Canadian Plastics

Surviving molders bigger, more profitable, slowly moving into Asia

By Rebecca Reid, associate editor   



There's no doubt Canada's injection molding industry is changing. Adapting to serve the global marketplace while maintaining or boosting revenue has posed challenges for most in the industry....

There’s no doubt Canada’s injection molding industry is changing. Adapting to serve the global marketplace while maintaining or boosting revenue has posed challenges for most in the industry.

Canadian Plastics’ yearly injection molding benchmark survey provides the most comprehensive data about the state of Canada’s injection molding industry.

In October 2005, 932 e-mail questionnaires were sent to injection molders that were also subscribers to Canadian Plastics. In total, 133 questionnaires were completed, yielding a response rate of 14.3 per cent.

Sixty-six per cent of respondents were located in Ontario, 14 per cent in Quebec and eight per cent in B.C. Five per cent of respondents were located in Alberta, two per cent in Manitoba, two per cent in Nova Scotia, and one per cent in Saskatchewan.

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LOOKING EASTWARD

For the first time this year Canadian Plastics’ polled injection molders about their operations in China and India. The results weren’t entirely unexpected.

Although China has the world’s fastest growing economy, few Canadian plastics processors have entered the market. Concerns about intellectual property protection, getting paid, Communism, as well as confusion about how to enter the market and cultural differences, are all factors which make it challenging for processors to easily enter those markets.

Of the 95 respondents, 26 had operations in China, and only four had operations in India. The four firms operating in India also have a presence in China.

Only nine, or 34.6 per cent, had manufacturing facilities in either of those countries, while six or 21.3 per cent had formed joint ventures with local firms. Another three, or 11.5 per cent, had sales offices, while eight, or 30.8 per cent, were involved in other operations, including having suppliers in those countries, moldmaking operations, a local sales representative, and selling directly to local plants.

Of the 69 respondents, or 72.6 per cent, that didn’t have operations in those countries, only two, or three per cent, plan to enter those markets within the next six to 12 months. And, only four, or six per cent plan to explore them within the next one to two years. The vast majority, 91 per cent have no plans whatsoever to enter either China or India.

And, 36.4 per cent of respondents that do have a presence in China or India mainly served the automotive sector, followed by 18.2 per cent in the electronics industry. Another 13.6 per cent mainly served the packaging industry, while 9.1 per cent cited the construction industry as their primary market. Only 4.5 per cent served the consumer goods industry.

The remaining 18.2 per cent indicated they were involved in other industries.

EXPORTS ERODE

Additionally, injection molders are relying more on Canada’s domestic market rather than shipping goods to other countries.

According to the 109 respondents who answered this question, 66 per cent shipped 50 per cent or less than their products outside Canada’s borders. This was an increase of about 10 per cent from 2004 and 2003, where survey results showed 56.6 per cent and 55.4 per cent, respectively shipped goods to non-Canadian locales.

As well, the number of respondents shipping 75 per cent or more of their products outside the country has decreased by more than six per since 2003. In 2005 13.8 per cent said they shipped over 75 per cent of their products out of the country in 2005 compared with 21 per cent in 2003. In 2004, 12 per cent said they shipped 75 per cent of more of their goods to locations outside Canada’s borders.

This is likely the result of the high Canadian dollar, which Canadian financial analysts say has impacted the country’s manufacturing industry. A high dollar makes Canadian goods more expensive to those in other countries, especially the U.S., which has traditionally used Canada as a source for less expensive, high-quality plastic components and products.

SQUEEZING OUT SMALL PLAYERS

Smaller plastics processors are getting hit hardest by foreign competition, the high cost of materials and demanding cost reduction requirements from OEMs.

Since 2003 the percentage of respondents from companies with more than 250 employees has grown to 18.9 per cent from nine per cent in 2004, and 6.3 per cent in 2003. In 2003 only 23.8 per cent worked at firms with 100 employees or more, and 2004 was similar, with 24.7. But 40.4 per cent of respondents to this year’s survey worked in companies with 100 employees or more. Most of 2005’s respondents — 22 per cent – worked for injection molders with 100 to 249 workers.

