Plastics in Perspective – Optimism amid Uncertainty

May 23, 2013

Speaking at the recent ANTEC® Business of Plastics conference in Cincinnati, Michael Taylor reported that the plastics industry is doing relatively well, despite the wave of economic concerns and weakness seen in some of the end-use sectors served by plastics manufacturers.

Taylor, Senior Director of Internal Affairs & Trade at the Society of the Plastics Industry, said that according to the recent Beige Book statistics, “Expansion remains moderate, and sequestration hasn’t had much impact.”

He pointed out that manufacturing—up 3-4% YTD—is outperforming the economy as a whole, calling the growth “Not quite a boom but a significant increase.”  And historically, compared to overall manufacturing, the plastics industry has done well, managing to stay in positive territory (albeit just 0.1%) for the period 1980-2011.  Manufacturing as a whole lost 1.0% during the same span.

Several key manufacturing sectors also maintain a positive employment outlook, despite the uncertain future; Fabricated Metal Products added 176,600 jobs in 2012, while Plastics and Rubber (more plastic than rubber) totaled 44,900 new hires.

“We haven’t quite gotten back to pre-recession levels, but I’m optimistic,” Taylor stated.  “For our industry it will be 2014 before we’re back to pre-recession levels.”

Taylor stopped short of proclaiming a manufacturing renaissance, citing uncertainty in the federal budget process. “I don’t think there is a budget process,” he said. “That…is leading to a lot of uncertainty. The markets don’t like it. And the European crisis doesn’t seem to go away.”

That uncertainty is causing many industry buyers to hedge a bit, Taylor adds. “They’ll say business is doing well, but at the same time they’re hedging—no new hires, no new machinery, no investment,” he said. “Uncertainty translates into risk, and they’ll try to mitigate that, which is why the recovery has starts and stops.”

Plastic product production is relatively flat, and capacity utilization stood just under 75% in March, but the industry is trending in the “right direction” according to Taylor. “I’m optimistic about the sector as a whole,” he says. “I’m optimistic that this will go up once some of the economic externalities and uncertainties [become settled]”.

For one thing, Taylor has high hopes for free trade agreements and the bi-partisan Miscellaneous Tariff Bill; the latter requests the temporary reduction or suspension of duties on certain U.S. imports, such as intermediate products or materials that are not made domestically or where there is no domestic opposition. This would reduce costs for U.S. businesses and ultimately increase the competitiveness of their products.

Taylor also believes that the Trans-Pacific Partnership (U.S., Canada and Mexico) is particularly good for the plastics trade. In 2011, the plastics industry had a trade surplus of more than $3.4 billion with TPP countries; for molds, Mexico is our number one export trade partner, buying $263.2 million in molds last year.

He also noted nearshoring as a positive trend, commenting that “there’s a lot of work coming back to Mexico, particularly in the automotive sector, which helps U.S. companies overall. [T]hat’s positive, and I think these trends will definitely continue.”

One factor that industry members expect to  have a major impact on the industry is the development of the Marcellus and other shale plays in the northeast. With raw materials prices expected to fall in the coming years, the competitiveness offered by the TPP and other bills could be a game-changer.

Stay tuned to DVIRC for additional study of the shale gas and similar industry developments in the coming months.