Recession proofing with resin power

Let’s be straightforward here and state openly what everyone fears — this is not going to be a great year of profits for suppliers and processors in the plastics industry. The bigger question is, will the fear pan out?

After dodging the bearish bullet for most of 1998, the North American manufacturing industry appears at last to be cornered by brutish global economic forces and bracing itself for some of the pain dealt to the Asian and other economies during the last 18 months. Derek Holt, economist at the Royal Bank, speaking at this magazine’s annual resin pricing conference (p. 27), noted: “All the financial market turbulence that we’ve seen in the major economies across the globe is about to translate into the real economy, not just the developing world.”

Holt went on to say that although he sees growth slowing considerably in the upcoming year, the combined North American economies of Canada, the United States and Mexico should be able to avoid the recessionary flu afflicting huge swaths of the global economy. In other words, there will be pain, but not outright bed-ridden illness.

Whether, as Holt says, North America can sufficiently isolate itself from the ill winds blowing through other parts of the globe’s economy remains to be seen. After all, we’re talking about a global market in which free-falling share prices wiped out almost $4 trillion of the world’s financial wealth in a two month period last summer. While some of that wealth has already been recouped by rebounding stock prices, the fact remains that there is a whole lot less money for investments and purchases in the world today than there was a year ago.

Accepting this rubric of economic uncertainty, with GDP growth in the domestic North American economy pegged at 1 to 2% at best, how then does one explain the positively robust growth projections tossed out by resin suppliers at the aforementioned conference? Polyethylene growth in North America is expected to be 5.8%. Worldwide growth in polypropylene is projected to be in the range of 6 to 10%. New demand for vinyl is predicted to top 5% through to the year 2002. Only polystyrene, with growth projected to be no more than 2%, appears to be in harmony with the more modest expectations of the general economy.

The answer in part lies in the phenomenal growth rate of the plastics industry, which since the early 60s has outpaced the growth of the manufacturing sector as a whole by a factor of four to five. This growth has in turn been driven by both the tremendous diversity of markets for plastics — everything from bumpers to bottles, computers to kid’s play area equipment — and the accelerated pace of plastic materials innovations. In essence, plastics market-capture has far outstripped overall economic growth, creating the perception that the plastics industry is virtually recession proof.

Therein lies the danger. The plastics industry risks the complacency that often accompanies success.

At the near turn of the millennium, with so much heady growth already behind it, with pricing for feedstocks and certain grades of resin at an all-time low, the plastics industry literally lies at the threshold of a new era in which design and manufacturing are being redefined. A host of fresh challenges — from new technology that makes injection molding of metals easier and more cost effective, to continued consumer and regulatory demand for materials and products that are readily recyclable — will continue to confront the industry.

How the companies and individuals that make up the industry respond to these challenges will determine whether plastics remains “recession proof.”

Michael LeGault, editor