South China's mold-making and injection molding companies are headed for a sharp consolidation this year, as slumping worldwide demand and rising costs hit hard, according to interviews at the recent Asiamold trade fair in Guangzhou.
Leading firms are gaining business, but others are struggling. The South China plastic tooling and molding industry could see 20-25 percent of its companies close by early next year, according to Jack Yeung, chairman of the Hong Kong Mould & Die Council.
He noted, however, that since many of those shutting down are likely to be smaller firms, meaning that overall capacity will not drop by that much.
Still, he and some other executives at the Asiamold show, held Sept. 21-23 in Guangzhou, said the industry is changing dramatically, with stronger, better-capitalized or more-innovative firms gaining market share. Rising labor costs, a stronger Chinese currency and a slowing global economy are making the business environment much tougher.
“It's going to be a tough time — I've seen many shutdowns right now,” Yeung said. “In the first seven months there has been a lot of shutdowns of shops, and the council itself is trying to find ways to help these companies find the right customers and to drive technology so they can improve.”
“There is extreme overcapacity right now,” he said. “A lot of the companies are running at 50 percent capacity.”
Yeung said it's difficult to get solid statistics regionally, and he said he was referring to the broader base of both Hong Kong and mainland Chinese-owned tooling and molding companies in South China, not just Hong Kong firms.
The region between Hong Kong and Guangzhou is one of China's largest mold-manufacturing and injection molding areas.
Yeung and other analysts suggest gains are going to the strongest companies.
“You have to have some kind of knowledge that cannot be replaced. [Customers] have to come to you,” he said. “For those who have the catch, they are doing actually very well. For those who don't, it's extremely tough.”
“We statistically say [about] 25 percent of the shops will shut down by the Chinese New Year” on Jan. 23, Yeung said. His own firm, Ace Corp. Holdings Ltd., is making investments.
Ace plans to open a facility in Anhui province later this year. The company invested in a joint venture in Mexico last year and recently bought out its U.S. partner, Classic Industries, in their joint medical-products plant in Shanghai.
The two firms will continue to have a joint venture on market development, but it made sense for Ace to buy the manufacturing assets, Yeung said.
Yeung's points about economic conditions were echoed by another longtime member of the Hong Kong Mould & Die Council's executive board, Alfred Au, who said business has slowed in the last few months as mold buyers have become more cautious.
Based on his conversations with other companies, Au said the softness reflects uncertainty about the world economy and a pulling back of spending on research and development.
“They all said it goes down. It's not up, it's not steady — it comes down,” said Au, managing director of Hong Kong-based Inmold Technology Ltd. and a former vice chairman of the Mould & Die Council. “The [economic] crisis didn't end. It's still coming.”
Many foreign customers have cut back on travel budgets as well, he said.
Like Yeung, though, Au said some firms are doing well.
“All of my friends related to automotive and thin-wall packaging, they are doing very well,” he said. “But with electronics or housing appliances, it's no good, no good.”
“All our members, the mold makers or molders, can be divided into two groups,” said Au, who has been on the council board for two decades. “One, the volume of sales goes way down. The other, sales are going up.”
Au pointed to fellow Hong Kong mold-making company Datamatic CNC Engineering Co. Ltd. as a company that has “more work than they can handle.”
Datamatic employs 230 people at a factory in Guangzhou that is a joint venture with a local government agency. Datamatic is looking to raise funds for a new factory in that city.
The company makes precision molds for headlamps and lighting in cars, and said almost all of its key clients in the auto industry are telling it to prepare for substantial new projects in coming years.
“Our clients are asking us to increase our capacity,” said Leton Lee, general manager of Datamatic. “We feel quite optimistic.”
Almost all of Datamatic's customers are global Tier 1 automotive suppliers, with about half of Datamatic molds being used in projects for the China market and half overseas, he said.
The company has a niche making specialized, highly precise molds, and has more pricing power than many competitors, he said.
“It is difficult [for automakers] to get a good supplier for certain kinds of parts,” Lee said.
Developing a niche, rather than trying to be a general mold maker in diverse markets, is a key recommendation that came from a recent study the Hong Kong council commissioned to give its members a roadmap to improve, Lee said.
Mold makers in Guangdong province, where Datamatic is located, also may face more challenges with government policy compared to Zhejiang province, another mold-making center, where government rules are “very encouraging,” Lee said.
Guangdong and its capital, Guangzhou, want to develop more of a service industry, and are imposing stricter requirements on manufacturers that want to expand, Lee said. Datamatic meets those requirements, which include investment levels and profit margins, and is looking to put its new factory in suburban Guangzhou, he said.
The government requirements are apparently strict. Datamatic's joint venture partner told him that even though they are a quasi-government agency, the factory must meet the rules that are being set by other units of the local government, Lee said.
The Hong Kong council maintains that its members still have advantages in the world economy, including familiarity with technology like micromolding, in-mold assembly to automate production and closer access to China's growing domestic market.
Au said being a bridge between China and the rest of the world is one advantage. Hong Kong's mold council, for example, is working closely with Japanese mold makers looking for partners to set up in mainland China, he said.
It's also important for Hong Kong's plastics industry to more closely integrate with Guangdong and other areas in China, Au said: “Nowadays we cannot work just on our own.”
Yeung said the Hong Kong council is also actively arranging business match-making services for its members with groups in Europe and Japan.
The Asiamold exhibition also seems to be mirroring the changes in South China's plastics industry.
This year saw a drop in participation from Hong Kong mold-making and molding firms that had previously taken large and prominent booths, replaced by more mainland China mold makers, said Louis Leung, deputy general manager of the Guangzhou office of fair organizer Messe Frankfurt.
Overall, the fair increased its number of exhibitors by 12 percent to 330, and saw visitors in the first two days total 12,500, which exceeded 2010's totals for all three days. Overseas visitors were up 25 percent, helped by delegations from Eastern Europe, Iran and Japan, according to Leung.
Some mainland China shops at the Asiamold fair said they are upgrading.
Shenzhen-based Hanking Plastic Manufactory (Shenzhen) Co. Ltd. invested US$7.82 million in a 108,000-square-foot mold-making factory it opened in August next to its headquarters molding factory. About one-third of that amount was spent on expensive Japanese and European mold-making equipment, said Olive Kan, international trade manager. “We need to improve the mold quality to attract more attention from overseas,” she said.
Dongguan, China-based mold maker Hitop Mold Industrial Co. Ltd. said its business has been helped by overseas customers seeking bargains in the slowing world economy, but profits are hurt by rising costs and the stronger Chinese currency.
“Our profit rate is smaller and smaller,” said James Liu, marketing director.