After surviving price drops, resin distributors see large volumes

Sales of some commodity resins to distribution channels outpaced overall market growth in the first seven months of 2014 — and distribution executives see that trend continuing through the rest of the year and on into 2016.

“We're still very bullish, regardless of what's gone on recently in the stock market and with China,” said Ed Holland, president and CEO of commodity and engineering resins distributor M. Holland Co. in Northbrook, Ill. “We're going gangbusters and aggressively going after high growth. Our growth has been very broad-based.”

John Dwyer is seeing similar results at Osterman & Co. Inc. in Cheshire, Conn.

“We're having a very good year,” said Dwyer, the firm's president. “At this point, we're well above budget and we had a pretty aggressive plan going into the year.”

Dwyer added that most of his firm's growth has been in polyolefins — where sales volume is up more than 20 percent — and engineering thermoplastics, which are up 8 to 10 percent.

“We've definitely seen growth in the business overall,” said Mike Pignataro, vice president of North American sales at Bamberger Polymers in Jericho, N.Y. “There's a service level that distribution can offer to processors because a lot of major chemical companies don't want to package anymore. If a processor wants [an order] smaller than a rail car, they have to go out and find it.”

In the first seven months of 2015, low density polyethylene, polypropylene and polystyrene resins were snapped up by distributors at a rapid pace. U.S./Canadian sales of LDPE into distribution mushroomed almost 39 percent, while the overall domestic LDPE market saw sales growth of only 3.5 percent.

North American sales of PP to distribution also jumped 14 percent in that period, more than double the overall domestic growth rate of 5.9 percent. Regional sales of PS to distributors and resellers jumped almost 8 percent, while overall domestic sales essentially were flat.

But sales of high and linear low density PE — as well as PVC — to distribution lagged the field in those seven months. Sales of LLDPE to distributors tumbled more than 14 percent, even as overall domestic sales were up almost 7 percent.

U.S./Canadian HDPE sales to distributors bumped up just under 1 percent, less than half of domestic sales growth of 2.1 percent. Regional sales of PVC to resellers slipped 2.2 percent, slightly worse than the overall domestic market sales loss of 1.6 percent.

Pricing pressure

Distribution executives say the North American resin market has recovered from sudden price drops that hit commodity resins in late 2014 and early 2015. The market also has moved on from supply issues that affected availability of some resins in 2014.

“Oil was at $90 to $100 [per barrel] and people never believed it would go to $40,” said Mark Crist, vice president of distribution at PolyOne Corp. in Avon Lake, Ohio. “That caught a lot of distributors flat-footed.

“Some companies had monster inventory, then prices fell like a stone. They did everything to buy only what they needed and to flush high-priced inventory out.”

Crist said he was “really proud” of his team at PolyOne.

“We were huddling as prices started to fall,” he explained. “We took action to only have inventory where we needed it.”

In the first half of 2015, PolyOne's distribution unit posted sales of $532.5 million, down almost 7 percent vs. the same period in 2014. Crist said that drop was a result of lower resin prices and not lower sales volume in pounds.

Based on sales, distribution was the largest of PolyOne's five operating units in the first half, generating almost 29 percent of the firm's total sales. PolyOne's distribution operating income for the first half essentially was flat at $34.8 million.

On the supply side, Ed Holland added that “it still boils down to [resin] production limiting flexibility.”

“Some producers were logistically challenged [in 2014], but things have improved,” he said. Marc Fern, M. Holland's sales and marketing vice president, added that supplies of some materials such as PP remain a bit tight, but that the firm expects business to be strong through the end of the year.

To market we go

For end-market growth, several distribution pros singled out automotive, packaging and health care as areas where they've seen strong activity so far in 2015.

“Packaging and automotive remain very strong for us,” said Jim Duffy, president of Ravago Americas in Orlando, Fla. “In packaging, we're seeing growth everywhere from film to multilayer blow molding.”

Ravago Americas is one of North America's largest resin suppliers, serving distribution markets through its Amco, Entec and Channel Prime Alliance units and reselling markets through H. Muehlstein & Co. In 2013, it formed Genesis Polymers for large-volume commodity resin accounts.

“Primarily, we're seeing growth in health care, but also in automotive,” said Shawn Williams, senior vice president of plastics with Nexeo Solutions, a leading distributor based in The Woodlands, Texas. “Automotive growth should continue, since the age of the average vehicle on the road is 11 or 12 years old. You've got the age of the fleet and also lightweighting as factors there.”

Williams added that the packaging market has been “solid and steady” for Nexeo. At Resin Distribution Inc., in Ayer, Mass., Vice President Dave Hazel cited injection molding and blow molding as growth markets for his firm.

Growth at Chase Plastics in Clarkston, Mich., “has been led by automotive,” according to President Kevin Chase. “Customers are coming back to the auto market.”

Chase also cited industrial products and office furniture as healthy markets.

Packaging also was singled out as a growth market by Pignataro at Bamberger.

