NPE ’09: 1,170 US custom moulders may go bankrupt

24 June 2009 20:04  [Source: ICIS news]

CHICAGO (ICIS news)--Tightened credit and weak sales will likely put 15% of the US custom moulding industry - or 1,170 firms - into some form of bankruptcy, a consultant said on Wednesday.

In all, the US has 7,800 custom moulders, with total sales of roughly $100bn (€71bn), said Jeff Mengel, partner and head of the plastics team at Plante & Moran, a US consulting firm.

He spoke at the Chicago-based 2009 National Plastics Exhibition (NPE).

The bankruptcies, though, would provide much-needed consolidation in the industry, which has struggled with low profit margins and utilisation rates, he said.

In addition, the fallout and turmoil in the industry will provide a tremendous opportunity for processors with sound footing to acquire firms and assets, allowing them move deeper into markets or make other changes to their business, he said.

Regardless, the industry is still shrinking, and companies will go under, Mengel said.

Already, many processors are struggling with massive debt, he said. Plante & Moran estimated that in 2008, 30% were highly leveraged, meaning they had debt/equity ratios that exceeded 4/1, Mengel said.

While companies struggle with high debt loads, they are also contending with weaker sales, he said. Falling sales, in turn, tightens a company’s access to credit.

Lower sales also drove down utilisation rates to 30%, Mengel said.

Although processors have aggressively cut expenses and reduced headcounts, many will still seek some type of bankruptcy, he said.

“It just has to happen,” he said. “There is no way we can have 7,800 companies operating at 30% capacity.”

The bankruptcies, though, would consolidate an industry in which average sales are $12m, he said. In fact, 75% of processors have annual sales of less than $35m.

Moreover, the fallout will create opportunities for the surviving companies to expand, he said.

Subsidiaries and divisions will be sold, Mengel said. Processors will sell off tools to raise capital. “There’s going to be a lot of orphan tools,” he said.

All of this creates chances for processors to enter into new markets or extend their reach into existing markets, customers or product lines, Mengel said.

Indeed, solvent processors could win transfer work - so called because a customer transfers an existing programme to a new moulder, Mengel said.

“Now is the best time to change,” he said.

More than 40,000 people had registered to attend the NPE. The event continues through Friday.

($1 = €0.71)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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