Compounders selling all they can make amid supply challenges in 2021

Compounding execs who were happy to see 2020 come to an end have been none too impressed with 2021. And they might want to take 2022 for a test drive before buying anything.

Compounders were still recovering from the events of 2020 — including the global COVID-19 pandemic and a pair of late-year hurricanes — when an unprecedented ice storm hit Texas in February. Other supply chain issues followed, including the temporary blockage of the Suez Canal and another hurricane in August.

These challenges then further complicated industry logistics, making it difficult for materials to be delivered by truck, rail or ship. That was on top of challenges in finding workers to operate or unload those vehicles or to work on production floors.

One bright light for compounders and concentrate makers was that demand for their products remained very strong, bouncing back from declines seen in 2020.

Plastics News recently checked in with executives at these firms to get their takes on what turned out to be another challenging year and to find out what they expect in the months ahead. Here's what they had to say:

Getting materials needed to make compounds and concentrates — from resins to additives to colorants — has kept compounders occupied during 2021.

"It's like hand-to-hand combat every day," said Chris Pederson, Specialty Engineered Materials president at Avient Corp. in Avon Lake, Ohio. "It's difficult to get what we need to service our customers, but I can't say enough about what our team has done. They've done an outstanding job of sourcing and finding alternate raw materials where we can."

Several execs said that resin supplies seem to be improving in recent months, but additives remain in tight supply. "Polyethylene and polypropylene supplies are coming back, but PVC and pigments and additives are still a challenge," said Woon Keat Moh, Americas and Asia president for color, additives and inks for Avient. "It's good to have a global footprint like we do."

Techmer PM of Clinton, Tenn., has faced major supply challenges during 2021, according to Chairman John Manuck. "Some materials are impossible to get," he said. "If we need five ingredients to make a compound and one is missing, we can't make it."

Many additives used by North American compounders are mainly produced in Asia. Flame retardants, antioxidants, carbon black and titanium dioxide are among additives that have been hard to find in some cases. Glass fibers also have been difficult to source for many firms.

"I fly out of Los Angeles a lot, and it's frustrating to look down and see all of these container ships that can't get unloaded," Manuck said. "Or you'll be expecting 10,000 pounds of an additive but only 5,000 pounds arrive. Then you have to decide which customers get your products."

ATC Plastics LLC of Indianapolis has had a good sales year in 2021, but the firm's plant in Houston has been challenged to keep up with demand.

"It's like we make something at noon and ship it at 12:30," Managing Partner Tom Stevning said. "We were down for a few days after the ice storm … then we were back up but could get barely enough material.

"Now you can find additives like waxes and antioxidants, but you have to pay higher prices," he added. "I spend eight hours a day working on feedstocks."

Shipping also has been an issue in unexpected ways, according to Mike Gaudio, marketing and global business vice president at Ampacet Corp. in Tarrytown, N.Y.

"If you're shipping by truck from New York to California and the truck had planned to stop in Kansas City but had to stop in Omaha because Kansas City was closed because of COVID, then you can't get a shipment in three days; you have to get it in six," he said.

"It's harder to get additives right now," said Jean Sirois, strategic planning and acquisitions director at RTP Co. in Winona, Minn. "Supply can be there; it's hard to find."

He added that communication has been more important than ever this year: "We've never shied away from communicating with customers, whether it's bad or good. It's been a year of being flexible."

At Aurora Plastics in Streetsboro, Ohio, officials have seen extended lead times, capacity utilization challenges and "supply and demand challenges across the chain," according to CEO Darrell Hughes.

"Every material has faced challenges, even corrugated [cardboard]," he said. "You have to look beyond the suppliers you deal with to their vendors. It's important to have a team working on that. This year has really stressed the importance of long-term relationships."

Chroma Color Corp. CEO Shruti Singhal agreed that relationships "are always critical" and added that "open and transparent communication" has been very important for his McHenry, Ill.-based firm in 2021.

"From our standpoint, we know we're not the only ones in the boat," he said. "Our core demand hasn't been so much about price as supply, so we really depend on our suppliers."

Polymer Resources of Farmington, Conn., has managed its way through 2021, but "every day has brought new surprises," according to President and Chief Operating Officer Scott Anderson.

"We've had to find alternate sources for everything down to boxes and pallets," he said. "One material will be short for a while, then another one will be short, but that hasn't stopped our growth."

"We've had longer lead times all year, but we've managed to stay ahead on additives," added Mike Rosenthal, executive vice president at Plastics Group of America in Woonsocket, R.I.

At Americhem Inc. in Cuyahoga Falls, Ohio, Vice President and General Manager of Commercial, North America, Mark Juve said that his firm "gets 95 percent of our materials, but that small amount you don't get can affect a lot of products."

"We spend a lot of time on sourcing," he added. "There can be a shortage of materials, where you can't get it for months or you have to go outside the U.S., and that can be uncertain on timing and can affect our production schedules and our customers' schedules."

For Teknor Apex Co. in Pawtucket, R.I., the last year has seen "booming demand" from industries such as construction and medical, according to President Suresh Swaminathan.

