HOUSTON --US plastic processors continue to suffer from high resin costs and low demand in the key automotive and residential end markets, consultants said on Thursday.
No bottom is in sight for the US housing market, which is in a multi-year slump.
As such, processors that produce building materials will continue to go under, said Jeff Mengel, partner in charge of the plastics industry for Plante and Moran, a US certified public accounting and business advisory firm.
Already, Atlantis Plastics has filed for bankruptcy protection. About 40% of the company's business is tied to US house construction.
"There are plenty of companies that are struggling to survive at this point," Mengel said.
Residential processors are particularly vulnerable to resin costs, said Peter Mooney, president of Plastics Custom Research Services. While raw materials make up 20-30% of the costs for automobile processors, they make up 50-70% for residential processors.
Moreover, residential processors cannot easily change their product mix to serve the healthier commercial-construction market, Mooney said. Differing building codes make such switches difficult.
"The short-term outlook is not particularly good," said Bill Wood, a plastics industry consultant for Mountaintop Economics and Research.
Nonetheless, there could be some relief for the industry, Wood said. The bankruptcies have reduced the number of companies competing for business
At the same time, falling prices for crude oil and natural gas should eventually trickle downstream, reducing cost pressure among processors, he said.
"I don't see things getting particularly worse," Wood said. "We are at the bottom. It's a prolonged bottom, it's a deep bottom, but I don't think there is a lot of room to go down from here."
Processors that make automobile parts were also hit by rising resin costs and falling demand, Mengel said.
Highly leveraged companies that produce commodity parts will be particularly vulnerable, he said.
In addition, processors with weak balance sheets are paying extra for raw materials - as suppliers are wary about doing business with such customers, Mengel said.
"Now, it's a waiting game," he said. "Some of these companies just don't have the balance-sheet strength to wait."
However, Wood said some factors are helping the US industry. The weaker dollar is making domestic parts more competitive.
Foreign automobile producers are also building more plants in the US, which should increase demand for parts, he said.
Ultimately, the surviving processors could benefit from an automobile market that favours lighter vehicles, Wood said. To produce such vehicles, companies are replacing metal parts with plastic ones, he said.
Mengel said such a change over will take time, as automobile makers design and test the new plastic parts.
The processors that can benefit from the change will have the engineering talent to help auto producers make the change over, Mengel said.
No bottom is in sight for the US housing market, which is in a multi-year slump.
As such, processors that produce building materials will continue to go under, said Jeff Mengel, partner in charge of the plastics industry for Plante and Moran, a US certified public accounting and business advisory firm.
Already, Atlantis Plastics has filed for bankruptcy protection. About 40% of the company's business is tied to US house construction.
"There are plenty of companies that are struggling to survive at this point," Mengel said.
Residential processors are particularly vulnerable to resin costs, said Peter Mooney, president of Plastics Custom Research Services. While raw materials make up 20-30% of the costs for automobile processors, they make up 50-70% for residential processors.
Moreover, residential processors cannot easily change their product mix to serve the healthier commercial-construction market, Mooney said. Differing building codes make such switches difficult.
"The short-term outlook is not particularly good," said Bill Wood, a plastics industry consultant for Mountaintop Economics and Research.
Nonetheless, there could be some relief for the industry, Wood said. The bankruptcies have reduced the number of companies competing for business
At the same time, falling prices for crude oil and natural gas should eventually trickle downstream, reducing cost pressure among processors, he said.
"I don't see things getting particularly worse," Wood said. "We are at the bottom. It's a prolonged bottom, it's a deep bottom, but I don't think there is a lot of room to go down from here."
Processors that make automobile parts were also hit by rising resin costs and falling demand, Mengel said.
Highly leveraged companies that produce commodity parts will be particularly vulnerable, he said.
In addition, processors with weak balance sheets are paying extra for raw materials - as suppliers are wary about doing business with such customers, Mengel said.
"Now, it's a waiting game," he said. "Some of these companies just don't have the balance-sheet strength to wait."
However, Wood said some factors are helping the US industry. The weaker dollar is making domestic parts more competitive.
Foreign automobile producers are also building more plants in the US, which should increase demand for parts, he said.
Ultimately, the surviving processors could benefit from an automobile market that favours lighter vehicles, Wood said. To produce such vehicles, companies are replacing metal parts with plastic ones, he said.
Mengel said such a change over will take time, as automobile makers design and test the new plastic parts.
The processors that can benefit from the change will have the engineering talent to help auto producers make the change over, Mengel said.
