Plastics processors can’t help but wonder what kind of business is “safe” for domestic manufacturers and which will be the next to flee to China, India or some other lower-cost region of the world. Matthew Naitove, chief editor of Plastics Technology magazine, takes a look at which sectors are most vulnerable.

Plastics processors can’t help but wonder what kind of business is “safe” for domestic manufacturers and which will be the next to flee to China, India or some other lower-cost region of the world.

One theory holds that sophisticated, high-tech processing is more suited to the United States. Yet some new Chinese molding plants are being stocked with all-electric injection presses in clean-room environments. Some say that low-tech, low-value products are prime targets for outsourcing overseas. Yet shipping and inventory costs come into the equation.

As plastics economist Bill Wood notes in his latest analysis of plastics extrusion markets, it’s more efficient to ship rolls of film overseas than plastic pipe. So guess who’s suffering more from imports — pipe makers or film extruders?

Or take the case of a U.S. importer of cast polyester lawn statues — low-tech, inexpensive products requiring manual labor — just right for production in the Far East; that is, until the importer found that shipping cost him as much or more than the actual manufacturing. So he’s looking to move production Stateside.

Matt Langton, VP of sales and marketing for United Plastics Group (UPG), Oak Brook, Ill., has a pretty good idea of what kinds of jobs are better suited to the U.S. or elsewhere. His firm has 10 contract manufacturing plants in the U.S., Mexico, U.K., and China — where UPG just opened its third site. He told me recently, “Certain applications belong in low-cost countries — labor-intensive jobs and ones not worth automating because of frequent model turnover. Also small products rather than bulky ones. Would you rather ship cell phones or car bumpers across the ocean?”

The products likely to stay in the U.S., he said, are those that embody special quality standards or proprietary intellectual capital, or are good candidates for automation. He cited medical products as prime examples of all three. It is much harder to ensure FDA-mandated manufacturing standards in a plant 10,000 miles away. There are concerns for protecting intellectual property. And medical products with longer life cycles are suitable for advanced automation that can erase any cost advantage abroad.

According to Wood, more plastic is processed into film than any other product. But for most U.S. producers, film is a high-volume, low-margin market where raw materials can represent as much as 70 percent of the total manufacturing cost. As a result, this segment is acutely vulnerable to high domestic resin prices. Further, films are less bulky to ship than resins, so a lot of imported plastic is coming ashore in the form of film. Observes Wood: “It appears increasingly clear that production of commodity-grade films like those for shopping bags or dry cleaning is moving overseas.”

It’s no surprise, then, that Wood’s Film Business Index was down 15 percent for the first half of 2006. However, he predicts that accelerating domestic demand and stabilizing materials costs will leave the Index up 5 percent for the year.

Plastic pipe is the second-largest extrusion market, and here the story is much different. Unlike film, plastic pipe is quite difficult to ship cost-effectively, and Wood’s Pipe Business Index jumped 11 percent in the second quarter after gaining 2 percent in the first quarter.

According to Wood:

The biggest sector is PVC pipe, and the trend there correlates with those in residential construction. New home construction is down about 5 percent for the year to date, but the level is still quite high by historical standards, and spending on residential repairs and remodeling is still expanding.

Another sector of plastics that is plagued by imports and high domestic material costs is blow molded housewares. According to the latest blow molding market study by Mastiogale, a consulting firm specializing in plastics market trends, housewares are one of the most sluggish sectors of industrial blow molding. Its average annual growth rate will be only 2.4 percent to 2008, compared with growth rates from 3.6 percent per year for blow molded recreation and leisure products to 5.8 percent for lawn and garden products.

According to key findings of a new Freedonia Group report (via Plastics & Rubber Weekly), an annual 17 percent increase in consumption is forecast in the U.S. for degradable plastics through to 2010. This will see usage grow to 225,000 tons, valuing the market at $610 million. The report says average prices will continue to decline as a result of higher capacity and greater production efficiencies.

An annual growth of 18 percent is forecast for starch-based plastics, taking demand to 180 million pounds (80,000 tons), principally because of the availability of improved, lower-priced polymer blends.

Film products, like those described by Wood, are expected to remain dominant.

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Matthew Naitove is Chief Editor of Plastics Technology magazine. Regarded as the premier source of technical and business information for plastics processors, Plastics Technology thrives as the industry’s only magazine targeted solely at processors.