The base-case outlook for the film and sheet segments of the plastics industry in the coming months is mixed. There are some positive forces in the market which should support demand for these products. But there are also some negative forces which will constrain growth in the near term.
If I were to draw a graph of the overall trend in film and sheet demand during the coming year, it would be mostly flat.
Now, lest you think I am contributing to the spate of negative sentiment that has emerged in recent weeks, allow me to clarify. A forecast of "mostly flat" is not too bad considering we have been trending mostly higher for the past 10 years. I will gladly take another decade of a trend which can be described as 10 years of gradual increases interspersed with a few quarters of mostly flat.
The plastics film and sheet sectors are large and highly fragmented categories with a lot of products and end markets. So, there will be some divergence in the growth rates among the various segments and companies that comprise this category. But there are some prevailing macroeconomic trends and risks, which will likely be of interest to almost everybody in the industry.
To arrive at my "mixed" outlook, it means there are some downside risks, so I will address these first. The most significant is the fact that the U.S. manufacturing sector and the plastics industry are both in a period of modest cyclical contraction. For the plastics industry, the downtrend began in the first quarter of this year, and for the year to date, the industry is down just a bit more than 1 percent on average.
Most segments of the film and sheet sector have been negatively affected this year by the downward pull of the mild contraction in the overall manufacturing sector, but there are a couple of other factors weighing on some film and sheet markets. The first is the rise in the value of the U.S. dollar so far in 2019. Exports of film and sheet products are a small part of the total market for U.S. processors, but the recent slowdown in global trade combined with the strengthening of the dollar are a negative factor.
The second negative factor for some segments of the film and sheet sector is the deselection of certain types of plastics products. I have not yet seen any good data on the impact of bag bans and other efforts to limit the consumption of certain plastics products, but I cannot ignore this risk in my outlook for the industry.