction-related activity.
“If you're a follower of housing-start forecasts, you have seen this decline in activity reflected in 2010 housing projections — which have been dropping as each month passes,” he said. “Our current view on housing starts for next year is that we will see some renewed growth. It would be fair to say, though, that our customers have a wide array of views on next year's housing demand, with some not projecting much growth at all and others who are quite bullish.”
Construction also played a role at Americhem, where residential construction and remodeling markets are improving, which has helped sales of products into siding, decking and residential carpet. Commercial construction also looks to be on the way up, Americhem's Bouton said.
“Traditionally, residential construction leads down, then commercial lags, then residential goes back up,” he said. “But now, commercial is starting to go up because of corporate profits.”
With U.S. auto builds recovering to more than 11 million in 2010 from less than 10 million in 2009, sales were up more than 40 percent at Asahi Kasei Plastics North America in Fowlerville, Mich., according to President John Moyer.
“We grew in auto and beyond,” he said. “We found a new customer base in furniture, solar and wind. There was still some continued innovation in the downturn. The auto sector was healthier, but we don't expect it to approach its peak for another couple of years.”
For John Van Hulle, president of the Global Color, Additives and Inks unit of Avon Lake, Ohio-based PolyOne, “the big things that jumped out in 2010 were solutions to run more efficiently.”
“There was a definite spotlight on additives, like purging additives and mold releases, and we saw a lot of interest in our OnColor Complete liquid colorant system, which can eliminate spills or messes.”
The auto improvement also spurred growth for PolyOne's color products, Van Hulle said. “There had been four sets of colors used in auto interiors — beige, etc.,” he said. “Now we're seeing more colors in more applications. There's more olive green. They're still muted colors, but now you're seeing six or eight or 10 of them.”
Automotive now represents less of an opportunity for PolyOne's Global Specialty Engineered Materials unit, according to unit President Craig Nikrant.
“The attraction of volume can be overpowering, but that strategy has been taken out of place,” he said. “Technology evolution is more interesting to us now. That's going to open up more opportunities than the build number of cars.”
New product introduction also was key for Matrixx Group, a compounder of commodity and engineering resins in Evansville, Ind., according to Keith Rodden, the firm's executive vice president of sales and marketing.
“Our business overall was up 20 percent,” said Rodden, whose firm is part of Radnor, Pa.-based Citadel Plastic Inc. “Customers turned the page on the calendar [to 2010] and it was like the world opened up. We really got to stretch capacity and lead times.
“We really depended on new product development and new business activity to drive business. We had a couple of difficult years, but this year new products helped us outdo the overall economy.”
“It seems like the double dip [in the economy] isn't going to happen and that we'll get back to regular growth of 3-5 percent,” said Nitin Apte, general manager at the LNP Engineering Plastics unit of Sabic Innovative Plastics in Pittsfield, Mass. “The health-care industry should still do very well next year and aerospace should be strong.”
Growth initiatives
The list of North American expansion projects for 2010 and 2011 looks to be an indicator of faith in the future of the industry:
* Asahi Kasei will add a new twin-screw line in the first half of 2011 to up capacity by 10 million to 15 million pounds. The firm already had spent $3 million on debottlenecking existing lines in 2010.
During 2010, Asahi Kasei went to a seven-day work week on its engineering resins compounding line for the first time in 10 years. Officials said the longer work week was needed because of demand for compounds based on nylon and specialty PP in auto batteries and furniture.
* Backing up claims of greatness in 2010, ECM added around 20 sales reps and production employees during the year, as well as another twin-screw extrusion line. Early 2011 will see the arrival of yet another such line, with the two new lines combining to boost ECM's capacity by 20 percent.
ECM also is considering looking for a larger location, since it has had to lease 80,000 square feet of warehouse space to complement its 120,000-square-foot manufacturing site.
* Teknor Apex in 2010 added a new PVC compounding line in South Carolina, and early next year will re-install a small twin-screw line for specialty compounds in Texas. The firm also added new twin-screw lines making TPE compounds at plants in England and Singapore.
In September, Teknor bought the Sarlink-brand thermoplastic vulcanizate business from Royal DSM NV for an undisclosed price.