"Production can't keep up with it," he said. "Lead times definitely have been impacted. There's been some impact of climate change, with flooding in Europe and the ice storm in Texas, and preparedness hasn't been sufficient.

"Now the issue on logistics is, How do you move material? We've qualified alternate suppliers, because the farther away from the plant, the more difficult it gets."

Some inventory building may be occurring at the customer level, but market veteran Keith Rodden said that, for the most part, compounders are seeing organic demand.

"The amazing thing is that with all these supply shortages, everyone is busy," added Rodden, president of consulting firm Compound Solutions in Lebanon, Tenn. "It's not uncommon for an order in October not to be delivered until January."

Supply chain disruptions "have caused havoc for compounds, and that's cut down to plastics processors and suppliers," according to Phil Karig, managing director of Mathelin Bay Associates in St. Louis.

"Additives or anything with a foreign component are backed up as far as they can go," he said. "That introduces uncertainty into things and that has to affect production."

LyondellBasell's Advanced Polymer Solutions unit — North America's largest compounding business — has faced similar challenges, according to unit President Jim Guilfoyle. The unit's close relationships with suppliers have "helped mitigate" lack of availability in some raw materials, products and components, he said.

"We've done a good job of insulating our customers from the chaos and minimizing the impact on them," added Mike McGarrity, vice president of sales at Penn Color in Doylestown, Pa.

"Depending on who you talk to, the problems are coming from logistics or from force majeures," said Bill Ridenour, president of Polymer Transaction Advisors Inc. in Foxfire, N.C.

Supply chain issues have affected Mocom Compounds in all regions, but more so in the U.S. and Europe than China, according to CEO Ian Mills. Mocom is based in Hamburg, Germany, but it has global production, including a plant in Duncan, S.C.

"We've tried to reposition our supply chains and bring in material from other regions, but logistics costs are up dramatically," Mills said. "It's been fairly stressful."

Labor has been another major issue for compounders in 2021. Companies have offered higher wages, signing bonuses and other strategies, but they have still struggled to find enough workers in some cases.

Geon Performance Solutions of Westlake, Ohio, recently had 60 applicants for 10 manufacturing jobs — but only two of those 60 showed up for interviews, according to Chief Commercial Officer Larry Shaw.

"In one plant, we have eight lines but can't get labor for five," he said. "We're offering significant bonuses and incentives. It doesn't seem to be just about the dollar amount."

Finding labor has been "an extremely difficult challenge," added Swaminathan at Teknor Apex. "And if you decrease production, you lose efficiencies."

In some cases, compounders are challenged to retain workers because of the nature of the work.

"It's not one of the easiest jobs," said Sirois at RTP. "There can be heat, [and] you might have to work with powders. … We've had to fight to get employees."

At Avient, Moh credited the firm's recruitment team for offering signing bonuses and competitive benefits to attract employees. Americhem has been more fortunate — increasing the size of its U.S. workforce by 25 percent in the last year — but only after making changes to its competitive wages, Juve said.

"There's been a lot of churn on labor," said Chuck Hoop, sales director with Star Plastics in Ravenswood, W.Va. "If we can keep people on staff for a year and a half or two years, we can keep them. But some only stay for six to nine months."

At Chroma, Singhal said that "a majority of our population is on the shop floor, so we've had to compete with wages. … It's been challenging."

Aurora has raised its base pay by 40 percent in the last three years, Hughes said. "We're tried every trick to attract talent," he said. "If we want to add additional shifts, it's a challenge."

"Labor is a big issue," Rodden said. "We've had compounders tell us they need to hire eight employees to get one to stay."

Several compounding execs said that labor challenges have them looking more at automation. Polymer Resources has added feeders to avoid pre-blending work. "Our team has been great, but hiring new employees and getting them to stay has been a challenge," Anderson said.

But RTP's Sirois said that some compounding jobs might be difficult to automate because of custom lots and smaller runs. Chroma's Singhal agreed that automation can be a challenge.

"Small orders and agility are what our customers appreciate," he said, but he added that automation is part of his firm's strategy in order to improve on efficiency.

Even as compounders struggle with logistics and labor issues, they can take some satisfaction in knowing that customers are buying all the compounds and concentrates that they can in 2021.

"Food packaging and medical are incredibly strong this year," Techmer's Manuck said. Stevning added that demand from pipe and other construction products "is way up" at ATC.

"We're heavy in packaging and are still seeing strong demand there," said Gaudio at Ampacet. "And this year, we've seen strong demand in high-pressure pipe, construction, oil and fracking." McGarrity said that building and construction and consumer goods have been "extremely strong" at Penn Color.

"Resurgent markets" at Houston-based LyondellBasell APS include lawn and garden, recreational equipment, commercial construction, packaging and sustainable energy platforms, Guilfoyle added. The business also has seen success with its Circulen brand of materials that offer sustainable solutions to address plastic waste and climate change while meeting customer and brand-owner needs.

Overall compounding demand remains strong, according to Karig at Mathelin Bay.

