Applied Market Information has just published the second edition of its report on the 15 billion pound thermoplastics compounding market in NAFTA.
Since the first 2001 edition, the industry has been experiencing tough economic conditions which has seen growth rates slow right down from the buoyant 1990s and led to financial difficulties and cutbacks for many producers. From a dramatic drop in demand of over 6% in 2001, the market has been slow to recover but is expected to bounce back strongly in 2004. There was a modest gain of just over 2% in 2002 but the market continued to be sluggish through 2003, with consumption up less than 1% overall. AMI says demand for thermoplastic compounds was 15.3 billion pounds for 2003 and that demand will be up by at least 5% for 2004 as economic recovery gathers pace.
Overall for the period 2003-2008 AMI predicts annual average increases in demand of around 3%, which will push the market close to 17.5 billion pounds.
However, whilst demand may recover there are also longer term structural changes in the nature of the compounding business, which will lead to ongoing restructuring and rationalization. Compounders in NAFTA have been affected by the shift of processing activities to Asia and China in particular and many companies are now looking to invest in the region themselves. In addition to following their existing customers, compounders are also looking to exploit the opportunities of the booming Chinese market. In contrast the market in North America is increasingly mature, which is resulting in margins being squeezed, aggravated by rising resin prices. Compounders struggle to pass on these increased costs to their customers. Economic uncertainty has also resulted in processors keeping their inventories of compounds low and continuing with the trend to buy smaller lots on a more regular basis, rather than hold stocks. Many compounders have thus experienced reduced profits and financial difficulties over the past two to three years. This has led to several plant closures and capacity rationalization.
A major consideration for the North American compounding industry is to what extent has the structure of the industry changed for good? Weak demand and failing customers has affected all regions, but the North East was particularly badly hit, while the south (especially Tennessee) remained a stronger market. According to AMI it is unlikely that the traditional industrial areas of the North East will ever fully recover as new investments in North America are unlikely to be located in the northern United States. This is borne out by the continuing establishment of new facilities in Mexico and the Southern states.
The other change in the market has been the continuing rise in the significance of the Mexican market. The number of producers has increased in recent years and the players in the Mexican market have seen volumes increase and reinvestment (which is on a continuous cycle) justified on the back of high utilization rates. However, the overall pace of advance in Mexico has slowed from the rates of the late 1990s because of the economic slowdown north of the border and an inevitable ebbing of investment following the initial surge.
The level of merger and acquisition activity has also slowed in the face of a weaker stock market, reduced company valuations and slower economic growth. The tendency has been instead for rationalization of production and in a more challenging economic environment there have been fewer start-ups of new companies.
As a result the compounding industry continues to witness change in the status and importance of companies throughout the region and AMI has been monitoring these changes to produce this update of its comprehensive compounders database.
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