By Mark R. Smith, Contributing Writer
In a year when bad and often tragic news has been more than norm than not, it seems strange to realize that there are numerous industries and sectors within the U.S. and world economies that are holding their own – or, oddly enough, doing well, especially considering the peaks and ruts of today’s market landscape.
Take plastics, for instance. So versatile is the product that it’s used across virtually every industry one can think of. So entering December, when the S&P 500 was up 12.1 percent for the year – after the market plummeted 34 percent in early 2020 – stock prices have rebounded handsomely, and the market has gone on to new heights.
Today, even with the frightening spike in COVID-19 numbers as the world moved into the holiday season, the general consensus remains that, even now, many industries are reporting strong results; and again, most need plastics in some type, molded into some consistency and form.
“I think the industry is poised for growth due to stable demand in various markets,” said Perc Pineda, chief economist for the Washington, D.C.-based Plastics Industry Association (PLASTICS). “Not only are we seeing an overall uptick in numerous sectors in healthcare, but also in other end markets like construction, automotive and consumer packaging.”
And, in this case, a positive angle has been inspired by COVID-19. “In addition,” Pineda said, the trend toward “teleworking has heightened demand for electronics like webcams, phones,” etc.
Choice Markets
Pineda’s perspective is one of optimism during the ongoing darkness of the pandemic and the recession. “When brick and mortar picks back up, we’ll still see even greater demand as the economy reopens,” he said. “While I don’t think the industry will return to its pre-COVID-19 levels, [2021] looks better.”
In fact, plastics and/or rubber shipments were only 2.2 percent lower in 2020 than in 2019, “so the double-digit declines that were predicted in some circles never came to pass,” he said.
Geographic hotspots for the industry include the Midwest due to the demand generated by the auto industry, notably in Michigan and Ohio, which rank second and fourth, respectively, in PLASTICS’ market rankings.
“As a rule, where there is a concentration of manufacturing is where to find a concentration of plastics manufacturers,” Pineda said, noting the other top five states of California (1), Texas (3) and Pennsylvania (5), with Illinois, Indiana, Wisconsin, North Carolina and New York rounding out the top 10, in that order. He also cited industry stalwarts and their specialties, such as Amcor and Berry Plastics (consumer packaging), and Manar (automotive); and machinery manufacturers such as Engel Machinery and Bekum America Corp.
Today’s most notable trend, he said, is in production of materials that are created via innovation, “with more automation and more robotics,” said Pineda. “One issue we have in the U.S. is the aging population and not enough workers training to fill the jobs, but some of these functions could be automated on a larger scale to help solve that issue.”
In fact, some machines can be operated with many fewer people as they become more sophisticated. “That’s the wave of the future,” he said. “Due to the changing demographics of the U.S., there are fewer workers to take these jobs and plastics companies are always hiring. However, productivity has increased with the newer emphasis on automation, even with the lack of workers.”
Parts for All
While Pineda mentioned some of the industry’s major players, Kim Hill, president of Ann Arbor, Michigan-based HWA Analytics, a consulting firm that operates in the Great Lakes region, often works with small- to medium-sized plastics companies (defined as those employing from 25-150 people). They manufacturer products ranging from sump pumps, fittings and pet products to garage doors, window frames and automotive parts, as well as general consumer items.
“Plastic is contained in all of these products,” said Hill. “In general, they have been a key component as companies try to decrease their carbon footprint; in recent years, plastics have been substituted for structural areas of buildings and automobiles in an effort to eliminate much heavier metal components that perform the same function.”
He said that in recent months, some clients have garnered more work than they can handle “because of the demand caused by the need for personal protection equipment (PPE). These small companies rarely do work for the auto industry because of the high number of pieces the auto industry requires” that can reach hundreds of thousands. “Instead, they’re very busy with custom contracts, with runs of 1,000 to 10,000 pieces.”
So, some plastics companies didn’t just stay busy, they had to kick it up a notch. “And if some of their clients had absentee issues and/or shut down due to COVID, it wasn’t for long,” Hill said, though noting that some have had issues with social spacing employees in a factory.