In 2004, more respondents — 22.5 per cent — worked in companies with only one to nine employees, than in firms with 10 to 19 workers, 20 to 49, 50 to 99, 100 to 249 and 250+. In 2003, 21.4 per cent of respondents worked in companies with only one to nine employees, but the most respondents — 21.4 per cent — were employed at injection molders with 20 to 49 people. (See Chart 1 on this page)

Other evidence of this trend is shown in the number of injection molding machines at respondents’ facilities.

Forty-five per cent had 16 or more injection molding machines at their plant, compared with 37.5 per cent in 2004 and 31.5 per cent in 2003. In fact, 88 per cent of injection molders had 16 or more injection molding machines, while eight per cent had 11 to 15, four per cent had six to 10.

As well, the number of respondents with one to five injection molding machines decreased to 16 per cent in 2005 from 25 per cent in 2004 and 27.6 per cent in 2003. (see Chart 2 on page 24)

AUTOMOTIVE NUMBER ONE

Although recent announcements from General Motors about pending plant closures in Oshawa, Ont., could jeopardize injection molders in the automotive industry, the effects won’t be evident until at least next year.

As in previous years, the majority of respondents in 2005 mainly serve the automotive market, but they are increasing dominating the injection molding industry. Thirty-two per cent of the 107 who selected the genre of parts they manufacture produced automotive components, followed by 18 per cent making packaging, and 17 per cent making consumer goods.

Another eight per cent said their main markets were involved primarily in electronics industry, while seven per cent were involved mostly in the construction sector. The remaining 19 per cent were involved in other industries. (See Chart 3 on page 24)

Over the years OEMs have been outsourcing a lot of commodity manufacturing to foreign markets to take advantage of cheap labour costs. However, they’re still relying on countries like Canada to produce complicated, highly engineered parts.

INVESTING IN PEOPLE

And the majority of injection molders allotted some portion of their budget towards employee training, although more respondents — 11 per cent — put no money into their training budgets in 2005 compared to 4.8 per cent in 2004.

INJECTING INVESTMENT

Regardless of market woes, more than half of the question’s 120 respondents — 54.2 per cent — plan to buy new injection molding machinery in 2006, and 62.1 per cent are making purchases to add capacity, not replace old machines.

These numbers indicate injection molders could be making up for capital expenditures they planned for 2005, but didn’t follow through with.

In 2004, 60.7 per cent of respondents said they would buy injection molding machines in 2005, but only 37.9 per cent of this year’s respondents actually bought them in 2005.

These results indicate that injection molders were optimistic going into 2005, but the year didn’t meet their expectations in terms of revenue, and as a result, had to put new machine purchases on hold. The high Canadian dollar as well as the high oil, natural gas and resin prices plus increased foreign competition all played parts in injection molders’ decreased revenues.

AUXILI
ARY NOT AN AFTERTHOUGHT

Next year injection molders also plan to dole out more cash for auxiliary equipment and robots than in 2005. In 2006 83.8 per cent of respondents are allotting portions of their budgets for new auxiliary equipment, and 67.5 per cent for robots and automation equipment. Last year 74.4 per cent of respondents bought auxiliary equipment, and 46.6 per cent spent money on robots and automation equipment.

And 86.9 per cent of the 61 respondents who answered all three questions about intentions to buy I/M machines, auxiliary equipment, are planning to buy all three.

These high numbers indicate that injection molders are projecting 2006 to be a better year than 2005. Economists agree that resin and natural gas prices will eventually fall, bringing some cost relief for cash-strapped injection molders.

And the high number of respondents choosing to buy all three indicates injection molders are investing in new automated solutions to help them decrease costs and increase time to market for their products.

Still, 65 per cent of respondents say 50 per cent or more of their machinery is five years older or more. Only 12.5 per cent of respondents have less than 30 per cent of their machinery in that age bracket.

To view tables associated with this story, click here.

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