Tax reform could spur higher machinery sales in 2018

The U.S. market for injection molding machines is beginning to sound like déjà vu all over again. Yogi Berra was a molder of great quotes, not plastics parts. But machinery leaders say press shipments are set to be around 4,000 in 2017.

If that happens, it would mark the third year in a row that shipments reach a level that press manufacturers consider a benchmark rate.

The dollar volume has increased more than unit volume this year, they said, which could signal sales of larger-tonnage machines.

A big reason: continued strength in the key automotive segment. Industry observers had expected automotive's long boom to fall off this year, and that happened for much of the year. Then the back-to-back hurricanes Harvey and Irma hit Texas and Florida this fall, flooding into cars, ​ homes and whole cities. The replacement car sales gave automakers their first monthly gain in September.

Machinery leaders say new models, not total volume, are what fuel capital investment.

"Car sales are great, but that doesn't mean we sell more equipment. How we sell more equipment is new car platforms," said Sonny Morneault, vice president of sales at Wittman Battenfeld Inc. in Torrington, Conn. "Our automotive Tier 1, 2, 3 customers, they're still investing. They're still opening new plants. They're still buying new central material handling systems. They're still buying robots and machines."

And automotive is the single market that can lift all boats in the injection press world.

"They buy 100 machines at a clip," Morneault said. "It's just not happening in any other industry but automotive."

All eyes are on automotive, said Paul Caprio, president of KraussMaffei Corp. "Everyone's expecting a slowdown, but nobody's seeing one when it comes to automotive," he said. "So in that sense, it's still super positive."

But other markets have been strong this year, too. Caprio lists what he calls "logistical packaging," which includes collapsible boxes, recycling bins and garbage carts — products that, like automotive, are molded on large-tonnage machines. Medical and packaging also remain solid, boosting sales of Netstal presses for thin-wall molding, he said.

"Everything is moving on pretty solid ground," Caprio said.

Toshiba Machine Co. America also has sold machines for molding collapsible bins, garbage cans and other products for home improvement stores, according to Tom McKevitt, general manager based in Elk Grove Village, Ill.

He said Toshiba is "finishing up a strong year" in both all-electric machines and hydraulic presses. Most of the increase has been for midsized and larger machines, with clamping forces ranging from 720 to 1,950 tons.

"This year it seemed like we sold more electrics than before in that tonnage range," McKevitt said.

Friedrich Kanz, president of Arburg Inc., said press sales could hit 4,100 or 4,200 in 2017, which is about the same as 2016.

"So very stable. Very steady. Very good," he said. "It's at a solid level. And I have no problem when it's not growing another 5 or 10 percent, so that means it's a healthy level we have."

Like other executives, he said car and light truck model changes drive business. Regardless, Kanz said, it's not realistic to expect ever higher annual sales for cars.

Nearly all injection molding machinery executives said that new production capacity, not replacement, accounts for the majority of press sales. Most molders do not have a formal schedule to replace old machines. But that could change if companies get a big tax cut under President Donald Trump's tax reform plan, some said.

Morneault said the owner of one custom molder has told Wittmann Battenfeld that he plans to use the tax break to replace machines that are 15 years old.

But the biggest generator of industrial machinery spending could be an immediate depreciation of capital spending right away in the first year, instead of over time. The current bonus depreciation, subject to approval each year, already juices end-of-year press sales. An immediate write-down could be a windfall.

"Tax reform, especially if it includes 100 percent write-off of new equipment, should spur incredible investments in replacement and new capacity in the United States," said Peter Gardner vice president of sales and general manager of Niigata at DJK Global Group in Wood Dale, Ill.

Bill Duff, general manager of sales and marketing at Yizumi-HPM Corp., said tax reform could make NPE even more interesting next year.

"We do see quite a few people who come to NPE to buy. If the economy is still strong and if we see some of these tax breaks come though, people are going to come to that show with checkbook in hand," he said.

At deadline, lawmakers were still negotiating details of competing bills in the House and the Senate.

"The devil will be in the detail so we reserve final judgment until the process has worked and a bill finalized," said Shawn Reilley, president of advanced plastic processing technologies at Milacron Holdings Corp.

But even without tax reform, what plastics economist Bill Wood called a "synchronous global recovery" is helping growth around the world. "Now we're entering the new year with more momentum," he said.

At the end of 2016, Wood was predicting a pretty flat 2017, or even a decline. That held true for the first half of the year. "But I will say in recent months, recent weeks, actually, it's gaining momentum sooner than I expected," he said in mid-November.

Capacity utilization is starting to tick back up, said Wood, who runs Mountaintop Economics & Research Inc. in Greenfield, Mass. "Everything's rebounding right now."

Wood is also economics editor for Plastics News.

Several companies said the year started slowly for injection molding presses. That's what happened in the first quarter for Milacron, Reilley said.

"Things have picked up steadily in the remaining quarters, and we continue to see growth in the fourth quarter," he said.

Reilley said Milacron officials think automotive will remain stable in 2018. Low gas prices are encouraging consumers to buy more trucks and sport utility vehicles.

"Also, the move to electric and hybrid vehicles is real, and this is also forcing the conversion of traditionally metal parts to move to lighter plastics and composites. All this is good for the industry," he said.

Machinery officials said Trump's pledge to roll back the Corporate Average Fuel Economy standards (CAFE) won't stop the trend to reduce vehicle weight.

Gardner said making electric cars lighter will help extend their mileage range and get people more comfortable to buy them. Gasoline and hybrid cars will need better fuel efficiency to compete against the electrics.

