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December 31, 1999
15 Min Read
Sure, there will besome ups and some downs, but overall, as far as injection moldersare concerned, the ups will prevail. The next five years lookagain like solid growth years for all key molding markets. Inpractical terms this means that the massive capital investmentof the past five years in advanced injection machines, automatedassembly equipment, and new auxiliary devices not only will payoff but is likely to continue.
Actual growth in the past 12 months for all types of injectionmolded parts, on a value basis, was 3.7 percent. For the nextyear-through November 2000-we anticipate growth of 3.8 percent,and for the five-year period 2000 through 2004, we project atleast 3.6 percent growth per year.
As is the case with most projections, these are based on bothpast figures and the few clues of what is possible for the future.As you now look back on 1999, it was one of the best years forinjection molding growth ever, prompted in considerable part byan overall roaring economy and unrestrained consumer spending.Just in the third quarter of 1999, the overall economy grew asuper-charged 5.5 percent annual rate, following somewhat anemic1.9 percent growth in the second quarter.
Inventory buildup, as reported in December1999 IMM, pp. 34-35, had much to do with this. Molders whomwe contact on a regular basis all say that much of their latestoutput growth is based on inventory increases.
It will be March 2000 before we know for sure just what happenedin the fourth quarter of 1999 and how the effects of Y2K impactthe manufacturing economy. We are certain, however, that as youread this in early January, there will be an overall slowdownin new orders for the first few months of 2000. Most of this weaknesswill be in nondurables such as packaging (injection molded drinkingcups and the like), medical devices such as syringes, appliances,or computers and office equipment.
Data released late in 1999 showed a sharp rise in inventoriesas all types of businesses, as well as consumers, stocked up "justin case" of Y2K-related troubles. Excellent holiday sales-basedon late November 1999 data-were also partially motivated by Y2Kconcerns.
U.S. businesses stockpiled goods last September at the fastestpace in six months, led by food and department stores, the CommerceDepartment reported. At the time of this writing-late November1999-these were the latest data available. Inventories rose .4percent in September.
Other more anecdotal information shows that the inventory increasescontinued well into the fourth quarter. The National Assn. ofPurchasing Management's October index showed that inventory levelsrose to 51.1 from 43.2 the month earlier, suggesting more businesseshad rebuilt their stockpiles.
It was the first time in nearly 11 years that this index hasrisen above 50. Based on that as well as other information, itappears that fourth quarter growth will have been well above 3.8percent and possibly as high as 4.8 percent.
In late summer 1999, inventories had been drawn down becauseconsumer demand stayed firm. In the third quarter of 1999, consumerspending jumped at an annual rate of 4.6 percent. The governmentreported in November 1999 that retail sales in October were 8.5percent higher than the same month a year ago. The recent rateincreases by the Federal Reserve had some impact on new housesales and transportation orders but overall did little to restrainconsumer spending.
As of fall 1999, Christmas sales were expected to rise in thearea of 4.5 percent to 5 percent, according to one typically reliableforecast made by the Bank of Tokyo/Mitsubishi. While the predictionis slightly less than 1998's 5.1 percent increase, it matchesgains made in 1997. The holiday sales generally account for aquarter of annual sales for most retailers.
Table 1. Manufacturing
The Strength of Manufacturing: Productivity
Continued increasesin manufacturing productivity hold the key to maintaining growthoverall and in injection molding in particular. For the past fewyears, manufacturing productivity has been rising at a fast rate,faster than wage growth. This, more than anything else, has keptinflation in check.
Resin consumption data as released by the Society of the PlasticsIndustry provide somewhat of a guide to productivity. Employmentin plastics processing plants-this includes all processes, notjust injection molding-grew just 2.3 percent overall from 1995through June 1999, according to Department of Labor data. At thesame time, U.S. resin consumption has grown at an average 4.9percent annual rate. In other words, fewer workers process anever growing amount of resin every year.
Recent data confirm this long-term trend of rising productivity.All available forecasts suggest more of the same for the nextfew years. The reason: New technologies allow for this almostunprecedented long-term boost in productivity. Not only are injectionmolding machines more efficient, but the use of computers, moreautomated production systems, and advanced auxiliary equipmenthas helped boost productivity.
The productivity of U.S. workers again rose sharply in thethird quarter of 1999 while the growth in unit labor costs slowedsignificantly, the Labor Department reported late last year. Productivity,measuring the output per hour of workers outside the farm sector,rose at an annual rate of 4.2 percent in the recent July-Septemberquarter. That was the fastest productivity rate since a 4.4 percentgain in the first quarter of 1998 and followed weak growth ofjust .6 percent in the second quarter of 1999.
Unfortunately, we do not have productivity measurements specificto the various manufacturing sectors served by injection molders.However, segment data released by the Labor Department show thatproductivity gains have been healthy in all industries and onaverage in manufacturing were around 3.4 percent. Even more detaileddata show that productivity growth in the overall electronicsindustry topped 5 percent and that productivity at car parts plantsjumped by 4.8 percent.
