Thermoformers are becoming less pessimistic about their business prospects, and that appears to spell good news for the sector for the rest of 2015.
The Plastics News Business Monitor thermoforming index for the second quarter was 113.6. A value greater than 100 for any of our indices indicates that overall business activity levels increased when compared with the previous quarter. So the latest reading suggests that business conditions improved when compared with the first quarter.
It also indicates conditions were also getting better at a faster rate than during the first quarter, when the index was 101.9.
Our thermoforming index is calculated by taking a weighted-average of the sub-indices for the business activities shown on the accompanying table. Every quarter we conduct a brief survey across a large sample of North American thermoformers, and we ask them questions about new orders, production levels, number of employees, etc.
There are three things that can happen to make our thermoforming index go higher:
• More respondents report an increase in business activity.
• Fewer respondents report a decrease in business activity.
• Some combination of both.
Based on the second quarter survey responses, I will say that the increase in the index in the second quarter was largely the result of fewer respondents reporting that business activity levels had declined.
Let me explain what I mean. The new orders sub-index elevated from 108.8 in the first quarter to 124.6. Closer analysis of the data reveals that the percentage of respondents reporting an increase did not change very much. But the percentage that reported a decrease was substantially lower, and the percentage that reported no change was substantially higher.
Thus, the overall trend for new orders in the second quarter was much more stable than it was in the first quarter, when new orders were in decline for more than one-third of the survey respondents.
A similar pattern emerged in the data on export orders, production, backlogs, employees and prices received. In all of these categories, there was a large decline in the percentage of respondents who reported declines, and a corresponding rise in those reporting no change.
For the vast majority of the thermoformers who answered our survey, business conditions can best be described as steady-to-better. And since this is an improvement over the conditions that prevailed during the first quarter, I will offer that the trend is moving in the right direction, and that the outlook for the future is positive. That would be my closer reading of the data we received that describes the current business conditions.
But we also ask thermoformers what their expectations for future business conditions are: better, worse or the same. In the second quarter, the sub-index for future expectations was a very optimistic 154.7. This is a huge jump from the first quarter, when the sub-index registered an impressive 133.3.
To get to the lofty level of 154.7, well over half of the respondents answered that they expect conditions to improve, and only 3 percent expect them to get worse.
So it is clear that my interpretation of the trend in current conditions is shared by a strong majority of the thermoformers who are engaged in the marketplace every single day.
There is one other future-looking question that we ask on our survey, and that pertains to capital spending plans. That sub-index for thermoformers in the second quarter was a solid 125.8. This was very close to the 126.5 posted in the first quarter. As was the case with most of the other sub-indices this time, the number of respondents expecting to spend less dropped, and the number expecting no change jumped.
The decision to purchase capital equipment typically involves a great deal of analysis and forecasting. It also entails a great deal of optimism. Very few business people will seriously consider investing in new equipment if they are not optimistic about the future. So I would expect the trend in the future expectations and the capital spending plans sub-indices to correlate most of the time.
My unscientific and informal conversations with people involved in the thermoforming sector and their suppliers corroborate the overall trend in this data through the first six months of 2015. They say that business levels are improving, and they expect them remain on this track in the coming year. New market opportunities are emerging, especially in the United States and Mexico.
I pay particular attention to the levels and trends in the thermoforming index because it is a good indicator of changes in market demand for plastics packaging products. Packaging accounts for a huge volume of the plastics products that are manufactured on this continent. There are many types of plastics packaging that are not thermoformed, but regular and reliable data about the diverse plastics packaging industry is scarce.
So a little effort invested in scrutinizing this data will provide some interesting insights into recent trends in packaging demand, especially for thermoformers and their suppliers.
Finally, I have to give a shout out to all of the processors who are participating in our quarterly surveys. We had a very gratifying and significant number of responses to our survey in the first quarter, and then it got even better in the second quarter. I will continue to calculate, analyze and report on these data in the coming weeks, and I hope you will contact me if you have any questions, comments, or suggestions.