Background on the Industry
The Plastics and Rubber Machinery Industry comprises establishments primarily engaged in manufacturing plastics and rubber products making machinery, such as plastics compression, extrusion and injection molding machinery and equipment, and tire building and recapping machinery and equipment.
The industry has a profound impact on our lives through its close association with the plastics and rubber products industry. Most plastics or rubber products manufacturing requires some type of plastics or rubber machinery. The packaging industry is the largest end user of plastics machinery. Plastic bags, plastic bottle, plastic wrap are all made on plastics machinery. Other major end-users of plastic products include the automotive industry, the aerospace sector and medical equipment manufacturers. Annual shipments of plastics exceed $300 billion. The plastics industries account for 1.5 million jobs. The major end-user of rubber working machinery is the tire industry.
The industry is classified under NAICS 333220 (Plastics and Rubber Industry Machinery).
Industry Overview and Global Competitiveness
Key Policy and Regulatory Issues Affecting the Industry:
- Many small and medium sized U.S. manufacturers do not have the capital to invest in new machinery or technological innovations.
- Reduction in costs of doing business (healthcare, litigation, tort reform, energy prices, intellectual property rights).
and Even Playing Field - Specifically, China and what the industry sees as currency manipulation and unfair trade practices.
in obtaining visas for prospective foreign buyers.
According to the 2002 Economic Census, the latest figures available, the U.S. Plastics & Rubber Industry Machinery Manufacturing Industry is composed of 557 establishments with approximately 16,000 employees and an industry payroll of approximately $742 million. However, it is estimated that there are over one and a half million workers directly or indirectly employed in the plastics industry. The number of plastics and rubber industry machinery establishments increased from 1997 to 2002, while the number of industry employees decreased. Some segments of the industry have become very concentrated with only a few major firms remaining.
The value of product shipments for the plastics and rubber industry machinery manufacturing industry amounted to $2,921 million in 2006, a 3.4 percent increase from $2,824 million in 2005 (Source: U.S. Census Bureau, Annual Survey of Manufactures). Rubber-working machinery accounted for $208 million of the total and registered an increase in shipments of 30 percent compared to 2005.
The 557 establishments, most of which are SMEs, are located throughout the nation. The top four states in overall plastics and rubber machinery employment are in the manufacturing belt: Ohio, Pennsylvania, Michigan, and Illinois. Employment figures have, however, decreased over the past several years due to the decline in manufacturing, closures, and the move of many manufacturers to produce overseas.
Competitiveness in World Markets
The United States remains competitive in other world markets. Innovation, automation and precision tooling make U.S. machinery superior to foreign-made machines. Adopting new materials and new processes, product development and cost reducing techniques are advantages to U.S. manufacturers. As long as U.S. manufacturers continue to invest in new technology and new products, they should be able to maintain and increase their competitiveness.
U.S. and Global Trends Affecting the Industry
The United States continues to run a trade deficit in plastics and rubber working machinery. The deficit was about $1 billion in 2008, with exports valued at $1.28 billion and imports valued at $2.35 billion. U.S. exports declined 3.2 percent in 2008 compared to 2007, while U.S. imports increased 1.7 percent for the same period.
The two largest export markets remain Canada and Mexico with exports of $229 million and $200 million respectively in 2008. The next largest export markets in 2008, in order, were China Germany and Japan. Exports to some markets, such as India and Singapore, did register modest increases, but most export markets registered declines in 2008. The largest foreign suppliers to the United States of plastics and rubber products making machinery were Germany, Canada, Japan, Italy, France and China. Germany replaced Canada as the largest foreign supplier with imports valued at $599. Canada was the second largest supplier with imports of $471 million, a drop of 22 percent from 2007.
The current world economic downtown has resulted in declining demand for machinery for making plastics and rubber products. Demand from the packaging industry is particularly weak. With the declines in most manufacturing sectors there is less demand for packaging materials including plastic containers, plastic bags, plastic wrapping materials, etc.
Weak demand for automobiles and trucks has led to declines in tire production and consequently weak demand for tire making machinery in the last 2 to 3 years. Weak global demand has led to stiffer international price competition as manufacturers look to other markets to try and offset lost domestic sales. China’s share of the world market, including the U.S. market, continues to increase. Other major competitors include companies based in Germany, Italy, Canada and Japan.
With considerably reduced profits most major end-users are cutting back on capital expenditures on processing machinery, including plastic and rubber products making machinery. A rebound in demand for plastic and rubber products making machinery is not expected until the world’s economy bounces back from the economic downturn.
In light of the current world economic slump, U.S. annual exports and imports of plastics and rubber products machinery are both expected to decline in 2009 compared to 2008. Markets with good long term growth prospects for U.S. exports include China, India, Brazil, Vietnam, Mexico, and Eastern Europe. As their economies develop, equipment will be needed for the various plastic processes.
