The 2011 outlook for injection molders is brighter, according to an analysis by Plante & Moran PLLC. But in the relative new normal of manufacturing, it all depends.
It depends on where your shop is strategically placed, whether by geographic location or markets. It depends on what resins you're using. It depends on what you have learned from the last three years, and whether you've taken this time to strengthen your business.
But the better news is that if you're reading this, you survived. The key lesson from the past three years is that if you survived, it's because you have talent.
Plante & Moran's Jeff Mengel has categorized the period from June 2008 through June 2009 as the worst period in the history of the plastics industry in North America in terms of the state of balance sheets.
But 2010 was a clean year for molders in which there were limited new product launches and officials chose to cut a lot of costs. Still, that conservative approach may now have a downside.
In 2011, my concern is that we're out of practice and out of working capital, said Mengel, a partner with Plante & Moran in Chicago. In an April 12 phone interview. 2010 was a reprieve. 2011 will be, 'Are we going back to the same old grind?' Core team is good, though. To operate in this environment, you have to have talent.
With all that is happening, our guys have to be much more capable, he said. Our friends across the pond are getting better and better every year.
Mengel's guarded optimism and outlook find support from the National Association for Business Economics survey outlining the effect of macro forces. According to that survey of 72 economists, expectations for economic growth in 2011 are positive. NABE's April survey found that 94 percent of respondents are forecasting real gross domestic product will increase by more than 2 percent. Nearly 40 percent of respondents expect there will be real GDP growth greater than 3 percent.
Job creation in the quarter as well as the outlook for the next six months, as measured by the number of firms increasing headcount is stronger than we've seen in the entire survey history dating back to 1982, said Shawn DuBravac, chief economist with the Consumer Electronics Association, in a news release.
Supporting this growth, both recent results and the outlook for sales and profit margins continue to improve. Companies appear to be positioning themselves for a firming economic environment by increasing capital expenditures, DuBravac said.
Certain sectors show better performance than others, and those end markets are likely to come as no surprise. According to data compiled by Plastics News for its 2011 injection molders ranking, automotive had a better year in 2010 than in 2009. Medical also saw an increase as an overall category.
The medical industry still has good performance from top to bottom, Mengel said. If you're in the medical industry and you're one of the lower performers, you're still average or above average compared to the rest of the industry.
One source in the packaging industry said his firm has seen year-over-year recovery from the 2008-09 period. The packaging business, in his estimate, will see good performance through 2011.
Among the top 20 injection molders in PN's ranking, total sales reached $12.7 billion in 2008's ranking, dipped to $10.7 billion in 2009, then to $9.1 billion in 2010. For 2011, total injection molding sales are $10.8 billion.
In its industry recovery report for 2010, Plante & Moran said smaller processors continue to lose sales while larger companies have had volume recoveries. But some companies did have in excess of 30 percent declines, and only 18 percent of companies had sales growth of more than 5 percent over a two-year period. The study was not limited to injection molders, though that process represents roughly 60 percent of respondents.
Of course, injection molders have struggled with the issue of resin costs. Mengel's data now shows that commodity polypropylene pricing has experienced annual compounded growth of 17 percent over 10 years. By comparison, ABS has increased 5.5 percent and polycarbonate, 3 percent. Gasoline increased 14.3 percent for the same period.
Commodity resin is not going to stabilize, he said. Commodity resins will reflect global markets. That is a big difference from 10 years ago.
If you are in engineered resins, there is less angst dealing with price adjustments. If you are a commodity player dealing with commodity resins, there is a lot more angst.
There also is the issue of banking relationships. In terms of banking relationships, Plante & Moran found in its 2010 North American Plastics Industry Study that most executives were not concerned about access to capital. Sixty percent identified it as a low to moderate priority. But 27 percent did believe their banking relationship was strained.
The ones that were strained before, if they're not strained now, they're restrained from making new investments, Mengel said. I do think there is going to be some more strain in the industry on weak players that have balance sheets beyond repair. Banks don't have to be patient now. They can be much more judgmental.
I anticipate new capital investment, he said. I do anticipate that companies will start reinvesting in technology again. I am hearing about an increase in press sales.
In the current production environment, companies are challenged to be unique and more productive. At the very minimum, improvements have to be made in tooling. But if firms are flirting with production that involves stack or rotational molding, investments will have to be made in different capabilities.
In terms of mergers and acquisitions, companies are participating more strategically rather than just making convenient purchases. But North American players also cannot forget that China and India are getting better every day at competing. Manufacturers also have to factor in the role of disruptions like the earthquakes and tsunamis in Japan.
Will there be a next disruption? The answer is yes, Mengel said.
Plante & Moran is working on updating its report for 2011. Mengel's hope is that more firms will be willing respondents.