Compounders call 2017 'one of the best'

2017 has been another year of solid growth for North American compounders and concentrates makers, and many of them are viewing 2018 with that same optimism.

"It's been a good year," said Kevin Putman, director of sales, marketing and operations at Penn Color Inc. of Doylestown, Pa. "We've seen 10 percent growth and are right on top of hitting our budget. We're continuing to expand in building and construction, transportation, telecommunications and packaging."

Mike Rosenthal, executive vice president at Plastics Group of America in Woonsocket, R.I., added that 2017 "has been much busier than anticipated," with many customers increasing orders. A. Schulman Inc. of Fairlawn, Ohio, has benefited in 2017 by having "the broadest portfolio of any compounder in North America," including thermosets, masterbatch concentrates and color compounds, according to Frank Roederer, the firm's senior vice president and general manager of engineered composites.

Pete Prusak, North American marketing head for Clariant Masterbatches in Holden, Mass., went a step further, saying that 2017 has been "one of the best years in my 25-plus years in the business."

"We really focused these last two years, and the planning and marketing work we did up front is paying off now," he added. Teknor Apex Co. of Pawtucket, R.I., has seen good sales growth this ​ year for its PVC compounds and in sales into building and construction and medical markets, according to President William Murray.

Techmer PM of Clinton, Tenn., is seeing mid-single digit growth in 2017, president Ryan Howley said, although the firm was challenged early in the year and in the fall by material costs. He cited Mexico as a strong growth region for Techmer.

RTP Co. of Winona, Minn., is experiencing "growth from everywhere," according to Jean Sirois, strategic planning and acquisitions director. "We've had a great year and have gained some sales from new regulations, which have prompted customers to change their products," he said. "And we're still seeing metal parts convert to plastic in automotive and other products."

At Ampacet Corp. in Tarrytown, N.Y., volume and sales growth are both good for 2017, value chain senior global manager Doug Brownfield said. Some raw material tightness caught the firm by surprise, he added, but both flexible and rigid packaging remained strong growth markets.

2017 "has been a great year, with great opportunities for specialty compounders," according to Scott Anderson, chief operating officer of Polymer Resources Ltd. in Farmington, Conn. "A year ago, we doubled down on our strategy of servicing highly-specified applications and it's been working for us."

Market development remains a key focus for compounders and concentrate makers.

"We've seen robust demand from our key focus markets, including electronics, transportation and wire and cable for building infrastructure," industry veteran Craig Nikrant said in an email. Nikrant serves as president of Specialty Engineered Materials at PolyOne Corp., a leading materials maker in Avon Lake, Ohio.

"Another solid segment for us has been in healthcare, where we've invested significantly in our NEU [brand] health care portfolio," he added. "Overall revenue growth year to date has been in the mid to high single digits."

One of the bright spots for PolyOne's SEM unit, according to Nikrant, has been its thermoplastic Polystrand composite technology, which has seen "an explosion of opportunities" as more customers demand lighter weight solutions. In automotive, the unit is seeing success with specialty solutions such as OnFlex LO, a low volatile organic TPE material for auto interiors.

PolyOne's Color, Additives and Inks unit has seen the highest growth in Asia and in particular China, with expansion in specialty solutions for textiles, automotive, and especially packaging markets, according to unit President Mark Crist.

"Our liquid and solid barrier additives for food and beverage packaging continue to outperform global markets as more and more companies recognize the need to extend shelf life and improve content protection," Crist said in an email.

He added that the unit "has been active in developing paint replacement colorant solutions for automotive exterior components," including the recent introduction of OnColor Brilliant Metallic Colorants.

PolyOne's Performance Products & Solutions unit — including PVC compounds — has seen top growth in 2017 in electrical/electronics, industrial and consumer segments this year, according to unit President Don Wiseman.

Emerging 2017 growth opportunities for Americhem Inc. of Cuyahoga Falls, Ohio, have come from "niche markets with well-differentiated product offerings," CEO Matthew Hellstern said in an email. Some of these segments include high-performance fibers, specialty automotive applications, and next-generation solutions for building and construction, he added.

The North American automotive market in particular has shown surprising strength in 2017, although some analysts had predicted a downturn. Several regional compounding executives commented on the auto market's staying power.

"Automotive is doing great," said John Moyer, president of Asahi Kasei Plastics North America in Fowlerville, Mich. That business derives around 90 percent of its compounding demand from automotive uses.

"We might end up with fewer [North American auto] builds, but there's more plastic going into each car," he said. "We're seeing more penetration in radiators and cooling systems."

Ampacet's Brownfield cited pouches as an area of growth. At Clariant, Prusak listed high-temperature resins — which he defined as "nylon 6 and above" — as being "still a good area."

For Teknor Apex, Murray said that auto has remained strong, along with medical, which he described as "inflation-proof." Techmer has seen positive growth in medical with compounds based on engineering resins, according to Howley.

"When you look at what end markets are growing, you see mobility: planes trains and automobiles," said Roederer at Schulman. "And in 2017 we saw energy markets rebounding, so oil field markets came back."

New product and R&D efforts for Schulman have focused on mega-trends such as lightweighting for electrical and for smaller engines in automotive, according to Roederer. The Plastics Group has seen new applications in totes and other containers, Rosenthal said.

Murray emphasized that Teknor Apex "doesn't focus on one material over another," but added that the firm has seen success with its Creamid line of glass-filled nylon compounds and its Medalist portfolio of TPE compounds, which he described as "polymer neutral."

In early 2018, Penn Color will introduce a new masterbatch concentrate for coating applications, Putman said. The new material will enhance aesthetics and performance, he added.

