The numbers that usually serve as signposts for the North American compound and concentrates industry aren't offering much help in late 2011.
Sales of high density and linear low density polyethylene to compounders was up in the first eight months of the year (good), but sales of PVC, low density PE and polypropylene to the same group were down (not so good). That data comes from the American Chemistry Council in Washington, which includes resellers in its totals for PVC.
Among publicly traded firms with compound/ concentrate businesses, recent profit and operating income was up for those businesses at PolyOne Corp. and A. Schulman Inc. (good), but down at Spartech Corp. and Ferro Corp. (not so good).
To navigate this uncertain terrain, Plastics News recently spoke with executives at a number of compound and concentrates firms. Here's what they had to say:
A certain uncertainty
The word “uncertainty” keeps popping up when you ask compounding executives about 2012 — or even about next month. It's what they're hearing from their customers and, as a result, it affects their day-to-day operations.
“There's a whole raft of crowds out there, but it seems like they've come together in uncertainty,” said Bert Lederer, executive vice president at Teknor Apex Co. in Pawtucket, R.I. “Typically this year, it feels sluggish during the month, but at the end of the month, we add things up and say we've done pretty good. But we're still not at the pace we had seven to eight months ago.”
“It's a mixed bag with market situations,” added Keith Rodden, executive vice president of sales and marketing at Matrixx Group in Evansville, Ind. “The first quarter was very strong, but we've seen a slowdown in the second half that feels like it's a little more than seasonal. It's not going at the same pace, but it hasn't fallen off a cliff. A lot of our customers are nervous.”
At Fairlawn, Ohio-based Schulman, Joseph Gingo said the compounding market “has gone into a cyclic nature of one month up and one month down.”
“It's a very turbulent world right now,” said Gingo, chairman, president and CEO. “We used to say the quarter looks good, but now we say a month looks good. And that goes back to our customers, who tell us that next month looks OK, but not the month after that.”
Gingo added that in some ways the current environment is more difficult than the recession of 2008-09. “It was very bad then, but it was down every month,” he explained. “It wasn't the most pleasant time, but you knew what was coming until the recovery came.”
Industry consultant John Jones was blunter in his assessment of the current compounding/concentrates picture. “What we're seeing is chaos,” said the owner of JR Jones Inc. in Wyomissing, Pa. “Some markets are getting better, but some are getting worse. Automotive is coming off a real low, so that's something positive, and packaging is doing OK, but some of the markets that are down shocked me. Shopping bags, for example, are down, and I can't see a reason why.”
Abundant uncertainty hasn't stopped numerous compounding firms from proceeding with growth plans in the last 18 months. These projects include:
* Spartech restarting an automotive-focused compounding line in Lockport, N.Y. The plant had been closed since late 2009.
* Americhem Inc. adding three new lines and 25 jobs at its plant in Concord, N.C., for the polyester carpet and textile markets.
* Network Polymers Inc. spending $1.4 million to add a new twin-screw line and some auxiliary equipment in Akron, Ohio. The line will add 12 million pounds of capacity, primarily for making glass-filled compounds.
* Automotive compounder Advanced Composites Inc. adding a new PP line in Sidney, Ohio, by year's end and another at its Mexican plant by year-end 2012.
* TP Composites Inc. spending $1.3 million to move to a larger site in Aston, Pa., where it installed new twin-screw and single-screw lines and lab equipment.
* ATC Plastics adding a black-concentrate production line at its Houston plant by early 2012.
* Asahi Kasei Plastics North America's $5.5 million project to add a line making specialty nylon compounds and similar products by year's end, creating 10 jobs. It also plans to spend about $3 million to upgrade existing lines.
* Italian nylon resin and fiber maker Aquafil SpA adding nylon compound production in Cartersville, Ga.
* Sabic Innovative Plastics launching PP compound production at its plant in Bay St. Louis, Miss., with a focus on automotive.
* Ampacet Corp. opening plants in Brazil and India earlier this year, with plans for a site making black and white concentrates in the Benelux in 2012.
* Teknor Apex boosting capacity in Texas, South Carolina and England and buying the Sarlink TPV business since mid-2010.
* Matrixx late last year reopening an older plant in Evansville that had been closed since 2009. The site is running two production lines.
PolyOne opened its 10th global innovation center earlier this year at its Avon Lake headquarters. The center expanded the firm's ability to work with customers at the very start of product development, said John Van Hulle, president of the Global Color, Additives and Inks business.
And though Schulman is closing a plant in Nashville, a related expansion in Akron will result in net gains in production and jobs. “Akron is more of a hybrid plant with masterbatch [concentrates] and engineering plastics,” Gingo said.