"Everyone stayed home for the better part of a year, and the government put disposable income into people's pockets," he said. "That caused a lot of demand to shift from services to goods. People spent on home improvement and other consumer businesses."

RTP is seeing "strong demand from all corners," including recreational vehicles, campers, construction and electronics," Sirois said. Automotive demand "is still there but is up and down" because of semiconductor shortages, he added.

Core demand at Aurora is up by double digits this year, according to Hughes. Strong demand areas include building and construction, outdoor living and electrical, he said.

Demand "has been great across the board" for Polymer Resources, Anderson said, including in medical devices and parts for ventilators needed during the pandemic.

Home-based projects during the pandemic helped Star's sales into building and construction and electrical/electronic markets, according to Hoop. At Geon, demand has been strong in wire and cable and construction as homeowners "renovated, added on or fixed things like windows," according to John Hammer, senior director of global marketing.

"Our recent history has shown strong growth in health care, telecommunications infrastructure and composite solutions like lightweighting for automotive and electric vehicles," said Pederson at Avient. "We were able to accelerate to get new products into the market."

Avient's Moh added that "demand in all segments has come back," including consumer goods, sporting goods and items related to group events and concerts.

Rosenthal at Plastic Group said that he was surprised that higher resin prices didn't lead to demand destruction. The firm recently added a new glass-filled PP product line for RVs.

"Medical has been very strong for the last several years," said Juve at Americhem. "We've been doing a lot in building and construction capstocks for decking, fencing and windows. Antimicrobials also have been big."

To support medical demand growth, Americhem recently added 60,000 square feet for medical compounding at its plant in Morrisville, Pa. Strong demand also has led a firm that PTA is working with to double its pretax profit so far in 2021, Ridenour added.

For Teknor Apex, construction demand "has been booming," Swaminathan said, while medical demand has improved. Automotive demand has seen "fits and starts" because of the semiconductor issue, he added. While food packaging demand has been growing "at a good pace."

On the financial side, compounding and concentrates units at Avient and at Houston-based LyondellBasell Industries fared well in the first nine months of 2021.

Sales at Avient's color, additives and inks unit were up 86 percent to $1.82 billion in that period, compared with the same period in 2020. The unit's operating profit was up 96 percent to $241.9 million in the same comparison.

At Avient's Specialty Engineered Materials unit, nine-month sales were up 33 percent to $690.7 million, with operating profit up 61 percent to $103.2 million.

For LyondellBasell's Advanced Polymer Systems unit, nine-month sales were up 38 percent to $3.89 billion. The unit's operating profit more than doubled to $299 million.

Several compounders also are adding production capacity. ATC will increase its capacity by 50 percent in January by installing a new Farrel continuous mixer (FCM). Stevning said the unit "will be 50 percent sold out the minute we turn it on."

Geon is in the midst of a major capacity expansion that will see the firm add 150 million pounds of production capacity by mid-2022. The expansions in Dyersburg, Tenn., and Seabrook, Texas, are needed to meet demand in wire and cable and other markets.

Avient's Specialty Engineered Materials unit plans to install new twin-screw extrusion lines for composites, fibers and thermoplastic elastomers at several locations worldwide. The firm's color, additives and inks unit might add new extrusion capacity in Latin America and Asia as well.

Penn Color has boosted total production capacity by 25 percent at sites in North America and Europe this year. Americhem also will add capacity at multiple sites to handle growth. Star is considering adding a new production line as well.

And Plastics Group of America is facing a unique supply chain challenge. The firm plans to install a new twin-screw extruder, Rosenthal said, but it hasn't been able to source the steel needed to expand its building to make room for the new machine.

Looking to the rest of 2021 and into 2022, most of the compounding executives interviewed for this story had similar expectations: Demand will remain strong, but supply chain challenges also will continue well into next year.

"Supply will open up, but we don't see these logistics challenges easing off anytime soon," said Swaminathan at Teknor Apex.

"If you would have asked me earlier this year, I would have said things would be better by this summer or by the end of the year," Avient's Moh added. "But now we're seeing different sets of challenges and are really focused on meeting customer orders."

Anderson is seeing similar conditions at Polymer Resources. "I've stopped trying to predict," he said. "No matter what happens, we have enough qualified materials and new projects in the pipeline."

"Supply chain problems look to continue at least into the first half," said Singhal at Chroma. "We'll continue to be innovative with our sourcing and hope the second half is better."

For Mocom, Mills said that inflation "could have a daunting effect" in 2022, but he added that the firm "has a strong order book."

At LyondellBasell APS, Guilfoyle said that the firm "has been witnessing demand levels that have not been satisfied due to constraints … [and] as these constraints begin to unwind, we expect to see a steady recovery in the auto, infrastructure and appliances markets."

"We'll continue to try and meet customer expectations and find alternatives to traditional suppliers," RTP's Sirois added. "We hope to get back to normal a year from now."

At Techmer, a two-month backlog of orders is both good and bad.

"There's a lot of stress, but demand is still strong," Manuck said. "If I feel down, I just imagine how I'd feel if we didn't have that backlog."