Compounders seek recovery from tough 2020

It hasn't been easy, but many North American compounders and concentrate makers are bouncing back from slowdowns seen earlier in the year when the COVID-19 pandemic began.

And although the pandemic isn't over, many of these firms are hopeful that the improvements they've seen in the second half of the year will continue.

Plastics News recently talked with executives at several compounders and concentrate makers to see how their firms are coping with the unprecedented business challenges of 2020. Here's what they had to say.

The impact of sudden shutdowns in March and April took many materials makers by surprise and had them looking at worst-case scenarios.
"As things started to break from February into March, we looked at a variety of cases, including one in which we lost half of our volume," said Darrell Hughes, CEO of Aurora Plastics in Streetsboro, Ohio.

"We were strong enough to weather the downturn, even as volume was off in April and May, but then we surprisingly saw a V-shaped recovery," he added. "It was like June flipped a switch in the other direction."
CEO Matthew Hellstern saw similar conditions at Americhem Inc. in Cuyahoga Falls, Ohio.

"We saw a major drop-off in many markets in the second quarter, except medical and consumer packaging," he said. "Since then, we've seen a strong rebound in most markets domestic and abroad. The comeback gives us optimism throughout the industry and into 2021."

Chroma Corp. of McHenry, Ill., is "back to close to normal" and is hiring new staff after reducing some shifts earlier in the year, CEO Tom Bolger said. Business at RTP Co. in Winona, Minn., also has rebounded through new business and refilling of the supply chain, according to Jean Sirois, strategic planning and acquisitions director.

For Teknor Apex Co. of Pawtucket, R.I., 2020 has been "a story of two halves," President Suresh Swaminathan said. The firm was able to avoid shutdowns at its 13 production sites by following strict pandemic protocols. Business at Star Plastics of Ravenswood, W.Va., has improved since September, President and CEO Doug Ritchie said.

In the second quarter, the Advanced Polymer Systems unit of Houston-based LyondellBasell Industries "observed a complete shutdown of the European and the Americas automotive industry," unit President Jim Guilfoyle said.

"We aggressively managed inventory and costs to align with demand," he added. "However, consumer-driven demand in the packaging and health care markets hardly slowed as the pandemic created a need for flexible films for food packaging and packing materials for online goods."

Plastics Group of America in Woonsocket, R.I., briefly reduced its production schedule to five days a week before returning to seven days in August, Executive Vice President Mike Rosenthal said. Techmer PM of Clinton, Tenn., held a customer event in March and "thought it might be our last event," CEO and Chairman John Manuck said. "We saw a drop-off in the second quarter, then a strong V-shaped jump back," he added. "Now we're back to even or a little ahead of where we were a year ago."

"From a business perspective, the falloff this summer hit quickly," said Scott Anderson, president and chief operating officer at Polymer Resources in Farmington, Conn. "But it's bounced back. This time of year is usually a slowdown for us, but we've been active in the past six weeks and continue to be strong. We were above plan in October and November."

Mocom Compounds — formerly Albis Plastics — was able to stay open because it was considered an essential business, President and CEO Stefan Fuhlendorf said, but the Duncan, S.C.-based firm's automotive business struggled, with many North American plants closed for a period of time.

"Thankfully, we recovered steeply and quickly and had record months in September and October," he added. "We thought [the recovery] would take longer."

"We took [the pandemic] extremely seriously, but at first we didn't know what to do," said Mike McGarrity, sales vice president at Penn Color Inc. in Doylestown, Pa. "But we were able to keep our plants open and we didn't lose any shifts. We acted to prevent the spread of the virus."

Asahi Kasei Plastics North America of Fowlerville, Mich., does most of its business in the auto market and saw a major impact, closing its Michigan plant for a week in March. "April, May and June were horrible, but the third quarter bounced back,'' President and Chief Operations Officer Ramesh Iyer said.

With the year winding down, some compounders and concentrate makers still are working to fill orders, according to market veteran Keith Rodden, president of consulting firm Compound Solutions LLC in Lebanon, Tenn. "Some plants only ran at 50 percent capacity during the summer, so some companies are a little worried over whether what they're seeing is inventory replenishment vs. actual demand," he added.