“There was a lot of overhead that we didn't need. We've downsized twice now, and I think we're done. We want to get into a defensible space in an area that resin makers don't want either because it's too complex or it involves small runs.”
Markets open up
A sizable upswing in North American auto builds has lifted spirits. Car and light-truck builds were under 12 million last year, but should be close to 13 million in 2011 and near 14 million in 2012.
“Auto suppliers are coming back more,” said Asahi Kasei President John Moyer, whose Fowlerville, Mich.-based firm generates more than half of its sales in automotive. “We could be back up to 15 million builds by 2014 or 2015.”
His firm “was hit for three months” by the Japanese earthquake and tsunami, but now demand is above budget amounts, Moyer said. “Without the earthquake, we would have been up 8-9 percent. With it, we're still up more than 5 percent and should be up around 10 percent next year. We've seen organic growth in both automotive and solar.”
At Clinton, Tenn.-based Techmer, President and CEO John Manuck agreed that the automotive market “is excellent, and continues to look good.” His firm is seeing demand rise for materials used in hard plastic interior components and also in fabrics.
On the other end of the spectrum from a resurgent automotive field is a construction market that just can't gain traction. Several executives said that market remains weak and isn't expected to improve much in 2012.
“Every time you think [construction] has hit bottom, it goes lower,” said Dave Bouton, vice president and general manager at Americhem in Cuyahoga Falls, Ohio.
“Housing remains the biggest concern,” said Lederer at Teknor Apex. “It makes people more conservative to buy a new house.”
The medical market remains strong for Clariant Masterbatches in Holden, Mass. North American business director Steve Snow said his firm's products are finding growth in pharmaceutical packaging and in medical devices like catheters and drug-delivery devices. Last year, Clariant began making its Mevopur-brand line of medical-focused concentrates at a plant in Lewiston, Maine.
“There's a huge interest in Mevopur from the big, global pharmaceutical firms,” he said.
PolyOne also has benefited from medical demand, primarily throught its NEU unit and in its broader Specialty Engineered Materials business.
“We've placed a focus and emphasis on health care,” said Craig Nikrant, Global SEM unit president. “It takes a few years to come together, but we've commercialized four X-ray shielding applications in the last year. We're starting to see good success with lead replacement.”
PolyOne also has successfully placed its materials in syringe parts and thin catheters. “Some of these projects can take almost three years from idea to commercialization,” Nikrant said.
PolyOne also has seen surprising growth in the appliance market, according to Performance Products and Solutions unit President Rob Rosenau. “Appliance is somewhat tied to new construction, but not entirely,” he said.”In appliance, it's still built around the performance of the material. We've seen some impact of that in this business.”
The wire and cable market also has rebounded for the firm. Some of that growth has been organic, but some has come from replacing infrastructure after natural disasters.
Packaging remains a steady market, with Ampacet President Robert DeFalco saying packaging in frozen food and snacks has held up, as has rigid packaging in personal-care.
Growth in packaging is exceeding expectations in the film market for Penn Color Inc. of Doylestown, Pa., said Robert Kaminski, thermoplastics industry manager. Clariant's Snow added that packaging “tends to be recession-proof” because customers “always want it to stay local.”
Toll compounding is paying off for Indianapolis-based ATC, where co-owner Tom Stevning said a large amount of new work for filled PE and PP is creating the need for new capacity in Houston. That work could double ATC's tolling volume and create eight to 10 new jobs, he said.
Schulman is looking to add more value-added services such as cryogenic grinding of polycarbonate and nylon, Gingo said.
PolyOne's Van Hulle added that his unit has seen increased interest in products that can help customers complete color changeover more efficiently to maximize production uptime.
At Sabic IP in Pittsfield, Mass., lighting and consumer electronics applications are creating opportunities for compounds based on Lexan, Ultem and Cycoloy specialty resins.
“There's intense price pressure and competition in consumer electronics, so those companies have to innovate,” said American and European Vice President and General Manager Tim O'Brien. Customers are trying to cut costs by thin-walling and reducing secondary operations. Some are postponing new products while some want new materials “because they can't accept flat GDP growth. It's not in their business plan,” he said.
An eye on raw materials
Raw materials can test the patience even in the best of years.
Among commodity resins, PP has shown major gyrations, with PE, PVC and PS moving to a lesser degree. Even more-stable engineering resins like PC and nylon have bounced around. Tightness in additives such as titanium dioxide and carbon black have also caused headaches at times.