Workforce Blues
Then comes the issue of wages, which often aren’t very high at smaller shops. “Smaller specialty plastics products companies are also hard to automate, because orders often tend to smaller in scale, thus less expensive, so management still relies on people to do the work,” Hill said.
But workforces are critical, even with today’s workforce. “That’s critical to them. Know that workers can be hard to retain because they’ll often bolt to a new job for a small raise,” he said. “From the owner’s perspective, these are smaller runs generating less revenue, which in turn means lower margins. So, there just isn’t [any] extra money to automate with expensive machinery.”
So, how do these smaller places grow and expand? “Via buying another company,” Kim said. “That was the trend before COVID-19 and I think it will continue.”
If a small company can’t find enough workers and ends up having to turn work away, “it buys another company. That’s how they enhance their staff,” Hill said. “That’s similar to larger companies that are involved in research and development, which need information technology skills. They have a similar problem finding qualified individuals − which they also address through acquisition or by forming a joint venture.”
Vaccine Angle
As Pineda noted, pre-COVID-19, plastics was a hot industry, “notably in the consumer products sector,” said Larry Gigerich, executive managing director for Indianapolis-based Ginovus, who pointed out that one Ginovus client “gave us some great insight, because they was doing a robust business with The Container Store.”
So the lesson herein is that while the pandemic has taken away in many cases, there are also others where it has giveth. “When [the general population] started staying at home in early 2020, they started working more on their houses,” thus the boost from The Container Store, said Gigerich, “so the market also got a boost from that trend.”
While pointing out that companies “are trying to be nimble as the vaccines hit the market and we see how the shutdown plays out,” he cast a keener eye on the more macro area of a trend in plastics that has been spurred by the spike in eCommerce. It has been generally reported that eCommerce transactions comprised up to 10-15 percent of retail sales before the pandemic, then shot way up in the early days of the shutdown before leveling off.
“Plastics manufacturers have been flexible as consumers have more often shopped online, which has heightened requirements for plastics for not only products, but packaging,” Gigerich said. “That’s also had a big impact on the supply chain.”
But there has still been “softness” in other sectors, he said, even in automotive, with components in lesser demand for new vehicles. “Used car sales have risen for three quarters in a row, with at least two more expected to up that arc (according to caranddriver.com and statista.com), as consumers are less likely to make the larger expenditures” during the recession.
Gigerich pointed to new car sales numbers that reached 1.55 million in December 2019, but dropped to 1.26 million as of August 2020. “But that’s after three years of new car sales going thru the roof,” he said, adding that he “expects a strong comeback in that sector since it was part of the first federal government stimulus package.
“That, combined with the new vaccine(s) and an uptick in the medical sector in general, will lead the plastics industry into a more solid place in 2021,” he said, “on the consumer and the corporate sides.”
Keep It In Play
Also sold on today’s results is said Allison Lin, vice president of procurement and sustainability for Las Vegas-based Westfall-Technik, a small-to-medium-sized company that focuses on medical and consumer product goods, and manufactures in multiple locations across the U.S. and in Canada, Mexico and Germany.
“I think, overall, that the medical device [sector] is doing well,” said Lin, “Now, the public is getting an even better idea of just how much plastic is needed, and that the industry is working toward proper solutions to keep used plastic in play.”
Lin called the initial impact of COVID-19 negative, pointing to how businesses that were considered non-essential, such as the auto manufacturers, had to shut down. But she also pointed to upticks in other areas. For instance, she said Westfall-Technik has seen “a humongous increase in demand. We’re involved in making ventilator and respirator parts, and we initially were even making small plastic pieces that keep the masks from rubbing the tops of the ears of healthcare workers that we donated,” as well as hand sanitizer packaging.
In fact, the company makes so many different products that it’s hard to pinpoint how many, “but it’s a diverse list that runs into the high hundreds,” Lin said.
That sprawling type of demand also leads to challenges, such as handling orders for testing equipment that evolved into demand for vaccine delivery, “especially since the Pfizer and Moderno vaccines require storage in a very cold environment,” she said, “so the parts we make have to withstand stringent requirements. That equates to pressure to ensure that we do our part in the roll out.”
