Machinery market rebound continues in 2012 despite broader threats

The U.S. plastics industry is continuing its long climb out of the depths of the great recession, with an expansion in 2011 expected to be followed by more growth in 2012, but looming threats and unanswered questions have created a market that plastics machinery executives contacted by PlasticsToday call "mixed and strange" with a general "uneasiness" about the future.

The U.S. plastics industry's total production expanded by 3.6% in 2011, with accelerated growth of 4-5% forecast in 2012. At the end of 2011, the plastics industry's capacity utilization was approaching 77%, with the expectation being that it will slowly, but steadily, eclipse 80% by the end of 2012. Those figures courtesy of the Society of the Plastics Industry's (SPI) fourth-quarter and full-year 2011 Committee on Equipment Statistics (CES) report.

2012: So far, so good
Plastics machinery and auxiliary suppliers contacted by PlasticsToday reiterated the report's findings, describing a strong 2011 followed by good activity in the first half of 2012, but several did admit that potential fallout from Europe's debt crisis, plus the uncertainty that comes with a presidential election in the U.S., left them anxious about how 2012 might wrap up.

COMPONENTS - The total number of components (screws and barrels) shipped Q4 was 1939 units, down 151 units (7%) compared to the third quarter of 2011. For the entire year of 2011, a total of 7970 components were shipped by reporting companies.
  INJECTION MOLDING MACHINERY - A total of 734 new injection molding machines were ordered in the fourth quarter of 2011, up 5% compared to the third quarter of 2011, and 2% higher than Q4 2010. For 2011 as a whole, there were 2849 injection molding units ordered, up 13% when compared with the total from 2010. 
  EXTRUSION MACHINERY - New orders for single-screw extruders totaled 221 units in Q4 of 2011, down 17% compared with the third quarter, and off 13% compared to Q4 2010. The annual dollars total was up 12%, however, compared with 2010. 
  BLOWMOLDING -There were 28 new blowmolding machine units ordered in the fourth quarter of 2011, up by seven units from the 21 ordered in the third quarter of 2011, and double the 14 units ordered in the fourth quarter of 2010. There were 85 total new orders in 2011, up 12 units, or 16% from 2010. 
  AUXILIARY EQUIPMENT - The Q4 2011 total for auxiliary machines booked with reporting
companies [which saw some changes] was 7598, down 5% decrease from Q3 2011, but up 8% from Q4 2010.
For 2011, the total number of auxiliary units booked was 13% higher than 2010, while annual dollars were up by 24%. 
  THERMOFORMING EQUIPMENT - New orders for thermoforming equipment totaled 25 for Q4 2011, down 16 units from the 41 units ordered in both the third and fourth quarters of 2010. For 2011, new orders were down 28% in units and 25% in dollars, compared to 2010. Shipments, however, were up 2011, rising by seven to 164 units shipped last year. 

Admitting to what he said could be best described as a feeling of "butterflies" in the stomach, Mark Sankovitch, president of injection molding and automation supplier Engel said the question looming in 2012 is, "What happens after six months?" For Engel, Sankovitch said July started slow but finished strong, and thus far, August looks like it could be good as well. Beyond that, however, he pointed to U.S. elections in November and the unresolved crisis surround the Euro. "Europe can't go into a recession and not drag [North America] into it," Sankovitch said. "We're facing an uneasy time for the next 6-9 months."

John Martich III, COO of the North American unit of injection molding machine supplier Sumitomo (SHI) Demag says his company has seen business improve, driven primarily by three markets. "Overall, from a bigger perspective, we see increases in activity over the last 6-8 months," Martich told PlasticsToday. "Volumes are up, and medical, packaging, and automotive continue to be fairly strong. If you're in one of those segments, you're probably doing O.K." 

The current U.S. order bookings trend is up 30% from 2011 at Wittmann Battenfeld USA, according to company president, David Preusse. Preusse told PlasticsToday that his company's seven product lines and three divisions are currently showing a new U.S. record for order backlog. "Each market sector of automotive, packaging, medical, housewares and micromolding is healthy," Preusse said, "despite the negative stories in the news and Wall Street's array of troubles.

John Effmann, director of sales and marketing at extruder and component supplier, Entek (Lebanon, OR), noted that overall "2012 has not been like 2011 was," with activity slowing in terms of units, but overall business strong due to the company's turnkey offerings and hopes for a strong finish.

"We're hoping that our quote levels, and the various things we're chasing, mean business will be better," Effmann told PlasticsToday. "The second half of 2011 was better than the first half, and we're hoping the same happens in 2012."

On the brink
"As 2012 gets underway, we have arrived at the brink of a self-sustaining economic expansion," the SPI CES report stated. "Yet it is still a bit too early to conclude that all of our troubles are over...the economic fundamentals in the U.S. are much closer to full health, so the probabilities of this type of shock occurring are presently lower than the probability a normal cyclical recovery."

Part of the "firmer footing" that the report saw for machinery suppliers derives from a low dollar supporting export demand, while pressuring imports, and very low interest rates promoting investment. Other long-term incentives for equipment investment, per SPI:

  • high profit levels for U.S corporations;
  • a continued premium on increased productivity;
  • the "incessant desire" to promote energy efficiency;
  • tax laws that allow new equipment investments to be deducted as an expense rather than depreciated

The report found that business investment in new industrial equipment expanded by 13% in 2011, with SPI expecting that it will grow another 5-7% in 2012. The Census Bureau's monthly industrial equipment new orders data also expanded by 6% in 2011, according to the report.

End markets
The report stated what while some of the major end-markets for plastics are continuing to recover, the housing sector and its related end-markets are "just now starting to show signs of growth." SPI believes housing starts and appliances will rise slightly faster in 2012, but "more robust gains" will have to wait until 2013. Motor vehicle assemblies, medical products, packaging, aerospace, and computers are exhibiting "solid growth" that the report anticipated persisting for the next couple years.

At Engel, renewed growth has one primary source in North America: "Automotive is driving it hands down," Sankovitch said, citing combination of attrition in the supplier ranks and the relative age of machines. Things look good now, according to Sankovitch, but that's also because they seemed so dreadful a few years ago. "Automotive took the hardest fall and had dug the deepest hole in the downturn," Sankovitch said.

Money on the sidelines
In uncertain times, companies often sit on their cash, hoarding money in case worst-case scenarios are realized, with an obvious impact on capital expenditures, including machines. "There's a ton of money out there," Martich said, "but I'm not sure anyone wants to spend anything...Activity continues to grow, but it's a careful and cautious growth. It will be interesting to see if it's sustainable."

Martich did have reasons to be optimistic, however, including the facts that utilization is up, and the inventory of used machines are down, potentially leading to some real pent-up demand. "Right now there is more upside potential then downside," Martich said.

Engel's Sankovitch, calling 2011 "a banner year for [Engel]", said that looking back to the where things stood in 2009, his company has more than made up that downturn." Thus far in 2012, whose fiscal year started April 1: "There hasn't been much of a let up," Sankovitch said. "We were pretty aggressive in our growth forecast for the budget in the new fiscal year, and through the first quarter, we're above it."

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