* After almost two years, Matrixx in 2010 reopened one of its two plants in Evansville. The firm has called back a total of 25 employees, and plants in Evansville and Texas recently expanded to seven-day workweeks.
* Since late 2009, Americhem has added three extrusion lines at its plant in Concord, N.C. The lines — two new and one used — were needed because of work gained in fibers and engineering resin applications. Three of the firm's four U.S. plants are back to pre-recession production levels.
* TPE producer and compounder PolyPrime Inc. will install its fourth twin-screw line and add six jobs by year's end in Grand Prairie, Texas.
* Medina, Ohio-based Ovation Polymers Inc. installed its third twin-screw extrusion line in July and will start a fourth next October.
* Engineering resins compounder Infinity Compounding Corp. earlier this year installed a new twin-screw extrusion line and added five jobs at its site in Logan Township, N.J. The new line — the firm's fourth — will add 2 million pounds of capacity.
* Radici Group of Bergamo, Italy, bought compounder and recycler Michael Day Enterprises Inc. of Wadsworth, Ohio, in a deal valued at less than $10 million.
* Toll compounder American Compounding Specialties LLC of Fowlerville, Mich., will relocate to a much larger site in Brighton, Mich., during 2011.
* Sabic IP will begin producing PP compounds at its plant in Bay St. Louis, Miss., early next year.
* Compounder S&E Specialty Polymers LLC installed a research-focused extrusion line earlier this year in Lunenburg, Mass., that is also being used for small production runs.
Additives issues
Availability of titanium dioxide, glass fibers and other additives bedeviled compounders and concentrate makers in 2010, and supplies look to remain tight in 2011.
“The situation with raw materials is pretty serious,” said Steve Snow, North American business director at Clariant Masterbatches in Holden, Mass. “TiO2 is available but scarce, and we've seen shortages of organic pigments. Some materials either aren't available or have long lead times, and prices are going up.”
Part of the additives problem, according to Snow, stems from suppliers reducing capacities when the market turned down in 2008, and then not having enough production available when things improved in 2010.
“TiO2 should remain tight,” said Lederer at Teknor Apex. “There's a lot of old, inefficient capacity, but it's expensive to add new capacity for that material.”
Gingo said TiO2 has been “a big problem” at Schulman for the last two or three years. He added that his firm also has seen some shortages of flame-retardant additives.
At Americhem, Bouton said higher prices for pigments and additives have played a role in the firm issuing five price hikes for its own products in the last 14 months. Under normal conditions, Americhem might try to raise prices twice a year, he said.
Supply tightness in additives, and to a lesser extent in resin, has led Asahi Kasei to keep more inventory on hand than it normally would, according to Moyer.
“It's the opposite of what we normally do, but we had to, in order to avoid getting caught short,” he said.
Maintain and sustain
Calls for sustainable products — either bio-sourced or with recycled content — continue to ring throughout the North American compounding sector.
“Lightweighting for fuel efficiency is the No. 1 need in automotive,” said Apte.
With that goal in mind, LNP/ Sabic can offer compounds based on post-consumer-recycled (PCR) grades of its polycarbonate, PC/ ABS and PPO/ PPE. It also is working on natural-fiber biocompounds.
“With PCR, we're skating to where the puck is,” Apte said. “More and more companies are sourcing PCR and building it into their products.”
Matrixx strengthened its position in sustainable products earlier this year when its parent firm bought QTR Inc., an Evansville-based compounder offering many products based on recycled engineering resins.
Schulman is working to commercialize a biodegradable product, and Gingo added that recycling “is a hot button because of resin prices.”
“You can get good leverage if you can offer a recycled product at the same price as a non-recycled.”
ECM's Marquis added that his firm is working with “more sophisticated types of compounds,” including polylactic acid and polyhydroxyalkanoate bioresins.
Roll out the products
Compounders and concentrate makers have continued to deliver the goods in 2010. Many of them had new product launches geared around the recent K 2010 trade show in Dusseldorf, Germany, but product innovation also has become a year-round effort.
Sabic's Ultem-brand polyetherimide compounds are being used to make fibers for composite structures. The material allows for lightweighting of interior aerospace parts like tray table arms and window frames, providing faster cycle times and an alternative to thermosets.