“Our sales in dollars will be up close to 20 percent this year, but a lot of that is passing on resin costs,” said Ampacet's DeFalco. Volume will be close to flat, “which is dead-on what we budgeted. And when you back away from it, we could be looking at the same situation next year,” he said.
The PP market has been challenging for Spartech of Clayton, Mo., said business manager Tim Feast. The firm still is seeing tightness in supplies of TiO2 and carbon black. At Schulman, Gingo said the TiO2 situation is better than it was a year ago, but has room to improve. Stevning said the carbon black supply has improved, but at one point this year, ATC was able to get less than half of the amount it needed.
Raw material purchases often come down to asking if you want to buy even with the risk of your inventory getting devalued, said Moyer at Asahi Kasei. “Managing volume is where you can make or lose money,” he said. “It was easier when there were smaller ups and downs” in pricing.
In the long run, makers of compounds and concentrates might be better off looking at that price volatility as “almost a way of life,” said PolyOne's Nikrant, and as something that doesn't have to influence product selection.
“If raw materials go up, butadiene, for example, that's not really going to affect [material] selection,” Nikrant said. “Customers need unique characteristics. In nylon, do you want to go through all your inventory in auto to make a material change?
“I think a lot of people don't fret about [volatility] anymore.”
Interest in sustainability — either via bio-based products or recycled content — is a big deal for some of Sabic IP's customers.
“Some of our customers are saying that if sustainability isn't the first thing on the agenda, we don't need to meet,” Sabic's O'Brien said. “It's moved up the requirement scale.”
Others aren't so sure. Most of the firms contacted for this story offer some type of bio-based or recycled-content product, and most said they get frequent inquiries on the subject. But most also said interest tends to wane when customers realize alternative products often are higher-priced than standard materials.
“There have been some good sustainable products developed, but they've been for niche markets for higher prices,” said Moyer. DeFalco added that sustainable products “are available, but there hasn't been an aggressive rush,” with some being used as processing aids rather than base materials.
But a number of firms are pushing ahead, even if sustainables sell at a premium. Teknor Apex plans to commercialize starch-based products next year, Lederer said. By the end of next year, PolyOne internally will be using a bio-plasticizer it's developing along with agricultural firm Archer Daniels Midland Co. And Rodden said Matrixx is seeing more interest in recycled-content compounds made by QTR Inc., an Evansville-based firm acquired last year by Matrixx parent Citadel Plastics Group.
PolyOne has seen bio-based materials pick up in specialty applications. The company's Gravitech-brand material can provide cost savings in lead replacement, and some of its ECCOH-brand products can have as much as 50 percent content from bio-based polylactic acid, Nikrant said.
“There's a lot of activity in the sustainability area — it's getting some legs under it,” he said.
Same as the old boss
Compounders and concentrate makers were reminded of the circular nature of the market when industry veteran Barry Rhodes opened Altera Polymers LLC in Seneca, S.C. Rhodes was at Schulman for 24 years before leaving in early 2008. His new firm is making compounds based on PE, PP and PC.
One executive joked that Rhodes “may have waited all of five minutes after his non-compete [agreement] expired” before opening Altera.
But Rhodes' return is further proof that for every closing or merger in the market, new entrants emerge. That was backed up by a recent study by Jones in which he found that the number of North American color and additive concentrate makers declined by only one between 2008 and 2011. Although 19 companies vanished, 18 rose to take their place.
2012 and beyond
As a group, the compounding executives interviewed for this story were more optimistic than their counterparts in the resin field who spoke with Plastics News last month. Several executives said they planned to increase the size of their firms' sales staffs in 2012.
Most of the compounding group expect their firms to post sales at least in the mid-single digits in 2012, with a few even predicting double-digit growth for the year. Maybe that's a function of trying to sell millions of pounds of compounds and concentrates, instead of billions of pounds of resin.
“New products and new items are driving our business,” said Techmer's Manuck. “We constantly focus on how to add value. ... It's not just about how a material looks, it's about how it's going to improve the product.”
Although Penn Color is “a little more positive” now than it was earlier in the year, the firm remains concerned about the possibility of a double-dip recession, Kaminski said.
Bouton said Americhem is adjusting to customers keeping inventory at minimum levels and buying material at minimum-order sizes. But he added that the the company will grow by focusing on its uniqueness to the customer.
Spartech's Feast said, “Our focus remains strongly on growth. If we do an outstanding job of focusing on the customer, we'll be fine.”
“It's like that old story: If you're in a group that's being chased by a bear, you don't have to outrun the bear. You only have to outrun the other guys,” he said.