“Some [resin] producers have moved away from packaging, and that's put more demand on distribution,” he said. In Ellisville, Mo., Jamplast Inc. is seeing solid activity in commercial packaging, consumer durables and fibers, according to President John Moisson.

At Osterman, Dwyer listed food packaging, industrial films and caps and closures as areas of strength so far in 2015.

Geographically, Mexico has proved captivating for distributors, with both M. Holland and Osterman striking deals there this year.

Feet on the street

Several distributors also are taking steps to beef up their sales ranks in 2015.

In August, M. Holland added a West Coast sales rep and a rep at its trading business in Houston. The firm also hired an additional marketing employee on Sept. 1, Ed Holland said. Bamberger may add as many as six more sales reps in 2016, according to Pignataro.

Chase now has 40 sales reps — the most in the firm's 23-year history. Osterman in 2015 has added four new sales reps and two tech service employees.

PolyOne has been adding sales reps, Crist said, and now has specialized sales teams in health care and transportation, areas where the firm “has enough mass, and where customers appreciate specialization and value-add.”

A new college hiring program at PolyOne could add as many as 10 more sellers, according to Crist. The year-long program will allow the firm to teach the industry to potential hires through a series of different rotations 

Customers are cautiously optimistic

U.S. economic growth rebounded from a 1 percent GDP drop in the first quarter of 2014 to a second-quarter gain of more than 3 percent. Distribution execs said positive sentiment among their customers is on the rise as well.

“I'd say there's slow improvement overall, but some [customers] are doing better than others,” said Hazel at RDI. Bamberger's Pignataro added that “a majority of our customers feel like they're on solid ground. In general, the U.S. economy is doing pretty well — unemployment is low and banks are solid.”

Kevin Chase is a little more bullish, saying that his firm's customers “have moved past cautiously optimistic, but they're still keeping both hands on the wheel.”

“Our customers are relatively strong and their growth prospects are OK,” said Duffy at Ravago. “Financially, they're pretty healthy.”

“Customers are cautiously optimistic, even with the stock market as volatile as it's been,” added Williams at Nexeo. “There's some uncertainty, but they feel good about that second-quarter growth.”

“We're pretty optimistic about the business and our backlog, with or without volatility,” Osterman's Dwyer said.

Some distribution execs said they're impressed with investment among their customer base.

“The recession wasn't that long ago, and some of those scars are still healing,” said Crist at PolyOne. “Customers are still cautious with inventories. If there's even the slightest hint of a downtick in pricing, they don't want to have any inventory.”

Kevin Chase added that companies that made it through the recession “still need to be fiscally conservative.” Duffy, Pignataro and Ed Holland each said they had several customers who were investing in new plants and machinery. Ed Holland added that many of M. Holland's fellow members of the Manufacturers Association of Plastics Processors (MAPP) — an Indianapolis-based trade group — were expanding as well.

As for financing, Ed Holland was fairly direct. “Good companies can always get money,” he said.

According to Fern at M. Holland, customers with proprietary product lines are faring better in 2015 than those without.

“OEMs are investing,” Nexeo's Williams added. “They have to have some economic strength to do that.”

Many ways to grow

On Jan. 1, Chase Plastics will open a new $6 million warehouse in South Bend, Ind. The new site will replace a nearby warehouse that the firm has been renting for 20 years. Chase Plastics also is investing $1 million in more office space at its headquarters in Clarkston, a suburb of Detroit.

“From a volume standpoint, we're having a strong year,” Kevin Chase said. “Sales are up 5 to 10 percent.”

M. Holland recently launched MH2GO, a tablet-based information technology app.

The app — which was two years in development — will allow account managers and product managers to interface more effectively with customers and suppliers. With the app, account managers can access real-time pricing and inventory information, generate quotes and confirm orders from a customer's office.

For material suppliers, the tool enables product managers to track up-to-the-minute sales activity and report on the status of target projects. MH2GO is accessible from an account manager's regular computer, cell phone or corporate intranet.

And Jamplast still sees possibilities in biopolymers. The firm is one of the few North American distributors to offer several resins in that category — including PLA from bio-market leader NatureWorks.

“Biopolymers are here to stay long-term,” Moisson said. “They've forged a niche in the plastics market.”

He added that biopolymers' physical properties — once a limitation — now are preferred in some applications.

“Just having a part and saying you want to go green doesn't work anymore,” Moisson explained. “But when you start with a need and look at different characteristics of biopolymers, such as in packaging and fiber applications, you can find something that fits. We get inquiries like that every week.”

Distributors continue to focus on filling the gaps created by changes in strategy at the resin-making level. And on playing an all-important supply role for their customers.

“Our customers count on us to carry inventory,” PolyOne's Crist said. “That allows them to maximize floor space and operate more production.”

“Larger, more sophisticated companies benefit from distribution,” added Duffy at Ravago.

Thinking about the current role of the distribution field took Jamplast's Moisson back to his early days in the plastics market.

“When I left Dow Chemical 21 years ago, I saw them moving more and more to distributors,” he recalled. “Chemicals did it and plastics went the same way. Distribution is still more efficient for materials firms.”