For RTP, new products are "a constant stream," Sirois said, adding that the firm has seen interest in new high-temperature polymer compounds, including some long-fiber grades. Asahi Kasei is introducing high-end PP compounds for soft-touch interiors, Moyer said.

PolyOne's vitality index — a measure of sales coming from new technologies developed in the last five years — remains at 35 percent, a level that Nikrant described as "world-class." The firm's composites platform "will continue to see investment and new product development as these materials continue to gain traction across multiple industries," he added. PolyOne's SEM unit also is working on developments aimed at improving interior air quality and thermal management.

For PolyOne's Color, Additives and Inks unit, Crist said researchers continue to develop new solutions in color and additive combinations with a focus on multi-functional masterbatches. These new materials can provide not only color, but also a combination of property improvements, he added.

Wiseman said that PolyOne's Performance Products & Solutions unit has "exciting applications" being developed in sensors and smart devices, lighting solutions, wire and cable, and appliances.

Many of Americhem's new opportunities center around higher performance and/or more sustainable offerings, Hellstern said. With the firm's recent acquisition of TPE and engineered compounding capabilities, Americhem now provides "an exceptionally broad portfolio of potential solutions," he added.

For the building and construction market, Americhem has introduced next-generation masterbatches providing more cost effective and improved UV stabilization of PVC-based cladding. In automotive and durables, the firm now has TPE formulations that can offer anti-microbial functionality, optimized color, overall aesthetics and ease of processing.

On the business side, most compounding and concentrates executives contacted expect their firms to finish 2017 with sales growth of between the mid-single digits and low double digits.

For the first nine months of the year, PolyOne reported sales gains of 6-10 percent in its compounding and concentrate-related units. Schulman — still struggling with negative impacts from its acquisition of Citadel Plastics — saw global engineered composites sales grow almost 9 percent for the fiscal year ended Aug. 31. But the firm's global performance materials sales fell 4 percent and custom concentrates sales essentially were flat. Schulman firm also has been the subject of acquisition rumors.

In the last 12 months, Polymer Resources Ltd. has added new mixing equipment in Farmington and a new extrusion line at its site in Rochester, N.Y. The firm now is "exploring other opportunities" for a third U.S. site, Anderson said.

On the broader economy, market veteran Phil Karig said that "looking forward, you wonder how much farther it has to go upward, since this recovery started in 2009." Karig is managing director of the Mathelin Bay Associates consulting firm in St. Louis.

He added that mergers and acquisitions in compounding and concentrates "will be attractive to people with money if they can put money in and get reasonable return — and mid-sized manufacturing remains attractive."

Karig also said there's a possibility of more foreign firms investing in North American compounding, as a result of new shale gas-based PE resin capacity and because of a good cost structure for PVC resin.

Bill Ridenour, president of the Polymer Transaction Advisors financial firm in Foxfire, N.C., said that the compounding and concentrates sector, like many parts of the plastics market, "might be slightly oversold at this point." But he added that those conditions might propel M&A prices even higher because of supply and demand.

Ridenour added that the U.S. tax reform bill now under review could serve to drive sale prices higher for compounders and other plastics firms.

M&A deals in compounding and concentrates continued in 2017, but may have slowed down in the second half of the year. PolyOne made three first-half deals, buying specialty colorants and additives makers Silcotec Inc. of La Porte, Ind., and Comptek Kunststoffverarbeitung GmbH of Diez, Germany. The firm also acquired Pineville, N.C.-based Rutland Holding Co., a maker of plastisol compounds, specialty color products and screen printing inks.

Private equity firm Wind Point Partners of Chicago made a pair of deals this year through Aurora Plastics LLC, the Streetsboro, Ohio-based PVC compounder that it bought in 2016. Wind Point/Aurora first acquired PVC compounder Reinier Plastics of Marieville, Quebec, and then in October adding PVC/TPE compounder S&E Specialty Polymers of Lunenburg, Mass.

Owner Steven Graham had acquired S&E in 2005 when he paid almost $9 million for the remnants of Gitto Global Corp., a compounder that had filed for bankruptcy after several officials used company funds for personal expenses, eventually running up debt of more than $50 million.

Wind Point — which also owns Novolex, the Hartsville, S.C.-based firm that ranks as one of North America's largest producers of plastic film and bags — previously owned compounding firm Citadel Plastics. Wind Point created Citadel through a series of materials deals before selling it in 2012 to Huntsman Gay Global Capital, which later sold the business to A. Schulman Inc.

Several firms also are adding production capacity. Expansion plans for Teknor Apex include new lines in Tennessee, South Carolina and China. Penn Color in 2018 will complete a major expansion of its site in Hatfield, Pa. The firm also plans to add a masterbatch line in the Netherlands in early 2018 and one in India in late 2019.

Asahi Kasei is progressing with plans to open a site in Mexico in 2020. Moyer said that move is part of a plan by its parent firm — Asahi Kasei Corp. of Tokyo — to double its global compounding capacity in the next eight years.

Clariant aims to add capacity at U.S. sites in Massachusetts, Maine and Michigan. The Plastics Group is considering the addition of a new line in Rhode Island, while Ampacet boosted production in late 2016 with a new line in Ontario.

Looking ahead to 2018, most executives said their firms should at least be able to match their 2017 growth levels.

"You always want to match growth," RTP's Sirois said. "And the [U.S.] economy is fairly healthy and Europe is getting healthier, so we should be able to."

"I'm really excited about the upcoming year," added Nikrant at PolyOne. "We're investing a significant amount of capital in new sales, application development and technology resources as our opportunities grow."

For Schulman, 2017 was "a reset year," according to Roederer. "We spent a lot of time fixing up some issues we had, but we're on a good path now."

"2018 will be a year of recovery," he added. "We've turned the corner and plan to continue to bring innovation to the marketplace."