Lin pointed to strong demand in other sectors aside from healthcare, including consumer products, especially those related to cleaning. Moving forward, the firms are looking to address the eCommerce wave that has been boosted by the shutdown “as people buy more products online and need that done in a safe, sanitary way,” she said.
And that demand also translates to another crucial area of the industry: sustainability. “That’s a major trend and we haven’t taken our focus off of it,” Lin said, “as we generate more plastic, we have to facilitate means to reuse and recycle what we’re making.”
Issues of Reuse
About sustainability: For all of its benefits, recycling has been the Achilles’ heel of the plastics industry for a long, long time. “It’s a huge part of the global pollution problem and much of it still ends up in landfills,” said Jeannette Goldsmith, vice president of Strategic Development Group, in Greenville, South Carolina.
While Goldsmith said there has been some progress in the recycling of polyethylene terephthalate bottles (think soda and water bottles), little progress has been made elsewhere in this underbelly of the industry. “There are seven categories to plastic recycling and progress has been made in the first two, but not the rest,” she said. “It’s very difficult for the sorters at facilities to deal with dirty yogurt cups, for instance.”
Companies like Indorama Ventures and PureCycle Technologies grind and crush the bottles into a basic pellet; while others are chemical recyclers that allow clients like Exxon to use the chemicals for other uses, “but that isn’t as prevalent,” Goldsmith said.
“There will be much activity in the overall recycling market, as certain plastics are banned from certain landfills. That sector will become a bigger part of the industry,” she said. “All of the big oil companies and energy producers have sustainability goals and are trying to develop a circular economy where their products are used, then reduced to their basic forms for reuse.”
Basic Forms
The other important area, in Goldsmith’s view, is handling the packaging from eCommerce. “There’s packaging that Amazon uses, for instance, that’s paper on the outside and plastic bubble wrap on the inside that’s very hard for the facility to sort,” she said. “We need to find a way to recycle such items.”
As for the general industry, its basic foundation is growing, notably in the form of gases from the Gulf Coast and along the Marcellus Shale. “They’re inexpensive and easier to use than other forms of gas, which has made it easier to manufacture plastics domestically,” she said.
And know of the “continued drive in almost every industrial area to create goods that are lighter and more durable,” Goldsmith said. “That leads us to even more materials that are plastic-based. We are working to create more plastics with desirable properties like withstanding heat and sunlight, in sectors where plastics have not traditionally been used, like automotive and aerospace.”
So plastics “will continue to do well, but we need to heighten our focus on recycling,” she said. “We can’t just keep tossing it into landfills. We need more technical advances.”
Dispose Properly
As for that key issue in the industry – tending to the leftover product that doesn’t decompose – PLASTICS supports programs that increases the rate of recycling. “We have new opportunities that we continue to research, such as a demo on viable business models for gathering; second-sorting demo projects and a net-zero waste programs,” among others, Pineda said.
“It’s a misnomer to say that the industry is not sympathetic to concerns of the environment,” he said, “but products should not end up in the ocean. We support legislation to improve recycling infrastructure in the U.S. There is no alternative in industry to plastic and it is meant to be used the way we live.”
Pineda added that, due to climate change, there is a movement to disrupt the industry, though he doesn’t necessarily see it as threatening. “Disruption is how the plastics industry came to be in the first place,” he said. “It was discovered due to its diverse properties: it’s strong, it accommodates changes in temperature, it accepts coatings and is versatile.”
“As you can see, the applications are quite varied,” Pineda said. “If it’s meant for single use, like blood bags, it can’t be glass or another material. Now that we’re moving past COVID-19, acrylic is being used more often for sneeze guards in stores, for instance, as it is thermoplastic and will continue to be used in the service sector.”
But today, all concerned know packaging and recycling options need to improve. “More products will become biodegradable and more easily recoverable,” he said, “but until some other product comes along to supplant that can also save on energy, I don’t think plastic is going away.”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
