Economic Outlook - November 2008

After enjoying 6% growth in 2007, large-parts blow molders have struggled in 2008. The combination of persistently high resin prices and a sputtering U.S. industrial sector resulted in an overall decline of 5% to 10% in output during the first three quarters of this year. This situation will not change much until we are well into 2009. Production of large blow molded parts will drop 8% in 2008. Resin prices will gradually decline in the coming months, and by next spring, industrial activity will start to improve. Next year should see a 7% gain in large-part blow molding.

 

DRUMS & GAS TANKS LEAD

The most consistent growth in recent years has been in large containers and drums. Market demand for these products plummeted 20% during the previous economic recession in 2001, but since then, demand has grown an average of 8%/yr. This growth was spurred by improvements in barrier performance through improved materials and manufacturing techniques; the high cost of alternative materials such as steel; and the desire for lighter shipping containers.

These long-term trends will continue to push demand for blow molded containers and drums. So after the current cyclical downturn in the U.S. economy is over, output of these products will rebound to above-average rates of growth. Following a gain of 8% in 2007, output of large containers and drums will decline 4% in 2008. Market demand will be sluggish at the start of next year, but conditions will improve as the year progresses. An annual gain of 8% is expected in 2009.

The other segment that continues to attract attention is blow molded fuel tanks. This was one of the fastest growing sectors in the entire plastics industry at the end of the last decade and the beginning of this one. However, the trend has been predominantly downward during the past four years. After a moderate gain of 3% in 2007, production of these products is down 12% for the year to date in 2008. This decline will persist into early 2009, but the market will start to rebound by the second half. A drop of 15% in 2008 will be followed by a gain of at least 6% in 2009.

This forecast is based on continued growth in demand for motor vehicles that are not only lighter and more fuel efficient, but are also manufactured using more “sustainable” techniques and are more easily recycled or disposed of at the end of their life span. One of the challenges that will confront manufacturers of blow molded fuel tanks will be designing a product that holds new types of fuel and lubricating products. These may include biofuels, natural gas, or fuel cell technologies.

 

FAVORABLE TRENDS

Other segments of large-part blow molding will also be affected by these market forces. Motor vehicles and other means of transportation will need to be made of parts that are lighter in weight, less energy intensive to manufacture, and easier to recycle when they are no longer usable. So housings, cowlings, and even some structural parts may be made of blow molded plastics in the coming years. Thus, the problems of high energy and materials costs that are currently impeding demand for all types of manufactured products may eventually become factors that promote the increased use of blow molded products.

 

About The Author

Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at BillWood@PlasticsEconomics.com. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.