One note of caution: Many of these projections are based onthe somewhat inadequate government data released in Washington.There are no data that apply specifically to injection molding.We have to piece these together and that is a source of errors.Another source of errors is the somewhat bizarre way the U.S.Government collects and reports data. Here's one example: Themonthly Consumer Price Index lists television sets as furniture.
The past year returned solid growth to all markets served byinjection molders. This change is primarily due to the reducedimport pressures, the return of significant export opportunitiesas Asia's economies roared back, and accelerated domestic demand.
Here are some key data showing growth in 1999 as released bythe U.S. Government. These data confirm our monthly reports trackingthe resurgence of plastics manufacturing and injection moldingafter the mini recession of 1998. According to U.S. Departmentof Commerce data through September 1999, orders to U.S. manufacturingplants for all types of goods have shown solid increases. Keydata are shown in Table 1, above.
While these categories do not directly correspond with thecategories used in the monthly index, they do confirm the generaltrends. See the data below for actual growth in injectionmolding in 1999 as well as forecasts.
According to U.S. Department of Commerce data, imports of moldsfor all types of plastics processing applications-including blowmolding,thermoforming, and others in addition to injection molding-showedessentially no growth between 1997 and 1998, a down year for manufacturing.Available data through September 1999 suggest that mold importsin the past year showed some growth again as new applicationswere being designed to meet product requests for Year 2000 productintroductions: Just think of the flood of products now on themarket with a Millennium label.
Another trend is the demand growth of resin used in injectionmolding plastics. A review of the data issued by the SPI showsthat on average demand for injection molding grades has risen4.9 percent in the past five years.
The Resurgence of Asia
The rapid return to growth seen all across Asia-with the exceptionof Indonesia-has numerous implications for molders in the UnitedStates.
The strength in the economies around the Pacific Rim meansthat local demand there is rising again. This lessens pressureson the U.S. plastics parts markets as fewer injection molded productsare shipped to the United States. And export opportunities forU.S. molders are returning. Keep in mind that up until 1997 andsince we started collecting monthly injection molding data, risingexport orders had been the second most important engine of growthfor U.S. molders, next to consumer spending (see Table 2, above).
Sectorby Sector Projections
Transportation. U.S. injection molders have seen relatively little additional business as a result of the sales records set in 1999, the best car and light truck year since 1984. Actual growth in output in 1999 was just about 3.1 percent while sales overall were up more than 5 percent. At the same time, based on data through August 1999, importation of transportation parts jumped 6.9 percent over 1998.
With car and light truck sales projected to slide back to about 15.5 million units for each of the next five years-and it may be even less than that in 2000-U.S. molders can, at best, anticipate growth of 3 percent/year or less through 2004.
We do believe, however, that U.S. molders with attractive pricing will be able to regain some market share from imports. Demand for parts in Asia is rising sharply and the ability of molders in the Pacific Rim to offer rock bottom pricing is declining.
Electrical and electronics. Some temporary weakness can be seen in this sector late in 1999 and for the first quarter of 2000. But beyond that, annual growth rates of at least 10 percent/year should be the minimum you can expect.
The current weakness is mostly due to the Taiwan earthquake. Note that in 1999 Compaq and other box makers reported that they were unable to fill some orders for home computers because of a chip shortage caused by the recent earthquake. Similar warnings came from Hewlett-Packard.
But this is only temporary. The demand for all types of electronics-from the basic PC to advanced mobile phones-is continuing. Note here that some projections forecast annual growth overall in this category at plus-15 percent/year. But with many parts continuing to be imported and pricing pressures on U.S. molders relentless, actual output growth by value in the U.S. molding market will remain restrained as seen in the table above.
We believe that sourcing of larger parts for computers, printers, and the like in Asia will grow while domestic molders will see most of their growth opportunities in small precision components.
Toys. Imports dominate this market and this is unlikely to change. The mini baby boom of the late 1990s will mean overall growth in toy sales. But most of that will go to importers from Asia and select companies such as Denmark's Lego. Domestic output growth will be a very moderate 2.56 percent/year in 2000, dropping to about 2.4 percent in five years through 2004.
Medical. Shipments for all types of injection molded health care products will rise at least 10 percent this year, far more rapidly than actual health care spending. Renewed export opportunities are the key here.
As Asian economies rebound and their investment in new manufacturing capacity pays off-and results in those countries' abilities to meet more of an escalating demand for health care products-U.S. output growth will drop back through 2004 to the 8.9 percent/year range.
Packaging. Output growth here is very much in line with overall economic growth. We see few surprises and little upside potential. This year output growth will be about 4.2 percent, declining to 3.78 percent/year through 2004.
Building and construction. The past five years have been the best years building and construction industries have seen since the post-World War II building boom. Injection molded parts used in building and construction have seen an average annual growth of 3.1 percent. This includes all types of applications such as pipe fittings.
