The biaxially oriented PET thin-film shortage of 2010 has turned into the glut of 2011 — thanks in part to 29 judges in New Delhi and a concoction called gutka.
A December decision by the Supreme Court of India upheld a ban on the sale of gutka in plastic pouches. Gutka is a popular stimulant consisting of crushed betel nut, chewing tobacco and other flavorings. The ban left Indian film producers with as much as 220 million pounds of inventory sitting in their warehouses.
“Roughly a third of the Indian market disappeared overnight,” Simon King, managing director of PCI Films Consulting Ltd. of Guilsborough, England, said in a July 19 telephone interview.
While Indian film manufacturers are trying to circumvent the ban by appealing to domestic tobacco companies to sell the product in pouches larger than the sachets covered by the law, plastics firms found a short-term solution in offering excess PET film to the world marketplace at low cost, he said.
King characterized the Indians' business acumen as “brilliant,” but the global auctions hurt margins up and down the U.S. film supply chain, said John Felinski, president and CEO of Filmquest Group Inc. The Indians' actions were “very irresponsible,” he said.
“It's been a very devastating situation to anyone, financially, involved in the distribution of thin-gauge polyester film,” he said.
Felinski, whose Bolingbrook, Ill.-based firm supplies Questar-brand PET film, said “panic buying” of packaging-grade film in the summer and fall of 2010 occurred because buyers were caught short when thin-film capacity in the states was cut back in favor of thicker films, such as those used in LED lighting, photovoltaic cells and liquid-crystal-display screens, all high-value-added applications.
Experts predict traditional-volume film producers with U.S. manufacturing — such as DuPont, Toray, SKC and Mitsubishi — will stay the course and stick to higher-end films, especially as PET resin prices have climbed from about 70 cents a pound in October 2010 to $1 a pound in July 2011, according to Plastics News research.
“They're rationalizing global capacity maybe a bit more than they were, but I don't think we're going back to the days of a free-for-all in the marketplace. Raw material prices have been rising, putting a floor under some of the nonsensical things that were happening last year,” Felinski said.
Even with higher labor costs and raw materials prices factored in, companies such as Uflex Ltd. and Polyplex — both based in Noida, India — are willing to spend large sums to set up BOPET film production in North America.
Polyplex recently announced plans for a $185 million campus in Decatur, Ala. — its first in North America.
Uflex has said it will build a $180 million plant in Kentucky in addition to the second manufacturing line it announced in 2009 at its facility in Altamíra, Mexico.
“They've struggled to do any business in that very large [U.S.] market, where there are high-value products that they'd like to get at least a niche in, so they're putting up plants,” King said of the Indian newcomers.
Mike Dewsbury, vice president of packaging at Resin Technology Inc. in Fort Worth, Texas, said Uflex's latest plant probably was set up in a bid to satisfy a major U.S. consumer-packaged-goods customer.
“I'm guessing it's a transportation play. There's always the concern about [location]; even though its [other plant is] in Mexico, the bigger end-use companies, the CPGs, want guaranteed, just-in-time delivery. Kentucky does that for them,” he said.
Dennis Moxley, business manager for Polyplex Americas Inc. of Farmers Branch, Texas — the Polyplex subsidiary that is building the Alabama plant — acknowledged that Decatur being about 300 miles from the busy port at Mobile, Ala., is good for business. Future labor costs are relatively low as well.
“The No. 1 criterion was a right-to-work state,” he said of the process of picking a site for Polyplex's North America headquarters.
BP Chemical Ltd. and Indorama Public Ventures Co. Ltd. have facilities in and around Decatur that could supply resin and chemicals such as paraxylene, and Polyplex plans to work with local partners as it builds an on-site feedstock resin plant, he said.
Market watchers agreed that established U.S. plants, some with 15- to 20-year-old machinery, would face a steep uphill climb to regain manufacturing parity with Indian-owned U.S. plants.
“[The Indians have] come in, not with a 10,000-ton, thin-film line of narrow width, but with a 30,000-ton, 8-meter-wide [line], and running at 400-500 meters a minute. These things churn out huge quantities of commodity film,” King said.
While Felinski said the Indians saw an opportunity to beat their U.S. competitors with new technology, Dewsbury said there's room for both commodity-based and value-added manufacturers.
“There is not a technology differential: If two or three [companies] invest on the same equipment at the same time, nobody gets a return on their investment,” Dewsbury said.
As Indian firms seek to expand U.S. manufacturing, Chinese companies seem content to remain geared toward their domestic market. King said Beijing's recent rounds of investment in improving the quality of life in China's western cities could benefit domestic film producers, much as U.S. westward expansion in the late 1800s benefited a range of U.S. companies.
For all practical purposes, U.S. anti-dumping duties have kept Chinese firms out of the clear-film business, Felinski said, and importers are leery of their product.
“As the importer of record, you are going on the hook for potential exposure and liability if DuPont or SKC decides, ‘We don't like what's happening here.' Brokers are very cautious about bringing in too much [Chinese] material,” he said.
King said that could change, as younger Chinese executives trained in the U.S., Australia and New Zealand ascend the corporate ranks.
“I'm seeing more of those sorts of 25- to 30-year-olds in polyester film and polypropylene companies. They still have bosses who are less keen to pursue an exporting strategy, but these younger guys are coming through and seeing the potential [for exporting],” he said.
For the next five years, PET thin-film capacity should be more than enough to meet demand, thanks to new plants being built in North America, Eastern Europe, the Middle East and Asia, the experts agreed.
PCI recently published a report that said world demand for PET film will grow by 8.7 percent annually to 2015.
During that period, capacity increases of 3.3 billion pounds will more than meet the expected demand of 2.2 billion pounds, according to the research.