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Plastics processors live in interesting times. Unstable prices for plastics, steel, energy, and other inputs; difficulty finding good employees; competition from every corner of the earth; attacks on plastics from NGOs and other groups, as well as from some legislative bodies: There are enough issues in play to keep a processor occupied 24/7.

Matt Defosse

June 30, 2010

7 Min Read
Outlook 2010: Baby needs a new pair of shoes, and much more, too

Plastics processors live in interesting times. Unstable prices for plastics, steel, energy, and other inputs; difficulty finding good employees; competition from every corner of the earth; attacks on plastics from NGOs and other groups, as well as from some legislative bodies: There are enough issues in play to keep a processor occupied 24/7.

Then, of course, there was the recession that began in 2008 and took over most of 2009. Demand in many market segments simply disappeared overnight as if it had never been there. Headcount reductions were the norm, investment was cancelled or postponed, and cash flow management was more critical than ever. That, anyway, was the story for processors in North America and Europe, West and East. But what about those in the rest of the world?


More babies turn into more consumers who require ever more packaging, such as the film coming off of this Davis-Standard extrusion line.


Pipe extrusion took terrible hits during the recent recession, but in the longer term, the need to transport potable water and sewage will increase substantially, with plastic pipe destined to be the winning material. Shown is the schematic of an air-cooling system for pipe extrusion from battenfeld-cincinnati.

In fact, the recession, painful as it was in much of the West, did little real damage to the manufacturing businesses in much of Asia and in Latin America. Yes, there were casualties, but the effect largely was to weed out some weaker firms. The number of injection molding machine manufacturers headquartered in Ningbo, China dropped from more than 100 to about 60. But still—60! China’s plastics processors are in an enviable position, perched on top of the world’s largest manufacturing markets for automotive, white goods, electrical and electronic goods, and more.

Latin America, India, Korea, and the Middle East are other countries and regions that took the recession’s blows and kept right on going, and—barring civil unrest or other unpredictable events—there is scant evidence these trends will change any time soon. Ask Dietmar Straub, CEO at the world’s largest single manufacturer of plastics processing machinery, KraussMaffei (Munich, Germany), what he thinks the recession’s lasting effects are, and his glance turns East. Straub opined that the shift of business to Asia is not a trend so much as a lasting effect of the years prior to and including the recession.

“After the crisis, things truly are different,” Straub says. “Markets have truly changed. The two lasting trends: the shift of plastics processing to Asia, and the ongoing trend to greater use of automation and complete workcells.” Such “process solutions”—processing machinery equipped with automation and more, and designed for a specific application—are in demand everywhere, says Straub, be it a low-labor-cost country or in more developed ones.

Based on current trends, the International Monetary Fund (IMF) estimates that by 2030, Asia’s economy will be larger than that of the United States and European Union combined, with the region’s share of world GDP growing from less than 30% this year to almost 40%. In a statement issued in May 2010, IMF Asia chief Anoop Singh predicted that China and India will see growth continuing for decades, and the buying power of the Chinese and Indians also will increase to almost match that of consumers in the United States and European Union combined.

Manufacturing’s lasting shift to Asia and the ready availability globally of the same processing equipment at first may sound like bad news for processors in more developed countries, and indeed their suffering has been disproportionately high (compared to peers elsewhere) in the past five years. But the United States remains the single largest market for consumption of plastics, and Western European processors and their suppliers regularly top the charts for plastics-related patent filings. These markets’ growth has slowed and even stalled in some places, but no thinking person will bet against their continuing importance on the international plastics stage.

Follow the stork
How will the industry’s future look? Well, no one’s crystal ball has been working well of late, but there are some macrotrends that, looked at in the long term, can help a processor establish his priorities. The most important change, the one driving all other changes, is simply people: lots of them, around 6.8 billion as of last month. The birthrate pace is slowing a bit but the Population Reference Bureau reckons 9 billion people will be sharing the planet some time between 2040 and 2050. Take all of those people and label them “consumers”—of potable water, of fresh food, of medicines and music and mobility and more. For plastics processors properly positioned, the long-term future remains as bright as the growth of the industry during its early days.

Plenty of people, yes, but the distribution of population growth will be very uneven, according to the United Nations’ predictions. Between now and 2050, the population in Western Europe is expected to fall, both as an absolute number and as a percentage of total global population.

Asia, North and Latin America, the Caribbean, and especially Africa are expected to see population growth, with Latin America and Africa the only regions seeing population growth absolutely and also as a percentage of total global population. Many plastics processors are familiar with these figures, but it is difficult for most to take action on them. The converse is true of China’s government, which very clearly has seen these predictions, taken them to heart, and is steering billions in foreign investment into Africa and Latin America, with much of that investment tied to raw materials and energy sources. For now the greatest benefactors have been China’s mining and building and construction companies, but the country’s plastics processors also will expand their reach.

Again, it is difficult—or maybe impossible—for most processors to find purchase in a foreign market, but following the stork and the money reveals that both of these people- and resource-rich continents almost certainly will be a huge factor in this industry in the decades to come.

Even if you don’t plan 
to set up shop in Africa
You may not need to, but you may want to have a plan for meeting the growing demand there. Like parents everywhere, those who raise their babies born in Africa, Brazil, India, China, and other fast-developing countries want just one thing for their kids: the best. For plastics processors, more babies means more consumers means greater cumulative demand for everything from toys to furniture to cars to clothing.

The flipside is that there then will also be greater demand for the things processors need to run their shop: resin, electricity, human capital, and the rest. Sustainability has been the industry’s watchword for a few years now. The recession slowed some investment in programs to boost sustainability among processors, but long term most have come to recognize that sustainable operations that “make every pellet count” and minimize energy use are also the most likely to turn a profit.

The lower the rate at which demand grows, the more critical it becomes to operate a sustainable shop—and that even more when demand shoots higher for limited resources. According to the International Monetary Fund, growth rates for next year are different all over the globe. In China they could be as high as 9.9%, actually a slight 0.1% drop from this year. India’s will be between 8% and 9% for this year and next. The IMF predicts Brazil’s growth will slow from 5.5% to 4.1%. The U.S. will float between 2.5% and 2.8% growth, and Mexico between 4.2% and 4.5%, while economies in Western Europe are almost all expected to be in the sub-2% range. Interpreted another way, the two countries with the largest populations, but with relatively little in the way of natural resources beyond their amazing human capital, are expected to see among the highest GDP growth this year and next.

Plastics processors live in exceptionally interesting times. Though there are plenty of obstacles to surmount, these are countered in most instances by the sheer power of consumption generated by the more than 40 million additional people who join the global population each year. Processors able to tap into their demand, and working to operate their businesses efficiently, are in a good position to profit from a growth curve that will be slanting upwards for years to come. —Matt Defosse

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