Five predictions for 2013

After riding out the economic storm that many of their OEM customers endured with some measure of success, moldmakers should be seeing some calmer waters.  Many had high hopes at the beginning of 2012 for a banner year, but that didn’t materialize.  Most now have a more realistic outlook that 2013 will be what they make it. Business over the last quarter of 2012 has been a bit slower, much of it due to the fact that tooling budgets are typically spent by October in preparation for the new year.
  
New business for the first quarter of 2013 appears to be spotty, depending on the markets being served and how much impact the various new taxes written into the Affordable Care Act (19 new taxes, to be exact) will have on their ability to hire and expand their business. Some moldmakers have commented to PlasticsToday that in light of the pull-back on new mold purchases over the past few years, many molds are on their last legs, and replacement molds are badly needed. An air of uncertainty still plagues many of these small-business owners as they take a “wait-and-see” stance with their OEM customers.
  
A Plante & Moran study of the North American Plastics Industry through 2011, and released in October, noted several interesting facts that favor moldmakers. Molders are seeing strong earnings. “Gross profits, which never varied more than a few percentage points for the past 13 years, increased almost 20% in 2010 and remained steady in 2011,” reported Plante & Moran. “We speculate that there are a number of reasons for the retention of the strong earnings in 2011.”
  
First, press utilization increased for a second year in a row, noted the Plante & Moran study. However, utilization is still “depressed” considering that average utilization is just 40% based on a 24/7 calculation. Typically, “increased utilization comes with increased complexity”—i.e. number of molds, part numbers and materials—“and thus with high labor costs.” Still, Plante & Moran’s report notes that this is only the fifth year out of the last 15 with an increase in utilization. “For those with good margins, any increase in utilization results in improved profits,” said the report.
  
Secondly, resin costs shrank an additional 1.6% in 2011, and again in 2012. Sales growth among molders “nearly doubled” in 2011, up 8.7% for the median processor. “The growth appears to have allowed processors to be more discerning with customer contracts as median complexity actually decreased from 2010,” said Plante & Moran. Larger molding companies enjoyed healthy growth, while smaller enterprises were still working to get back to pre-recession levels of production.
  
Third, business is strong for several industries, noted the Plante & Moran survey. For example, the automotive industry, which had a decent 2011 and an even better 2012, has managed to keep its Tier 1 and Tier 2 busy. They even softened their stance on payments for a while. However, Plante & Moran reported that it is “the aggressive supply chain practices that had taken a sabbatical during the recession that may have more impact on the desirability of the industry than a volume recovery.”
  
A number of mold manufacturers have found the aerospace industry to be a good fit with their automotive know-how as aircraft sales hit record highs in 2012, with builds out through 2015. That could mean good business for both molders/thermoformers and mold makers that specialize in this industry.
  
Other industries that are faring well include the industrial products sector that “enjoyed an increase in sales growth in 2011 for the first time in two years.” The construction and furniture industries, while still in the doldrums during 2011 when the Plante & Moran survey was being taken, has generally started on a slow upward trend in 2012.
  
Just when everyone thought it was safe (and profitable) to get into the medical industry to avoid the pitfalls of the automotive industry, medical and pharmaceutical are running into some headwinds. The medical device tax has many big OEMs in that sector rethinking their strategy, utilizing their foreign operations to a greater extent and even planning some “near-shoring” within North America.
  
A report from McKinsey & Company on the pharmaceutical industry said that “The good old days of the pharmaceutical industry are gone forever” as it heads “toward a world where its profit margins will be substantially lower than they are today.” With the rapid growth of generics, McKinsey noted that the expectation of “Big Pharma’s current level of R&D spending to become a luxury that investors no longer tolerate. . . as some investors and analysts believe that many of Big Pharma’s R&D investments destroy value.”
  
Given these new clouds on the horizon for both medical and pharmaceutical, moldmakers might be squeezed on price unless they provide the value proposition for molds with greater productivity for products sold in emerging markets.  

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