Machinery future could be turbulent

Injection molding machines could end up hitting the benchmark 4,000-unit level again in 2018, executives said. But the crystal ball for 2019 is cloudy from an automotive slowdown, an economic recovery getting long in the tooth and lingering questions over the impact of global trade battles.

Overall, U.S. sales probably slipped modestly this year—by around 5 percent—from the 4,200 units of the last two years, officials said. After years of strong sales to a resurgent automotive sector, business in large-tonnage machines declined, they said.

Certainly, there was a lot to digest in 2018: Talks to redo NAFTA with the new U.S.-Mexico-Canada Agreement, the dueling U.S.-China trade war and tariffs on steel and aluminum imports. The potential of U.S. automotive tariffs still looms large and could do serious damage to the critical auto sector.

President Donald Trump takes a hardball approach to global trade and that has raised the level of uncertainty. This year, that uncertainty caused a temporary pause for several months while customers sorted it all out, many machinery officials said.

The Trump administration's tax reform in late 2017 spurred some investment in machinery through the immediate 100 percent depreciation and reducing the corporate tax rate from 35 percent to 21 percent. That helps, but molders still tend to wait until they have orders in hand before buying injection machines, equipment leaders say.

And while the U.S. economy remains solid, as 2018 ends, there was some unease as the stock market dipped, and economists are predicting slowing growth in the U.S. and globally.

For capital machinery, the big cyclical up-and-down years appear to be something for the history books, but several officials said the U.S. market was more jagged during 2018 than in the recent past with up-and-down months.

Auto industry challenges

Injection molding machinery makers "rode the wave" of record automotive sales the last few years, said Mark Sankovitch, president of Engel Machinery Inc. in York, Pa.

"This year, it's been a little bit more challenging. It's not smooth," he said, citing the NAFTA conflict.

Even more important than car sales are new model launches, which fuel investment in modern machinery. Auto makers have cut back on new models. And the Nov. 26 news that General Motors Co. is cutting nearly 15,000 jobs and may close five North American plants signals that auto makers are getting out of weak-selling sedans.

More importantly to plastics, auto makers like GM are cutting back to free cash to invest in electric and autonomous vehicles. This means plastics processors, machinery makers and material suppliers will have to plan for a new type of vehicle and vehicle interior.

Fiat Chrysler Automobiles N.V. officials said they would move production of the Ram pickup truck from Mexico to the Detroit area, then later said they may make the Ram in both countries. The change in plans impacts major investment decisions by plastics parts suppliers, Sankovitch said.

"It's still a good year for us, but it's been like a roller coaster. There's been a lot of ups and downs," he said.

Meanwhile, Austrian parent company Engel Holding GmbH is going ahead with its own U.S. production plans to resume assembling injection molding machines in York, starting in January.

Bill Wood, Plastics News economics editor, said car and light truck production will drop in 2019, but not by very much.

"We're past peak auto by a year or two, probably two years, but there's a floor underneath. It's a gradual decline," Wood said.

Press pause

Several machinery executives said the "noise" from the trade battles caused a pause in business around the middle of the year. In Milacron Holdings Corp.'s third-quarter earnings report, CEO Tom Goeke said U.S. machinery customers delayed orders for a few months coming out of the second quarter and into the third quarter, "waiting to see where the dust settles on tariffs." But business returned to normal levels by September, he said.

For this machinery outlook story, Milacron officials said customers are not pulling the trigger until they have firm orders in hand, which is putting increased pressure on lead times.

NPE2018 was the largest NPE ever for exhibit space: 1.2 million square feet and 2,174 exhibiting companies. "Then the wind came out of the sails after that. NPE was great, but then the doubts started to enter the market," Sankovitch said.

A pullback in automotive was one big reason. Though auto makers still are on track to hit the 17-million-unit mark for U.S. light vehicle sales in 2018, that number is forecast to drop in 2019 and could dip to 16.2 million units, according to some analysts. But what hurts investment in machinery—and, more directly, molds—is a big decline in new models. Consultant Laurie Harbor said about a third of planned 2018 North American model launches were delayed or canceled.

John Martich, vice president and chief operating officer of Sumitomo (SHI) Plastics Machinery North America Inc., said 2018 has "been up and down" with a strong first quarter and then business slowly dropped for several months.

"Now recently, we've seen a nice uptick, but we've had a couple of months up and down," Martich said.

Like several other executives, Martich thinks the pause was from all the global economic news hitting simultaneously.

