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Editor's note: This IMM International Molding Report is prepared for IMM by Agostino von Hassell of The Repton Group, who provides IMM's monthly Molders Economic Index. |
Projecting growth-particularly in injection molding-in a region as volatile as Asia is risky at best. The dramatic arrival of Asia's financial crisis and the equally dramatic and generally unanticipated recovery shows that often within months the region's economies can change.
However, the fundamentals will not change. While you can anticipate
considerable volatility on a month-to-month, quarter-to-quarter,
and year-to-year basis, overall you are in a market where growth
is almost unavoidable.
Continued population growth, increased demand for health care,
and steady improvements in living standards will create conditions
ideal for growth. Growth in injection molding across Asia will
be driven by both increases in consumer spending as well as growing
regional and global trade.
The growth in output at existing and future injection molding plants across Asia has several direct effects on the business of U.S.-based molders.
Exports of plastic parts or goods containing numerous injection molded components from Asia to the United States in the next 12 months will stay at current levels or even dip below them. But in the long term Asia will be the single greatest competitor for both low-cost and-this is the major change-numerous high-value-added plastics parts. The formal announcement by Xerox in November to source almost $400 million in plastic parts from China each year is just the tip of this particular iceberg.
The old perception of Asia as principally a supplier of low-cost and low-quality plastics parts will have to change. As countries such as Thailand, Malaysia, Singapore, and the Philippines see domestic auto-parts-making factories grow, such suppliers will constitute more of a direct competition to molders currently supplying Detroit. U.S. molders will need to seek business opportunities in establishing their own molding plants abroad.
Growth Prospects
The table opposite shows growth projections for next year as well as for the next five years. Overall, injection molding in the region will enjoy growth at rates almost twice as fast as those seen in the U.S.
Where can you find most of this growth? Look at automotive parts, electric parts and appliances, electronics, and health care items as the top performers for the next five years and even beyond.
In the last quarters of 1999, countries such as Malaysia, Thailand, Singapore, the Philippines, and even Vietnam reported new car sale increases of 20 percent/month in some cases. Overall, in the next five years, car and light truck sales in Asian countries (excepting South Korea, Japan, and Australia) will triple.
New car assembly plants in that region-to be built by giants
such as Toyota and General Motors, DaimlerChrysler or Honda-will
foster very rapid growth of parts-making industries. Note that
plans for new capacity of almost two million cars/year were shelved
during the financial crisis. This is changing now; look for new
plants
to be announced in 2000. General Motors has already announced
plans to start manufacturing 40,000 cars/year by the middle of
2000. Also in Thailand, Auto Alliance-a Ford and Mazda joint venture-will
have doubled capacity by the end of 1999 to 100,000 units/year.
As a result, automotive molding in the region will show growth
rates well in excess of 12 percent.
Consumer spending is not limited to transportation. The World Health Organization projects annual health care spending increases in the region (except for Japan and Australia) of more than 14 percent/year for the next seven years. Right now medical devices-everything from medical machinery to blood testing kits-are a major export item for U.S. firms.
This is about to change. We know of several major U.S. medical
device makers looking at plant locations in Asia. The same applies
to consumer applications such as small and large appliances and
all types of electronics.
| Country | GDP Growth projected for 2000, % | GDP Growth/Year projected for 2000-2005, % | Injection Molding Output Growth proj. for 2000, % | Injection Molding Output Growth/Year proj. 2000-2005, % |
|---|---|---|---|---|
| Japan | 1.2 | 2.9 | 2.4 | 3.8 |
| China | 6.0 | 6.2 | 11.2 | 10.4 |
| Hong Kong | 1.2 | 3.4 | 4.2 | 5.2 |
| Taiwan | 4.5 | 5.1 | 6.4 | 6.9 |
| South Korea | 8.9 | 6.4 | 14.2 | 9.2 |
| Thailand | 4.0 | 4.2 | 4.2 | 5.2 |
| Singapore | 4.7 | 5.3 | 5.3 | 6.2 |
| Indonesia | 0.5 | 4.9 | 2.6 | 7.5 |
| Vietnam | 4.9 | 5.5 | 8.6 | 11.2 |
| Philippines | 3.7 | 4.9 | 4.6 | 6.5 |
| Malaysia | 6.5 | 5.2 | 8.9 | 7.2 |
| Australia | 1.9 | 2.8 | 2.6 | 3.9 |
| Average | 4.0 | 4.7 | 6.3 | 6.9 |
| Average without Japan |
4.3 | 4.9 | 6.6 | 7.2 |
Where is the Evidence?
Many will ask, where is the evidence? Here is a summary of
some of the facts behind these projections.
Four major suppliers of Japanese injection molding equipment say
that shipments to Asia will grow at rates well above 8 percent/year
for the next five years. Machine tool sales-a good indicator of
future manufacturing growth-rose 22.6 percent from Japan to East
Asia in the first nine months of 1999.
Buoyed by the economic recoveries of its Asian trading partners,
Taiwan's overall exports of plastic parts are up 12.9 percent
this year through October, aided by rising demand from Japan,
South Korea, and Southeast Asia. Note, for instance, that shipments
to Japan alone jumped more than 22 percent for plastic parts.
This past August the Thai manufacturing production index posted
a 15 percent year-on-year rise in August, its most robust growth
since the indicator started showing positive growth early this
year, and against a 13.7 percent year-on-year rise in July.
Higher imports (in September 1999 imports rose 10.4 percent over September 1998), higher consumer spending, and numerous hints that Japan may be on its way to a sustained recovery have emerged. Japan's growing imports of consumer goods are benefiting molders in Asia and, in some cases, in the U.S. and Canada. There, higher shipments of medical devices and car components have helped some molders grow exports to Japan by about 4 percent this year compared to the first half of 1998.
Surprises To Come?
Some element of uncertainty-in particular for the first half of 2000-comes from the still unknown impact of Y2K problems and the recent doubling of oil prices.
Inventory buildup in preparation for Y2K may depress growth around the globe as manufacturers use up stocks in the first part of the year. In the United States, Japan, and Europe, governments have registered significant inventory increases. Y2K is seen as the primary reason as companies order supplies "just in case" as opposed to "just in time."
While inventories could slow growth early in 2000, other firms, particularly in electronics, anticipate accelerated growth. Computer assemblers anticipate a major jump in orders as companies around the globe suddenly are forced to replace computers and other electronics that failed. We will not know this is truly the case for several months.
The dramatic jump in oil prices may have two effects that impact
growth. In Europe and North America, heating bills this winter
may almost double compared to last winter. One result is reduced
consumer spending. Asian manufacturers, forced to pay more for
energy, may find themselves in turn raising prices for all goods;
and that increase may somewhat depress demand. Again, by how much
will not be known for some time. But molders should anticipate
this now.
| Contact information The Repton Group New York, NY Agostino von Hassell Phone: (212) 750-0824 Fax: (212) 752-5378 E-mail: [email protected] |
