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Good news and bad for U.S. plastics processors

March 1, 2006

4 Min Read
Good news and bad for U.S. plastics processors

The good news? The U.S. plastics industry has rebounded from a recession in 2000 with consumption rates in 2003-2004 double those of 2002-2003, and a healthy $2.8 billion trade surplus. The bad news?

In many cases, virgin thermoplastics and semifinished goods like film and sheet may be made in the U.S., then exported only to ultimately return to the U.S. as components of finished goods, creating a hidden, but real and growing deficit in contained plastic products.

Those were the key findings from a pair of studies completed by the Society of the Plastics Industry (SPI; Washington DC) with the aid of Probe Economics. Probe used the six-digit North American Industry Classification System (NAICS) codes to track plastics and plastic products'' flow between upstream goods and services companies such as plastics or plastic machinery manufacturers to their ultimate downstream end users, for example OEMs. Probe and SPI also estimated the volume of contained trade in plastic products, an area ignored by the Census Bureau and its NAICS codes, which is nonetheless substantial given the number of individual plastic components within finished goods like a car''s instrument panel or a DVD player''s bezel. When discrete items like these are accounted for, the U.S. plastics industry is actually running a $24.45 billion trade deficit in plastics products, creating what SPI calls a "stealth deterioration" of the industry.

SPI concludes this trend will continue, especially given that plastics suppliers and plastics processors continue to be driven from the U.S. by record-high natural gas prices. Just-in-time deliveries and shipping costs might help the U.S. keep some domestic business, but SPI says, "Companies will continue to invest in lower-cost countries, produce offshore, and import contained plastics product goods to the U.S. market."

While that certainly isn''t news, what it means for employees of the U.S. plastics industry is troubling. According to the NAICS data culled by SPI, 76% (660,000) of all plastics manufacturing employees were production workers-nearly half of the industry total of 1.3 million. If workers in captive plastic product plants, like laborers at a dairy''s bottle-making facility, are counted, plastics product manufacturing industry-wide accounts for 67% of all employees.

The move offshore that began in 2000 continues, with the plastics industry shedding 200,000 workers since then and closing down 1145 facilities.

A material advantage

The U.S. plastics industry''s $2.8 billion trade surplus existed in spite of a $4 billion bilateral plastics-products trade deficit with China, thanks to a $9 billion surplus in plastics trade, but that cushion may disappear. Restricted domestic natural gas supplies have increased costs for that key feedstock and production energy source. This has reduced U.S. plastics suppliers'' competitiveness at a time when global thermoplastics capacity is set to increase in regions like the Middle East, where the price of natural gas is substantially lower.

"Even with high natural gas prices, resin exports continue because of the world demand for resin," SPI President Bill Carteaux explains. "When this new resin production worldwide comes online, that''s going to start to swing the other direction. Producers in this country are being hit with the high prices domestically, and they cannot blend that with low prices like people in other countries can."

To combat this and the Chinese import influx, SPI is working dual fronts on Capitol Hill. On its own and with industry help through fly-in programs, SPI is lobbying for expansion of domestic natural gas exploration from Alaska to the outer continental shelf, and pushing for the U.S. to impose the subsidies law on China, penalizing the country via tariffs for what it says is artificial deflation of the yuan. On the first point, the SPI suffered a setback when the Senate disallowed an effort to include language supporting oil and gas drilling in Alaska''s Arctic National Wildlife Refuge (ANWR) in the 2006 defense budget. In terms of the yuan, HR 3283, the Trade and Enforcement Act, which would subject China to the countervailing duty law, has already passed the House, and a Senate version, S 1421 U.S. Trade Enforcement Act, remains in committee thanks to Senator Chuck Grassley, chairman of the Senate Finance Committee.

Tony Deligio [email protected]

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