Assessment of the Industry’s Domestic Environment
The divergence between the United States and other countries regarding standards and regulatory practices are major barriers for plastics machinery exporters. Many in the industry view the higher costs of exporting associated with divergent standards, technical regulations, nonconformity, redundant testing and compliance procedures, and a lack of transparency as huge impediments to trade.
The European Union is increasingly establishing regulations that lack technical justification, imposing various costs that are disproportionate with the expected consumer and environmental benefits. Furthermore, the developing regulations may lack transparency and accountability and favor EU producers.
Domestic Business Environment (non-regulatory policies)
Environmental concerns are still an issue in the plastics industry. Ways to recycle equipment instead of dumping it into a landfill and ways to minimize pollution are affecting plastics manufacturers. The industry is being pressured by the public to address the harmful effects of plastic materials. There are major research initiatives under way that the industry hopes will provide better answers. These initiatives, however, are costly to plastics manufacturers.
The recent high energy prices and high prices for petroleum had a major adverse impact on plastic machinery suppliers and affected the industry’s competitiveness. Many plastic products manufacturers were relocating as a result of high energy costs. For example, manufacturing companies left California and relocated to Arizona or Utah because of rising electric costs in California. Not only did high energy prices cost the industry more to operate its factories and transport its goods, but they also had a dramatic effect on the cost of materials in the form of resin prices. Plastic machinery suppliers are dependent on processor profits to drive demand for new equipment. Equipment sales rely on the economy. Many buyers will hold off on new machine purchases until the economy picks up.
According to a report by the National Association of Manufacturers (NAM) and the Manufacturers Alliance/MAPI, U.S. industry suffers from a competitive disadvantage because U.S. manufacturers have relatively high tax rates and pay more for health care, benefits, and litigation. Even with an economic recovery, manufacturers will have challenges and difficulties due to the costs of doing business in America, i.e. healthcare costs, tort reform, litigation, and benefits.
In the global supply chain, plastic manufacturers are often located near processing plants from the standpoint of service, delivery, and costs. Most are located near manufacturing operations, such as automobile and appliance assembly plants.
Most large-scale machinery manufacturers have production overseas. Most SMEs, however, find it difficult to move production offshore for lack of capital requirements. With the exception of China, most foreign companies (from Japan, Germany, Canada, and Italy) have invested and established themselves in the United States. The Chinese seem eager to do business with U.S. companies in the form of joint-ventures (JV) or wholly-owned foreign enterprises (WOFE). However, the tight control over visas, particularly for the Chinese, will make it difficult for foreign companies to invest in the United States.
Prior to the current economic downturns, manufacturers of plastics products were making new investments in manufacturing operations in the manufacturing belt (Ohio, Michigan, and Indiana). Many had weathered the economic pitfalls and were in the process of modernizing and preparing for better times, a vital step to avoid extinction. They realized that they needed to spend money to make money and to make the commitment to innovate and design much leaner ways to manufacture. The manufacturers that have the fortitude, long-term commitment, and flexibility to create new ways of faster and leaner responses to the current market will prosper. Unfortunately, in the current economic situation, much of the investment in capital equipment, such as plastics and rubber working machinery, has been put on hold.
Industry would like to see more support from the federal government in terms of reduction in excessive corporate taxes, trade policies, specifically to China (currency manipulation, fair and even playing field), as well as increased funding for R&D, grants, and aid.
Assessment of Industry’s Trading Environment
There is a large opportunity for U.S. plastic manufacturers to expand exports further to developing industrial countries, such as China, Brazil, India, Vietnam, Mexico, and Eastern Europe. Specifically, China’s export of plastic machinery has been experiencing rapid growth in the last several years. Its technology level, however, still lags far behind western countries.
Apart from a dozen or so large-scale plastic enterprises, wholly-owned, joint-venture and private companies that possess advance technology, most other plastic processing companies in China are still using domestically made machinery, with about 20% of them consuming high amounts of electricity and generating low productivity. In addition, China is known for its weakness in innovating. The plastic products made by local Chinese manufacturers are limited which is mainly attributed to inadequate investment for the industry.
The major obstacle facing the industry in expanding exports is the tight control of visas, particularly with China. Industry understands the reasons for stricter visa policies, especially since 9-11, however if manufacturers cannot get investors to the United States to see their manufacturing plants first hand, they have a very difficult time exporting to these particular countries.
Financing is also a huge impediment for many small and medium sized U.S. manufacturers. They simply do not have the capital to invest in new machinery or technological innovations. Many foreign companies are subsidized by their government to promote the sales of its companies aggressively. U.S. manufacturers do not have the same luxury and bear the burden of high costs, taxes, and policy issues.
The Society of the Plastics Industry, Inc. (SPI) has done much to assist its members to enter potential markets. Founded in 1937, SPI has organized numerous trade shows including sponsoring NPE, the world’s largest plastic exhibition every three years in Chicago.
Additionally, SPI provides its members with an array of resources to help them succeed. These resources include economic forecasts, foreign market reports, equipment statistics, and training programs. The Department of Commerce has been working closely with SPI to help the industry succeed by providing trade statistics, trade policy, and information on foreign markets.