Plastics

Plastics

Depending on the segment, the plastics industry has seen both improvements and declines.

State of the Industry

  • Plastics and resin product manufacturing is an increasingly global business.
  • Products are being used primarily in packaging, home wares, construction, electronics, and motor vehicles.
  • The decline in the auto industry in 2008-2009 has contributed to reduced demand for plastic components used in the manufacturing process; automotive tools cannot be moved to other machines, they must be re-certified.
  • Declines in the housing market have driven a reduction in demand for plastic flooring, construction and plumbing fixtures.
  • However, in 2010 as consumer spending improved somewhat, demand for plastics and synthetic rubber increased. Overall, the industry grew approximately 3.5% in 2011.
  • Plastics are not biodegradable, so U.S. Environmental Protection Agency trends favoring paper packaging are reducing their use in the fast-food industry.
  • Certain plastic product sectors, such as caps and lids, are doing well, yet investment in new equipment is needed to make some of these products.
  • Health-care products and components are also doing well, although because of the strict regulatory nature of the medical field, it is harder for companies to get a foothold.

6- to 12-month Outlook

  • Demand for plastics by manufacturers of electronics and construction materials is expected to drive growth going forward.
  • Generally speaking, appliance and automotive sectors within the plastics industry will remain flat or suffer, while food and medical will improve.
  • There is a trend toward more capital investment – better, more technologically advanced machines can produce lower volumes.
  • There is risk of pricing volatility in raw materials to plastics which could be a risk for the industry. Hydrocarbons derived from crude oil are a major input – given the recent rise in oil prices, there is risk of cost increases and profit margin pressure for plastics manufacturers. Ethylene, derived from natural gas, is another key material which could be impacted by rising gas prices. Manufacturers will be able to pass on price increases in some cases, but there is threat to demand.
  • Having contracts in place to maintain access to a consistent supply of competitively priced raw materials is critical for manufacturers to remain competitive.
  • Acquisition activity may increase in the industry in the next several years due to many businesses experiencing financial weaknesses in the five years up through 2011.
  • The secondary market for equipment makes liquidation relatively unattractive, so long-term restructuring and consolidation is possible.