Through September 1999, actual shipments of building and construction supplies rose 3.9 percent as compared to the same time period of 1998. We anticipate this rate of growth to continue through August of 2000. Only then will the higher interest rates and declining housing starts have a tangible effect on injection molded parts shipments. Such shipments trail housing starts by six to nine months.
For most of 1999, housing starts were reported at an annual rate of 1.61 million units, down somewhat from the 1.67 million/year rate of 1998. In 2000, due to higher mortgage rates, housing starts are anticipated to decline to 1.55 million-still bullish. Such a rate is considered to be very strong and benefits key injection molding markets as well as overall consumer spending. Relatively few imports in this market mean that domestic molders benefit the most from growth.
Furniture and furnishings. This market segment is driven by both housing starts and consumer spending. Little change in either is anticipated for the balance of 2000 as detailed above. After that, annual growth is likely to decline from a bullish 4.25 percent in 2000 to 4.08 percent/year.
Appliances, durable goods, and consumer products. Again, the same basics apply: Strong consumer spending and a bullish outlook for housing drive these applications. Note that export opportunities are also a factor as global demand for U.S.-made small appliances continues to rise. Segment analysis of U.S. export data shows that small appliance shipments abroad have been growing sharply again since March 1999, after sliding more than 12 percent in the prior 12 months.
Small appliances-many with fancy electronics-remain a hot export item as the ability of U.S. manufacturers to bring new products to market more rapidly than most global competitors creates growth opportunities for molders in the United States.
Issues To Keep in Mind
Projecting economic growth for the next five years and beyondis complicated by a wave of new technologies that are poised tochange injection molding very dramatically.
The extent of the anticipated changes is similar to what injectionmolders saw between 1978 and 1985. At that time advanced machinecontrols along with a flood of new resin compounds helped boostinjection molding productivity at speeds never before seen. Apartfrom productivity increases, new materials also allowed for thepenetration of plastics into applications long seen as the soledomain of materials such as glass or steel. And the arrival ofthe PC-along with chip-based machine controls-produced the singlefastest injection molding growth market: electronics.
We now know there will be massive change that may very wellderail business plans that extend beyond 2004. This change willagain be driven by new technologies as well as profound changesin the global market. But we do not know yet which direction injectionmolding will change. But for those of you tasked with planningyour firm's future, it is critical that you monitor how thesetechnologies evolve.
What are we talking about? Watch the trends in molecular-basedcomputing, nanotechnology, and molding of metal powders and ceramics.Molecular-based computing, just now starting to emerge from researchlaboratories, will probably have the greatest impact. What isthis technology?
A research team consisting of scientists from UCLA and Hewlett-Packardin the fall of 1999 demonstrated molecular-based logic gates.These molecules are capable of results equal to or surpassingtypical silicon. Also, this molecular circuitry can be defect-tolerant.The scientists believe, and much of the computer research communityseems to agree, that these gates can and will lead to molecularcomputers. These would be smaller, faster, and far less costlythan current models, while consuming less power. According tothe researchers, such molecular computers would exceed the capacitiesof a modern Pentium III by a factor of about 100 billion in termsof energy needed for calculation. The computational power of 100workstations would be encapsulated in a space no larger than agrain of sand.
The researchers hope to have the first models of a molecular-basedcomputer up and running in six or seven years, if not sooner.The arrival of such technology could be truly disruptive: Theentire industry built on the technology required to produce silicon-basedcomputers could be eliminated or profoundly changed. Applicationscontaining large numbers of injection molded parts-disk drives,computer housings, and so on-would simply become irrelevant orcould shrink in size to such an extent that they may hold fewopportunities for injection molders.
One example of premolecular computing is the just-patentedone-time use cellphone that is the size of two credit cards end-to-end.This cellphone is little more than a printed circuit board witha small battery and loud speaker: After a one-time use of 30 or60 minutes it would be tossed.
So what else will come in place of conventional mobile phones,of computers, or of other electronics? There are numerous moldersin the United States, Japan, and Western Europe that are alreadyhard at work on this new future: micromolding for nano-parts.We are talking about nanotechnology such as grain-of-sand-sizedmedical devices that can travel the arteries of the human bodyand fix ailments, or fully functional miniature fake flies thatcan hover inside an enemy's compound and transmit real-time videointelligence. There are applications in many fields, and theywill require the skills of molders who can make parts just a thousandthof the size of a period on this page, or even smaller. That thisis possible has been demonstrated already. And combined with molecularcomputing, nanotechnology could change almost everything.
Technology that requires more conventionally sized injectionmolding operations will soon create a major market: injectionmolding of metal powders and ceramics as well as other types ofunusual materials. Such molding operations can already be foundin plants all across North America. But as designers learn ofthe benefits of these new materials, we believe that such moldingoperations may grab as much as 4 percent of the entire U.S. marketof injection molded products-on a value basis-by 2004. At thistime we are not yet in a position to track growth precisely butanticipate that this will become possible over the next few years.
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