At this year's IPF show in Japan, Niigata ran a machine that combined the forming of carbon fiber-reinforced plastic sheets with injection molding to make an oil pan.

Niigata specializes in all-electric machines, and Gardner said the company has strong sales at medical molders. But Niigata has new larger-tonnage offerings aimed at automotive. Gardner said Niigata also has what he called a "true hybrid" — 1,200-ton press using fully electric injection and servo pump-driven clamping. The line of presses will be expanded soon, up to 2,000 tons. Automotive molders, particularly Japanese ones, are interested in the energy savings and precision operation of electric technology, he said.

And the Japanese parent company, Niigata Machine Techno Co. Ltd., has formed a joint venture with the big Chinese press maker Haitian International Holdings Ltd. to focus on all-electrics.

Another Japanese injection press maker, Nissei Plastic Industrial Co. Ltd., is investing $13 million to build a U.S. factory in San Antonio, Texas.

With all the talk about tax reform, Mark Sankovitch has a suggestion. "Give companies tax incentives for productivity gains," said the president of Engel Machinery Inc. in York, Pa. "Industry 4.0 is a very big change that basically can help get us these productivity gains."

He also proposes giving companies a tax break for worker training.

Sankovitch said large-tonnage press sales continue to be strong, thanks to investments in automotive. He says replacement-press sales are happening. "The changes, especially in automotive, that we're seeing are requiring this old equipment to be replaced," he said.

And Sankovitch said U.S. appliance molding is strengthening, with some major announcements — as South Korean players LG Electronics Inc. and Samsung Electronics Co. Ltd. plan to open U.S. washing machine factories. LG and Samsung both came under fire from American appliance giant Whirlpool Corp., which charged that the South Korean competitors undercut its U.S. business by exporting washers at prices that are unfairly low — and the U.S. International Trade Commission on Nov. 21 recommended tariffs.

In another case of reshoring, Taiwanese electronics maker Foxconn Technology Group is building a plant in Wisconsin to make liquid-crystal display screens.

Glenn Frohring, president of Absolute Haitian Machinery Corp. in Worcester, Mass., sees a balance in sales in what he called an "excellent" 2017.

"The markets that are strong are connected to the construction and automotive industries. Construction needs more capacity. The automotive side is a balance of new programs, mold transfer business and replacement presses," he said.

Asian molders continue to open U.S. factories, to get closer to customers in consumer products and automotive, Frohring said.

Mid- and larger-tonnage machines bought in the pre-Great Recession boom are showing their age, and fueling replacement, said John Martich, vice president and chief operating officer of the North American operations of Sumitomo (SHI) Plastics Machinery. That means automotive, including major investments in Mexico, but molders there also are buying machines for a more diverse range of markets, he said.

Packaging is one of Sumitomo Demag's highlights this year.

"It's going gangbusters, and molders are starting to learn that there are advances in technology on the machinery side that improve the way that they design and make packaging components, like injection-compression molding," he said.

Yizumi-HPM Corp. dedicated its 22,000-square-foot headquarters in Iberia, Ohio, this year. Duff said a diverse mix of reshoring work is coming to the United States from China and even moving up from Mexico.

"For us it's custom molders. We do a lot of business with medium- to small-sized companies in the custom molding arena that mold everything from soup to nuts," Duff said. For 2018, he said, "I think we'll see some positive growth in the machine tool business and the plastics industry as a whole."

The introduction of a global platform Sodick injection molding machine has helped boost sales about 18 percent this year for Sodick Plustech Co. Ltd., said Len Hampton, U.S. national sales manager of the business in Schaumburg, Ill,

The presses, from 60-200 tons, "enables us to compete and target some of the more sophisticated custom molders" with better pricing, he said.

High-end medical molding, such as micromolding, remains a core market, and Hampton said Sodick is moving to areas like liquid silicone rubber and two-shot molding.

Sodick will have a larger booth at NPE2018, to bring more machinery. One highlight: a 3D metal printer, the OPM, that combines laser sintering and high-speed milling to create finished injection molds in a single machine. Sodick ran an OPM at a plant tour for attendees at the IMTECH conference in August.

Wilmington Machinery Inc. is another specialty machinery maker — but one that builds big, integrated production systems to make plastic pallets. President Russ LaBelle said the company, in Wilmington, N.C., reacted to international market demand for a more affordable, dedicated pallet machine.

"We have never had a commodity mentality as a company. Virtually all of our projects entailed pretty significant amounts of engineering," LaBelle said. "We've been an engineering-driven company."

Moving from the giant to the small: Boy Machines Inc. of Exton, Pa., sells small-tonnage injection presses. President Todd St. Pierre said medical, electronics and automotive were strong markets for Boy this year, with some sales for consumer products molding.

What about 2018? "I would expect to see another increase of between 10 and 15 percent for next year over this year," St. Pierre said.

Randall Wan, president of Fortune International Inc. in Somerset, N.J., which sells Victor Taichung injection presses, said the company made sales to appliances and consumer products for the home improvement store market this year.

He joined other machinery officials enjoying the fourth-quarter boost present from the deprecation tax credit. "They will have a chance to purchase more machines prior to year-end," Wan said.

Sonny Morneault of Wittmann Battenfeld was interviewed at the Fakuma show in Germany in mid-October. He also said the current depreciation brings machinery companies a Christmas present.

"I had three customers just this week say I have to have my equipment on the shop floor by Dec. 31, 2017," he said.