Geon Performance Solutions of Westlake, Ohio, slowed production at some of its plants in the second quarter, but it has increased output since then.

"I think we're all going to look back and say things could have been worse," Chief Commercial Officer Larry Shaw said. "As an essential supplier, we've seen our volume rebound significantly. We're back on track."

Niche Polymer LLC of Ravenswood, W.Va., saw "an immediate impact" to commercial activity in March and April with the slowdown of automotive manufacturing, CEO Saurabh Naik said. Since June, he added, much of that activity has come back.

On a macro level, markets for packaging and medical applications have fared well during the pandemic, while sales into automotive and some durable goods such as appliances have struggled.

Performance in 2020 "depends on markets and on whether you're a specialty business," said Bill Ridenour, president of Polymer Transaction Advisors Inc. in Foxfire, N.C. "If you're in medical or pharmaceutical or food packaging, your business probably grew and some of that could offset losses elsewhere, like automotive."

The Specialty Engineered Materials unit of Avon Lake, Ohio-based Avient Corp. was positioned well to support essential customers in health care, consumer and packaging uses where demand increased in response to COVID-19, according to Chris Pederson, unit president.

"Obviously, automotive has suffered, but even there, we were able to supply automakers who pivoted to producing ventilators during the earliest days of the pandemic," he added. "We haven't slowed our innovation pipeline in response to the coronavirus. We continue to invest in commercial, marketing, and research and development resources."

Avient's SEM unit has seen an increase in demand for essential health care applications such as respiratory care, along with additional market interest in pharmaceutical manufacturing and packaging.

"New programs are materializing and there's a rebound in automotive," said Fuhlendorf at Mocom. "Medical and diagnostics are benefiting from COVID sales."

Iyer at Asahi Kasei said U.S. auto build numbers already are improving but likely will be down vs. 2019. Techmer's Manuck said that auto business in April "was basically zero" but that his firm's sales into medical and food packaging are booming.

"We're in diverse markets and critical applications," he added. "Some medical programs that we'd had under development for two years have started. We may have lost a shift or a day at some of our plants, but we've mostly done well."

Ampacet Corp. of Tarrytown, N.Y., "is heavy on the packaging side, so we've done pretty well this year," Marketing and Global Business Vice President Mike Gaudio said.

"People are locked down at home and that's led to runs on supermarket items like food, personal care and detergent," he added. "We've been down in some other areas, but we haven't had to make any changes to production. There were a lot of requests for essential companies to stay open, so we became important."

Star Sales Director Chuck Hoop said that the firm's sales into electronics such as laptops and monitors were up, since more people were working from home. Plastics Group had to weather a few down months because one of its largest customers is in the recreational vehicle market, which wasn't designated as essential, according to Rosenthal.

"The challenge was what happened in automotive," said Swaminathan at Teknor. "The PPE [personal protective equipment] market has been good. Medical and packaging continues to do well even though surgeries are down.

"If you were selling directly into a COVID application, you couldn't keep up with demand. But we don't know if that demand is temporary or if it will be continued," he added.

At RTP, Sirois said that some markets are doing well, such as medical equipment and tubing and connectors, but it's again a question if that demand will be sustained because "visibility is poor."

Avient's Color, Additives and Inks unit has seen an increase in OEMs and converters asking for antimicrobial products for packaging, medical and fiber applications, according to Americas and Asia President Woon Keat Moh.

"Much of this activity has taken place via phone and video conference calls with customers," he said. "Even color approvals are being conducted via video calls."

Avient's Michael Garratt added that, as a key supplier to many customers that are making essential products, the firm's color unit saw an uptick in demand in health care for medical devices and nonwoven face masks; packaging for food and beverage; and infrastructure markets like wire and cable.

"Each of the industries that we serve were impacted to differing extents, but with the expanded breadth of supply resulting from our acquisition [of Clariant Masterbatches] in July, we've been able to respond quickly to those that need our solutions," added Garratt, Europe, Middle East, Africa president for Avient's color unit.

"From an operations standpoint, we organized our production lines to make sure that our workers remained safe and provided them with all required PPE, which enabled us to continue to produce without disruption and safely."

