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Continued strength in U.S. boosts orders to processors

All types of plastics processors are seeing order levels growing at a healthy pace and can anticipate output growth of around 3.4% to 4% for 2004. Some sectors are doing better than expected. For instance, packaging products—bolstered by strong holiday sales and shipments of electronics—have seen orders in November and early December 2003 jump by more than 6%.

Processors of PUR foam and polystyrene packaging products have seen the strongest influx of new orders. Capital spending by processors is up, with orders for mostly imported equipment rising across the board.

More momentum in early 2004

North American manufacturing is likely to experience even stronger growth in the first few months of 2004 than previously projected, based on a variety of reports:

  • The Index of Leading Economic Indicators for November 2003 jumped by .3%. The New York-based Conference Board reported that its index advanced to 114.2 in November following a revised increase of .5% in October to 113.9. The group reported that six of the 10 indicators in the index contributed to November''s advance. They included improvement in claims for unemployment, consumer sentiment, vendor performance, average weekly manufacturing hours, stock prices, and the spread in interest rates.
  • Single-family housing starts rose to a fresh record high in November, up 4.5% to a seasonally adjusted annual rate of 2.070 million, the Commerce Dept. reported. That was the fastest pace since February 1984. The strong housing market benefits processing nationwide and will result in a stream of new orders for the next 12 months.
  • Also in November, the Federal Reserve said that U.S. industrial production advanced .9%, its biggest monthly gain in four years. Output in the factory sector, which alone accounts for more than four-fifths of total industrial production, also posted a .9% gain. U.S. industries also operated at 75.7% of full capacity, their best rate since September 2002. Productivity jumped at a 9.4% annual rate in the third quarter, the best showing in 20 years, the U.S. Dept. of Labor reported. It also said that companies'' output—including manufacturing as well as the dominant service sector—in the third quarter surged at a 10.3% rate, the biggest increase since the third quarter of 1983.

Automotive Strong

The strength of foreign assembly operations has attracted a growing number of processors, welcome relief for molders who have seen business with Detroit-based firms decline. Key here is that foreign suppliers—such as Toyota—have boosted local content, and in some cases now produce vehicles with a higher average local content that GM, Chrysler, or Ford. Those three companies have relied more and more on low-cost imported parts.

In December Toyota supplier Tasus Corp. announced that it will construct a $13-million injection molding plant in Georgetown, TX, from which it will supply the new Toyota pickup truck plant being built in nearby San Antonio. Other suppliers to Toyota are expected to make similar announcements soon.

Growth prospects for automotive in 2004 are mixed. While companies such as GM, Chrysler, and Ford anticipate little actual growth this year, foreign carmakers—many with substantial assembly operations in N. America—project solid sales gains.

In late December, Toyota projected record sales of more than 7 million units for 2004, which would move it past Ford as the world''s No. 2 automaker. Toyota''s growth plans are global.

In 2004 the company plans to add capacity in Britain and France, and begin production of the Corolla sedan in China. In 2005, Toyota will start operations at new assembly plants in Alabama, the Czech Republic, and Tianjin, China.

Toyota likes to use the same vendors the world over. This will put pressure of plastic parts suppliers to diversify on a global scale, maintaining operations in Asia, Japan, the Americas, and Europe.

The same is true of Honda, which in late December projected that global sales will jump 10% to 3.2 million units in 2004, a fifth-straight record year.

The declining dollar: What it means

The rapidly declining value of the dollar is starting to have both positive and negative results for plastics processors and suppliers, as well as for the U.S. economy as a whole.

Manufacturers need to consider the dollar''s value in almost all business planning, regardless of whether or not a company is active in the export market. And some of the effects of the devalued dollar are amplified by the Chinese boom.

  • Prices of imported commodities are rising: Resins and additives imported from Europe are rising in price as are other basic products such as steel, copper, and key industrial supplies. With China creating the most of the new demand, prices have gone up already.
  • Prices of imported processing machines are rising: Based on the prices declared to U.S. Customs, imported injection machines have increased 41.4% in price through October 2003 as compared to October 2002. While importers have absorbed a healthy portion of these increases in the actual pricing, on average, imported machines from Europe or Japan have increased about 22% in value.
  • Exports of U.S. manufactured goods are finally showing solid growth: U.S. exports rose to their highest level in more than two years in October 2003.
  • Profits: Plastics processing companies with foreign operations will see profits increase due to the declining dollar as profits from operations in Europe or Japan are sent back to the U.S.
  • The U.S. trade deficit is still bound to rise and this will put further downward pressure on the dollar. Imports from China and many other Asian nations are unaffected by the drop in the dollar''s value as their currencies are pegged to the dollar. One critical side-effect may be difficulty in attracting foreign investment funds into the United States, which will create pressure on the Federal Reserve in late 2004 to raise interest rates to provide a more attractive investment climate for foreign countries.

We anticipate the dollar to lose more in value compared to the Euro in the next few months, following a 46% decline in value vs. the Euro since October 2002. This will hurt Europe hard, as the United States buys about one-fifth of all European manufactured goods. Demand for such goods—priced ever higher now—will slide and may endanger the modest economic recovery in Europe.

Agostino von Hassell, of the Repton Group (New York, NY). Contact von Hassell at [email protected].

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