At PolyOne, Nikrant is enthusiastic about his firm's new Withstand-brand anti-microbial compounds for the health-care market. The firm's halogen-free flame-retardant products for wire applications also have drawn interest.
“The amount of customers' new programs in the downturn wasn't as robust,” Nikrant said. “Now, they're investing in specialty programs a lot more. There's been a tremendous response to new products.”
The medical market also has lifted PolyOne, where sales of specialty engineered materials into the medical market grew 88 percent in the first half of 2010. Nikrant said the firm was aided in this area by its 2009 acquisition of medical compounder New England Urethane Inc. of North Haven, Conn. PolyOne materials now are being sold into medical tubing and infant-care items.
Medical also has led the way at Clariant, which recently won medical-grade certifications for its plant in Lewiston, Maine. The plant now is one of three medical-focused plants globally for Clariant, and will allow the firm to design and make products locally.
“Medical is seeing the fruits, but it takes time to get approvals and certifications,” Clariant's Snow said.
“We're seeing consumer-driven health care,” said Apte. “Patients have more responsibility with increased monitoring and home devices. And that means more plastic products in health care.”
One successful new product for Schulman was a material used in an improved agricultural film for a Mexican customer that improved crop yield.
“On new products, we're hearing people say, 'I'll pay you for a value-add that improves operations or gives me a new product,'” Gingo said. “This product benefited both parties.”
Lederer said he's heard similar comments from customers at Teknor Apex.
“Customers very much wanted to bring products forward,” he said. “They fell into two categories. Some said they didn't have any time, but they wanted us to come back when things are better. Others said they needed new products right now to stimulate customer buying.”
At PolyOne, Rosenau said that the Performance Products and Solutions unit “continues to work on a variety of new applications in the appliance market, where major OEMs have asked us to help them develop parts in which Geon-brand compounds can provide improved function, improved aesthetics, or both.”
PolyOne's work in appliances is also opening doors for the firm in an increasing number of HVAC applications, he said.
And Clariant has found something new in an existing product. Its chemical foaming agents have been around for a while, but are drawing interest from customers looking for part weight reduction. Clariant's CFAs — made at a plant in Winchester, Va. — can provide that while using less polymer in consumer goods and auto parts, Snow said.
Facing the future
If writing big checks is a sign of confidence, then Schulman's Gingo must sleep well at night.
Schulman has made three compounding-related buys this year — picking up ICO Inc. of Houston for almost $200 million and making smaller deals for McCann Color of North Canton, Ohio, and Mash Compostos Plasticos of São Paulo. Schulman, which is looking for further deals, didn't base its strategy on the 2008-09 slowdown, Gingo said.
“The biggest difference is that we had money,” Gingo said of Schulman's ability to pull the trigger so soon after the recent doldrums. “And we still have a good balance sheet.”
Schulman also has plans to become a much larger player in the North American color and additives concentrate sector.
“We're No. 1 in that area in Europe and Mexico, and there's no reason that we can't be a bigger presence in the rest of North America,” he said. “Customers wanted us to do masterbatch here, but we didn't really have a plant. We do now with ICO and McCann.
“We're not going to go head-to-head with [concentrate market leaders] Clariant and Ampacet, but there's plenty of room to participate.”
And less than two years after shutting down 40 percent of its North American capacity — in commodity-type, low-profit business — Schulman is looking to maximize its regional performance by using “smaller, more flexible extruders, with smaller runs and shorter change times,” Gingo added.
Most executives interviewed for this story anticipate North American demand growth ranging from the mid-single digits to as high as 20 percent in 2011, depending on the market. PolyOne's Rosenau said his unit “is in the process of developing next-generation materials for some current compound markets” that may significantly improve processing and/or part performance; while at Ferro, Angus said the firm “is trying to get away from commodities” and into more color and specialty compounds.
“Things are definitely getting back to normal,” added Van Hulle at PolyOne. “For the last year or year and a half, customers cut resources to survive. But now they're doing startups and trials, and that benefits companies like ours that can offer complete solutions.”
For ECM's Marquis, 2010 was far preferable to the previous year. “Twelve or 18 months ago, everything was doom and gloom,” he said. “Now, we — and our competition also — are either fairly busy or busy. Nobody's absolutely dying to get the next job.”