In the past three to four years, one of the commonly observed trends in North America manufacturing has been reshoring or repatriation of the manufacturing industry.
Nexant defines repatriation or reshoring as bringing back of manufacturing from overseas to North America, resulting in the displacement of process imports into the region.
Nexant conducted a survey of the plastics industry, in collaboration with Plastics News, to understand reshoring trends and the effect on the North American market. Nexant received about 200 survey responses from compounders, fabricators, equipment suppliers and toolers.
About 70 percent of the survey responses mentioned that they had either reshored or were planning to reshore in the near future.
One of the major reasons quoted for reshoring is the rising labor costs overseas, particularly in China. Wages in China have almost doubled in the past decade, while U.S. wages have stayed relatively flat.
Low cost natural gas and the diminishing price gap between the U.S. and Southeast Asian polyethylene prices is making North America more cost competitive for manufacturing. However, about one third of the fabricators mentioned that they would not consider reshoring to North America as they supply Asian markets and the logistic costs would not make sense if manufacturing was moved back to North America. Also, it is not critical to reshore in cases where the product quality is not crucial, which has been identified as another driver to reshoring.
Nexant compared the cost of production plus logistics cost for delivering polyethylene blown films and polypropylene injection molded items in the U.S. market in 2014 and 2019 for manufacturing in the U.S. Gulf Coast, Mexico and China. Repatriation activities are being observed in blown films and injection molding segments particularly.
In 2014, for polypropylene injection molded utensils, even though the cost of production was the lowest in China, when transportation cost was added, Gulf Coast becomes more attractive as a manufacturing location for supplying the domestic U.S. market.
By 2019, the Gulf Coast and Mexico is expected to become more cost competitive for manufacturing, as a result of rising labor costs in China and declining price gap between the Gulf Coast and China polypropylene prices.
U.S. propylene markets have tightened appreciably in recent years aggravated by the rush towards lighter feedstock at crackers and reduced availability of supplies from the refinery. New investments in propane dehydrogenation units by companies such as Ascend Performance Materials, Enterprise Products, Dow Chemical and Formosa in the U.S. are set to lengthen supplies by 2020, restoring markets to a more balanced position and bringing U.S. prices on par with Asian polypropylene prices.
The impact of reshoring on domestic polyolefin demand in North America will not be significant; with about 10 percent of the total 4 million tons demand growth from 2014 to 2020 driven by reshoring activities.
Polyethylene accounts for the lion's share of polyolefin reshoring. The majority of the growth will be in the injection molding segment as it is an automated process, and requires less labor; providing manufacturing advantage to the United States. Repatriation is occurring in the automotive, packaging and appliances sectors of injection molding.
NexantThinking's recently published report “Impact of Reshoring on North American Polyolefin Demand” provides an in-depth analysis into Nexant's reshoring survey results, reshoring drivers and challenges, reshoring measurement indices, North America's manufacturing cost competitiveness and impact on polyolefin applications growth.
Priyanka Khemka is a senior analyst for Nexant Inc. She can be reached at [email protected] or (914) 609-0320. http://thinking.nexant.com/.