Guilfoyle said that LyondellBasell in the third quarter has seen a rebound in automotive production, as OEMs restarted manufacturing lines and worked on vehicle backlogs. The business also is seeing "significant increases" in the medical and industrial segments.

One compounder that's having a big year in 2020 in spite of its challenges is ATC Plastics LLC of Indianapolis. Managing Partner Tom Stevning said he knows his firm has been fortunate.

"We're up 30 percent and having a record year. Every month has been up," Stevning said. "Some of our competitors had issues and couldn't get material. I think we were helped by having our production site in Houston.

"We had to adjust some shifts and some of our customers in automotive took a hit, but we more than made up for it," he added. "It wasn't really a ton of new business. Our current base stayed with us."

Industry consultant Phil Karig described the 2020 performance of various end markets as "essential vs. nonessential and retail vs. nonretail."

"Even in food, supermarkets have done well, but restaurants are facing challenges," said Karig, managing director of Mathelin Bay Associates in St. Louis. "The type of comeback depends on what markets you're in. Some markets have come back quickly, but some are still in the crosshairs."

Most compounders and concentrate makers interviewed for this story pointed to building and construction as an end market that was very strong in 2020.

"People were nesting, not going on vacation; they were hunkering down," said Bolger at Chroma. "We did a lot of business in composite decking and swimming pool liners. A lot more people were working from home."

Americhem's Hellstern said that home remodeling was very strong in 2020. "People were moving back into suburbia and spending more time at home on their decks and patios," he said. "They wanted to fix things up."

Big-box retailers "can't stock home renovation products fast enough," said Swaminathan at Teknor.

"People are staying home and doing the home repair projects they've been putting off," ATC's Stevning said.

Building and construction "has thrived, and that's a good part of our portfolio," Hughes said at Aurora. "People aren't going on vacation or eating out as much, so they're spending it on their homes on products like replacement windows."

"When you don't spend much time at home, you don't see the stuff that needs fixed," said William Galla, sales vice president at Polymer Resources. "But when you spend more time there, you see it." He added that his firm has seen higher sales in construction-related uses in electrical and pools and spas.

"Anything building and construction related has been extremely strong this year," said McGarrity at Penn Color. "Our home has become our school, office, vacation spot and playground."

U.S. sales volumes in plastic compounding were up more than 1 percent in September and more than 2 percent in October, according to the American Chemistry Council. Both of those comparisons are to the previous month. Even with those improvements, plastic compounding sales volumes were down almost 3 percent for the first 10 months of 2020 in total.

At Avient, the Clariant Masterbatches acquisition sent sales in Color, Additives and Inks up almost 26 percent to $977 million in the first nine months of the year. The unit's operating profit was up 2.5 percent to $123 million in that period.

Avient's SEM unit saw nine-month sales decline almost 9 percent to $518 million, as operating profit dipped 1.5 percent to $64 million.

At the Advanced Polymer Solutions unit of LyondellBasell Industries, nine-month sales were down almost 26 percent to just over $2.8 billion. The unit's operating profit fell almost 63 percent to $103 million. APS is North America's largest compounding business, according to Plastics News estimates.

Customer interest in sustainable compounds and concentrates — including those with recycled content or based on biomaterials — continued in 2020 in spite of the pandemic.

"Our customers want sustainable products, but they also have tight specs and need continuous quality, which can be a challenge," said Fuhlendorf at Mocom. Mathelin Bay's Karig added that many plastics processors will use recycled content if they can. "Some end users want to be seen as green," he said.

Avient's color unit "has a unique role to play by supporting new sustainability challenges through different solutions for the sorting, recycling and requalification of post-consumer recycled materials and relevant colorants," Garratt said.

"Recycling will continue. It's here to stay," said Stevning at ATC. "Customers will move forward with a higher percent of recycled content if they can get the same quality product."

At Techmer, Manuck said that sustainability "took a back seat for a little while" in 2020, but it is "staying alive" because of a renewed emphasis from many companies.

