AKRON, OHIO (Dec. 13, 3:10 p.m. ET) — Heading into 2012, resin distributors are leading the materials market in optimism. Which makes you wonder: Do they know something the rest of the industry doesn't know?
Plastics News recently interviewed executives at several resin-distribution firms, and almost all of them have expectations of greater sales volumes next year. Most of them also said they are looking to add more sales reps in the year ahead.
Here's what this opinionated bunch had to say on these and a variety of other topics.
Data through September from the American Chemistry Council offers a mixed bag on distribution. The nine-month report shows big gains for U.S. and Canadian sales of linear low density (up 40 percent) and high density (up 22 percent) polyethylene through distribution channels, but a sizable loss for LDPE (down 15 percent). North American sales of polypropylene through distribution also were down 5 percent.
Distributors and resellers accounted for 13-17 percent of all high, low and LLDPE sales through September. For PP in North America, they generated just over 17 percent of total sales.
Sales volume in pounds for the year ended Sept. 30 was up 11 percent at distributor M. Holland Co. in Northbrook, Ill. President and CEO Ed Holland said his firm and other distributors continue to gain volume from resin makers that no longer are able to offer the same levels of customer service and technical support they once did.
“Even if a customer buys 90 percent of their resin needs from a resin supplier, they'll buy 10 percent from a distributor to handle their spot needs,” Ed Holland said.
“We've got resin neutrality — it doesn't matter to us what resin customers use.”
Sales volume in pounds for full-year 2011 also is on track to be up at H. Muehlstein & Co. Inc. in Norwalk, Conn.; Chase Plastic Services Inc. in Clarkston, Mich.; and Amco Plastic Materials Inc. of Farmingdale, N.Y. Flat pound totals for 2011 are expected at PolyOne Distribution of Avon Lake, Ohio; Nexeo Solutions LLC of Dublin, Ohio; Resin Distribution Inc. of Ayer, Mass.; and Plastic Solutions Inc. of Roswell, Ga.
“Overall, 2011 was pretty terrific from a volume standpoint,” said Chase President Kevin Chase. “We're seeing new business coming off of that 2008-2010 recession period. Auto builds are back up, electrical/electronic are doing well and office furniture is solid.
“Appliance has been soft, but consumer and industrial has been strong,” he added.
Dave Skoczen, Muehlstein North America vice president and general manager, said that because of lower export sales from North America, more material has been available for large-volume suppliers of generic, unbranded resin such as Muehlstein.
“When [resin] producers have extra product, they have to decide if they're going to export it or sell it through a company like us or throttle back on production,” he explained. “When exports aren't good, there's more material available.”
In 2011, Muehlstein has enjoyed “high-single-digit growth” that exceeded the firm's expectations. “There's been some uncertainty in stocks and debt markets, but it's been a good year for us,” Skoczen said.
Business at RDI was good until a couple of months ago when lower demand caused commodity resin prices to fall, leading buyers to scale back their purchasing even more — holding off in case prices continued to fall, so they wouldn't get stuck with high-priced resin, according to RDI Vice President Dave Hazel.
“Buyers bought in, but now they're staying on the sidelines,” he said. RDI did benefit from more generic material being available since, Hazel added, resin companies “have to keep their reactors running.”
At PolyOne Distribution, President Michael Rademacher was a little more conservative with his market assessment — even though his distribution unit showed nine-month sales growth of 10 percent and operating income growth of almost 40 percent.
“It's been a challenging year for the industry because of the economy,” Rademacher said. “There's been a lot of uncertainty, and that makes forecasting demand a month-to-month exercise.
“We've got higher average selling prices vs. 2010, but for the most part sales volume in pounds is flat to slightly down. Customers, overall, have been in a period of destocking recently because they don't know how to forecast. They're only buying what they can invoice and they're being extremely cautious about year-end.”
Amco President Gary Metzger has seen a similar late-year sales dip at his firm. “When [buyers] see prices come down, they don't want to buy. Guys that can play it that way, play it.”
At Nexeo — the renamed Ashland Distribution business that was acquired for $930 million by investment firm TPG Capital late last year — sales look to be flat for 2011, but officials “are expecting some growth” in 20102, according to plastics sales Vice President Vaughn Deasy.
“Producers are increasingly looking to channels like ours that have more of a field presence,” said Deasy, who joined Nexeo in September after a 21-year career with resin maker LyondellBasell Industries and its predecessor firms. Deasy added that Nexeo “is bullish on the North American manufacturing picture for next several years.”
Here we grow
Plastic Solutions began handling polycarbonate, nylon and other engineering resins this year for the first time. President and CEO Brad Morgan said his firm “wanted a broader product offering and higher margins” and has been “very happy with our growth” from the new products.
At RDI, Hazel said the firm is looking for opportunities to start selling material to processors in Europe and Asia.
