HOUSTON (ICIS news)--Many US plastic processors in the automobile industry are reeling from an inability to pass through rising feedstock costs, consultants said.
US automakers, straining from lost market share, have rejected processors' attempts to pass through costs, said Jeff Mengel, plastics industry team leader for Plante and Moran, a US certified public accounting and business advisory firm.
Most US automakers have multi-year fixed contracts with large processors, Mengel said. Processors, however, do not have such fixed contracts with their raw-material suppliers.
Plastics and other raw materials make up more than half of the cost of a finished product, he said.
Margin squeeze can be substantial if raw-material costs increase by 10% - as they recently did for polypropylene (PP), Mengel said.
Such large price increases - uncommon in the past - have become more frequent since hurricanes Rita and Katrina swept through the Gulf coast in 2005, Mengel said.
Since then, price volatility has increased due to rising global demand and higher oil prices, he said.
Foreign automakers have considered material price adjustments, Mengel said. However, US companies have rejected such considerations.
"When you look further, some companies will go out of business," said Robert Bauman, vice president of polymers for the consultant firm Nexant.
Plastech and Blue Water Automotive Systems have already filed for bankruptcy protection. Both companies are processors in Michigan that make parts for automobiles.
In addition to the auto market, the housing industry is also going through a downturn, which is dragging down profits for processors that make building materials.
Atlantis Plastics has recently removed its shares from the NASDAQ after they traded below $1 (euro0.64) for several days. About 40% of Atlantis' business is tied to the housing market, the company said.
Ply Gem, another processor that serves the house market, is closing a vinyl-siding plant in Texas. It cited excess capacity as one of the reasons for the shutdown.
Nonetheless, Mengel said processors outside of the auto market have more flexibility in passing through costs - although such pass-throughs are by no means easy. "There is no question that it's hard to pass on price increases to any of your customers."
US automakers, straining from lost market share, have rejected processors' attempts to pass through costs, said Jeff Mengel, plastics industry team leader for Plante and Moran, a US certified public accounting and business advisory firm.
Most US automakers have multi-year fixed contracts with large processors, Mengel said. Processors, however, do not have such fixed contracts with their raw-material suppliers.
Plastics and other raw materials make up more than half of the cost of a finished product, he said.
Margin squeeze can be substantial if raw-material costs increase by 10% - as they recently did for polypropylene (PP), Mengel said.
Such large price increases - uncommon in the past - have become more frequent since hurricanes Rita and Katrina swept through the Gulf coast in 2005, Mengel said.
Since then, price volatility has increased due to rising global demand and higher oil prices, he said.
Foreign automakers have considered material price adjustments, Mengel said. However, US companies have rejected such considerations.
"When you look further, some companies will go out of business," said Robert Bauman, vice president of polymers for the consultant firm Nexant.
Plastech and Blue Water Automotive Systems have already filed for bankruptcy protection. Both companies are processors in Michigan that make parts for automobiles.
In addition to the auto market, the housing industry is also going through a downturn, which is dragging down profits for processors that make building materials.
Atlantis Plastics has recently removed its shares from the NASDAQ after they traded below $1 (euro0.64) for several days. About 40% of Atlantis' business is tied to the housing market, the company said.
Ply Gem, another processor that serves the house market, is closing a vinyl-siding plant in Texas. It cited excess capacity as one of the reasons for the shutdown.
Nonetheless, Mengel said processors outside of the auto market have more flexibility in passing through costs - although such pass-throughs are by no means easy. "There is no question that it's hard to pass on price increases to any of your customers."