Avient's SEM unit in 2020 has launched six new sustainable solutions that reduce energy usage, remove weight and offer bio-based and recycled content for specialty applications in consumer, electronics, packaging and transportation.

"Our sustainable solutions have focused on incorporating post-industrial and post-consumer recycled content into our functional formulations," Pederson said. "We've also incorporated PIR [post-industrial recycled] resin into our composites platform for thermoplastic tapes in the transportation market."

Star's Restart product line has helped customers meet environmental commitments, Hoop said. At Ampacet, Gaudio said that sustainability "never went away, but it relaxed a little." He added that his firm can custom formulate sustainable materials for customers.

Chroma "has done a lot" with sustainability, Bolger said. "Plastics have been shown to be a good product during the pandemic," he added. "That's made me happy, because a lot of the time they get a bad name, which isn't fair." Chroma is offering customers colorants for recycled content products and other products that enhance the use of recycled plastics.

Brands are promoting sustainable materials in hybrid vehicles and electronics, said Sirois at RTP.

"People ask for sustainable products," he said. "They want repeatable performance."

At Americhem, Hellstern said that sustainability "is a trend that hasn't waned."

Guilfoyle said that LyondellBasell "has been on a multiyear journey to advance the circular economy." The firm has multiple programs in mechanical and advanced recycling as well as producing renewable-based products. "Our goals underscore what we see as possible in the next decade, and our sustainability ambitions require us to adapt our business models," he added.

"Sustainability comes in pockets, but now it's staying in consumers' minds," Teknor's Swaminathan said. "It's more of a long-term thing with consumer products companies."

No one would have expected 2020 to play out the way it has, so asking compounding executives about their expectations for 2021 was a risky move. But they weighed in anyway.

"We're optimistic," said Iyer at Asahi Kasei. "When we didn't have orders, we focused on R&D and product development, just like we did in 2008. We were able to accelerate development, and our pipeline looks good."

2021 should have a stronger economy and a lower unemployment rate than 2020, according to PTA's Ridenour. Next year should show improvement, but it might not reach the levels of 2019, said Shaw at Geon.

LyondellBasell in 2021 "will build on the strong operational foundation" that the firm established in 2020, according to Guilfoyle. 2020 "was a challenging year as we launched several ERP systems and restructured our costs," but the firm also "is uniquely positioned with a global commodity resin and compounding product asset footprint that allows for product translations across all regions."

"In 2021, we expect continued demand for sustainable solutions for consumer and automotive applications," said Pederson at Avient. "We also expect additional growth for health care devices and pharmaceutical packaging and the beginning of an automotive market recovery focusing on the [electric vehicle] market."

"We're getting pretty close to a normal situation, but we're not sure what will happen with COVID," Fuhlendorf at Mocom said. Several compounding execs said that distribution of a vaccine for the virus would provide a boost for business in 2021.

At Niche, Naik said that officials believe once a vaccine is readily available and widely distributed, people will be eager to get back to "the aggressive market-driven economy."

Polymer Resources "expects a strong year" in 2021, Anderson said, with several programs that had been delayed getting restarted. McGarrity at Penn Color said he wasn't sure if the economy would return to normal in 2021, but that technology had been accelerated in several markets.

"A number of scenarios are still possible, but we're looking at good business growth, at least for the first half of the year," Ampacet's Gaudio said. At Teknor Apex, Swaminathan said that the distribution of the vaccine will determine how much markets will open up. "We always bet on the long term, and we're not holding back investments," he added.

Avient color officials also believe that "a fair number" of product development projects have been put on hold due to the pandemic, Moh said. "We're looking forward to an increase in these activities once our customers can return to their offices and labs," he added.

Garratt said that the focus for Avient's color unit in 2021 will be on enhancing customer collaborations to support innovation requests and to help them achieve their sustainability goals. At Americhem, Hellstern said that even in the COVID environment, he's excited about 2021. "There are a lot of exciting things going on in the compounding space," he added.

Perseverance will be key for compounders and concentrate makers in 2021, according to Manuck at Techmer.

"We'll continue to be successful if we help our customers be successful," he said. "There could be a second wave of COVID, but that's the world we live in now. If there's a challenge, we have to find a workaround. We can't surrender."