China's plastics industry resets in the face of slower growth

Shanghai — China's plastics industry is grappling with a “new normal” of slower growth. But it remains a key driver for the global industry.

A big sign of softening is reduced capital spending — investment on plastics machinery in China last year dropped 6 percent, the biggest fall since the global economic recession in 2008-2009.

But by other measures, China keeps growing. Demand for plastics rose 10 percent in 2015, a “reasonably strong” figure that was 1.5 times GDP growth, according to global consulting firm IHS Inc.

That balancing act was evident at Chinaplas in Shanghai, where talk of a slowdown in the macro-economy contrasted with continued growth in plastics from penetration in new applications.

Philippe Hanck, the Shanghai-based regional business director of Asia Pacific for DuPont Performance Materials, said investment is shifting to higher end materials.

“Absolutely in 2015 we saw some of our key markets having a relatively serious slowdown, even though it improved in the fourth quarter,” he said.

“However, many of the industries that we talk about are still in extremely good shape and they have trends that are very favorable to our thermoplastic specialties,” he said.

Specifically, Hanck mentioned cars, mobile phones and food packaging as examples where there's growing demand for plastics, separate from the larger market conditions.

DuPont announced at Chinaplas it's building a new compounding plant in Shenzhen, China, its largest globally.

“Our growth is not necessarily linked to the growth rates of the overall industry,” Hanck said. “It does allow us to decouple our growth from much of the market.”

Slower growth is ‘healthy'

For Engel Holdings GmbH, one of the world's largest makers of plastics machinery, the slower growth is a “healthy development.

“This creates real opportunities for companies like Engel,” said Gero Willmeroth, sales and service president for Engel Machinery Shanghai. “When the development is slower, people are more focused on productivity, efficiency and such things and have to strengthen their competitive advantage.”

Engel, which has two factories in China and a third in South Korea, said at the show it was spending $9 million to expand in Shanghai.

Asia is taking a larger share of Engel's business.

Engel said in a Chinaplas news release that Asia accounts for almost 25 percent of global sales, which were $1.34 billion in 2015. It said China is its largest market in Asia.

That would put Asia in the range of $300 million a year in sales, compared with about $130 million in 2012, when the company doubled capacity at its Shanghai and South Korean factories.

Other foreign firms also reported softness but said they still plan investments, as they see opportunities from Chinese manufacturers being more careful with their investments and looking for higher quality equipment.

The top China executive for Mold-Masters, the hot runner manufacturing unit of U.S.-based Milacron Holdings Corp., said it wants to expand its factory in Kunshan, near Shanghai, even as it acknowledges recent difficulties.

“There are a lot of challenges, the market is soft,” said An Heid, president of Americas and Asia for Mold-Masters.

Milacron's sales in China and the rest of Asia fell 5 percent in 2015, the only one of the company's four global regions to see a decline.

That mirrors other companies. China's largest injection machine maker Haitian International Holdings Corp. reported its domestic sales dropped 4 percent to $748 million last year. The German plastics and rubber machinery trade group VDMA said its exports to China dropped 19 percent in 2015, to $713 million.

But Heid said Mold-Masters is planning for a sizable expansion in Kunshan, with details still being worked out, because it expects demand for hot runners in China to keep growing.

Hot runners are used much less in China's plastics industry than in developed countries, but because they save labor and boost efficiency, their use will grow in China, she said.

Demand for automation is also driving Wittmann Battenfeld GmbH in China, according to Jonathan Ching, general manager of Wittmann Battenfeld (Shanghai) Co. Ltd.

“The labor costs in China are going up like crazy,” said Ching, and that is pushing more demand for the company's robots.

Rethinking growth strategies

On the other hand, Ching said there's definitely more caution in the local plastics industry about investing, as companies try to figure out trends like low cost manufacturing moving to Southeast Asia. That filters down to Wittmann Battenfeld.

The company needs more capacity, but instead of investing in new buildings or hiring more staff as in the past, it's hired German consultants to redesign its Kunshan factory to boost productivity at least 30 percent, he said.

“We don't want to expand very quickly because we are not sure about the Chinese economy,” Ching said.

Kingsport, Tenn.-based Eastman Chemical Co., is focused on growing in China's local market, striking marketing deals with large Chinese consumer products makers.

Randy Beavers, a Shanghai-based executive with Eastman, said demand is growing for its resins in China, both for products that will be exported and increasingly for local market production. Chinese brands are looking to differentiate their products.

Eastman has signed “ingredient branding” deals with Chinese appliance maker Midea and baby products maker Ivory, he said, that allow those companies to use Eastman Tritan resin and market that to their customers as better and safer materials.

“We know there's a slowdown, we hear it reported and believe it, but with the customers we're dealing with, and there are hundreds in China, they're looking for ways to differentiate,” said Beavers, who is regional business director, Asia Pacific and global sales director for Eastman Specialty Plastics.

“Most companies that we're talking with are talking about buying more resin this year than they did last year,” he said. “In a down economy, they have to have differentiated solutions to compete and win.”