But the one area that comes up time and again with distribution executives is the need to increase the size of their sales forces by hiring more sales representatives. From the sound of it, any sales rep with half a resume should have no problem landing interviews.
M. Holland has added 12 sales positions, and 21 jobs overall, just since July and is looking to add three more sales reps in the near future. Chase has added three new sales reps and 15 other warehouse and office positions in the last 18 months.
Deasy said Nexeo has been hiring additional sales reps, but he declined to provide details. Plastic Solutions plans to add three or four sellers in 2012, Morgan said, while RDI is looking to hire two U.S. sales reps, one each for the Midwest and Southeast.
Metzger said Amco has added three or four new sales reps recently and also has installed additional compounding lines at its plant in Farmingdale.
No ripple effect?
The $930 million Nexeo deal was the biggest to hit the distribution sector in several years, but most executives said that transaction has had little or no tangible impact on the market. Although exact sales data isn't available, Nexeo is believed to be among North America's four largest resin distributors, along with Muehlstein, PolyOne and M. Holland.
TPG buying Nexeo “hasn't caused much change in behavior,” Ed Holland said, pointing out that TPG, as an investment firm, is likely to follow a common private equity strategy.
“Their object is to grow [Nexeo], make money and sell it again,” Ed Holland said.
Amco has gained some business from customers that had been buying from Ashland before the deal, but not a tremendous amount, according to Metzger. “Any time there's a change, customers tend to ask questions as to whether they have good position in the supply chain,” he said.
Rademacher at PolyOne knows the Nexeo business first-hand. He spent 16 years with Ashland, including a stint in distribution, before joining PolyOne in 2000.
“Ashland had been in the distribution business for a long time, and they had good resources and infrastructure,” Rademacher said. “Not much of that should change. TPG bought a good company that understands the plastics and chemicals market in North America, and they want to leverage that.”
Kevin Chase added that after the TPG-Ashland deal — which came a year after Ashland struck a big supply deal with Sabic Innovative Plastics LP and PolyOne did the same with DuPont Co. — “it seems like the musical chairs have settled down.”
Inside Nexeo, Deasy said the firm “remains focused on growth.”
“When a company gets bought, people expect it to start cutting costs and optimize what they have,” he said. “But it's been the opposite here.”
LDPE, credit trends
The dip in sales of LDPE via distribution, while HDPE and LLDPE were both up, could be the result of shortages of LDPE supply that hit the market last year, according to Holland. He said those shortages, which also caused LDPE to sell at a premium for a while, may have convinced processors to switch to LLDPE or other materials rather than risk not being able to source enough LDPE.
LDPE supply “shouldn't have been an issue” for distributors this year, and shouldn't be in 2012, Deasy added.
And the always-thorny issue of customer credit continues to demand distributors' attention. Most execs said situations have improved since the recession, but Muehlstein's Skoczen pointed out that consolidation among the customer base has created larger buyers — and larger potential risks.
Chase said that although the credit situation has improved, about 10 percent of the processor base “is still questionable.” During the recession, that number was about 30 percent, he added.
RDI's Hazel summed up the dilemma that distributors face on credit: “Customers on credit can walk away. But we still have to pay our suppliers in 30 days.”
What lies ahead
With 2012 at hand, most distribution execs interviewed for this story said they expect sales volume to increase in the new year, both in dollars and pounds. Some, however, added that they are concerned that the uncertainty of a presidential election year could affect customers' buying habits.
Next year “could be like a poker game,” with people keeping their cards tight to their vest, Kevin Chase said. “There are a lot of geo-economic things that could go up and down through the year.”
A long and growing list of economic factors makes it tough to forecast for 2012, according to PolyOne's Rademacher. But he pointed out that there's “a growing trend of molders and OEMs looking to distributors for real solutions to the supply-chain problems they face.”
“Customers want product alternatives or help with working capital,” he said. “So we have to be able to offer unbiased solutions and logistics expertise. We talk to customers all the time and ask them about products and the challenges they face to win in the marketplace. They're looking for similar performance or more efficiency at a lower cost.”
Resin distributors are important for members of the Manufacturers Association for Plastics Processors, an Indianapolis-based trade group with more than 200 members, most of which are plastic processors.
“The role of the distribution company is large because they can provide a personal touch,” said MAPP executive director Troy Nix. “There's a lot of interaction. [Distributors] know how to build resources and keep their customers supplied.”
View from other side
Nexeo's Deasy has a unique perspective on today's resin-distribution market, having spent more than two decades working for a resin producer. His time in distribution has been brief so far, but Deasy said he already sees how the business is “different and more complex” than what he experienced as a producer.
“I had dealt with Ashland before, so I knew they were a first-class organization,” Deasy said. “But this [distribution] business is a much more transaction-focused business [than resin production]. The number of customers, products and shipments that occur is incredible. You need a world-class supply situation … to do it effectively.”