"The middle of the year was a bit odd," he said. "I think people were nervous about the renegotiated NAFTA agreement. They were nervous about the China tariff wars, which I think, for the most part, is a less significant impact for us than it is to China. And … automotive scared a lot of people because it was forecast to be flat, under 17 million units this year."

Martich said there was some apprehension, "but I think we've seen an uptick over the last month and a half or two of activity," he said in late November.

"Any time there's a major decision on international trade people get nervous. And when people get nervous, they wait," said Paul Caprio, president of Krauss-Maffei Corp. in Florence, Ky.

Glenn Frohring, president of Absolute Haitian Corp., said there was a pause throughout the industry as companies figure out the impact of changing trade dynamics.

Interest rates are rising. Wood, who runs Mountaintop Economics & Research Inc., said it will take some time for the industry to adjust to the interest rates as well as all the questions about global trade. As of now, he doesn't see those factors as a tailwind, but there still is an impact.

"That's why I say right now we're entering into a situation, I think, where businesses are being cautious," Wood said. He thinks injection press shipments will hit 4,000 again, but orders could be down slightly, around 5-10 percent.

Investments

This year was marked by some building expansions by injection press manufacturers. Japan-based Nissei Plastic Industrial Co. Ltd. opened its first U.S. assembly operation, a 114,232-sq.-ft. plant near San Antonio. Ube Machinery Inc. announced a 21,500-sq.-ft. addition at its longtime U.S. headquarters in Ann Arbor, Mich. Negri Bossi North America moved ahead with its relocation from Delaware to Canton, Mich. And Toshiba Machine Co. America opened a centralized, 60,000-sq.-ft. warehouse in Elk Grove Village, Ill.

In business news, Husky Injection Molding Systems Ltd. got a new owner to start the year: global investment firm Platinum Equity LLC, founded by Detroit Pistons owner Tom Gores.

At NPE2018, executives of Yizumi-HPM Corp. announced the company was building a 15,000-sq.-ft. addition for final assembly space at its North American technical center in Iberia, Ohio. It's a long-term investment, officials said.

The machine components come from China, and the tariffs have caused Chinese companies to raise prices on presses sold in the U. S. They had machines in inventory, which were a buffer from the price hikes.

But for new machines coming in from China, Yizumi-HPM has raised prices 7 or 8 percent, said Bill Duff, general manager of sales and marketing. The Chinese parent company has some flexibility to try and reduce the impact of tariffs, with a facility in India and the Ohio assembly operation.

And Duff noted that prices for large castings from China, the major source country, have gone up.

"You can still get them, but you're paying a considerable amount more for your raw materials," he said.

Duff said the automotive slowdown could cause a "little bit of a downturn" for overall U.S. injection press shipments in 2019. After several strong years, large-tonnage machines have softened. "We're seeing strong quote activity, but it's a little troublesome getting the orders," he said.

Yizumi-HPM gets a lot of orders to replace older HPM machines, a legacy fleet still running in large numbers, Duff said.

Hong Kong-based Chen Hsong Holdings Ltd. is back in the U.S. game, as CH-America officially kicked off at NPE2018. CH-America President Ken Heyse said the company raised prices about 8-10 percent.

"We did have to raise them, but we raised them modestly in order to not have the sticker shock to pass on to the customers. We have been able to maintain our margins and increase our volumes without having a large price increase," Heyse said.

Chen Hsong has its own foundries to make castings, which gives it control over the supply chain and cuts press delivery time.

"You have a situation where a lot of people are getting new jobs and molds, and they need a machine," he said.

Heyse said Torrington, Conn.-based CH-America is targeting a wide mix of molders, including automotive, consumer goods and custom molders. "There's a slew of custom molders in this country that survived 2008 and 2009 and are just now upgrading machines, and the machines are 20, 25 years old. And they're eating them alive with electric costs," he said.

Frohring said Absolute Haitian of Worcester, Mass., has been able to limit the tariff impact on U.S. customers of its Chinese-made presses. The company had a lot of inventory when the tariffs hit, then worked out a compromise between the Chinese machinery builder, Absolute Haitian and customers, he said.

Frohring said that, while the automotive-related machinery business has slowed somewhat, Absolute Haitian is working to grow in medical and packaging.

"Overall the business has been strong, but I can see where it's been slowing down," he said.

Milacron ran the largest injection molding machine at NPE2018—a 2,250-ton Cincinnati press, named after the company's hometown. The company is aiming the Cincinnati at large-tonnage applications, including automotive.

Milacron officials said pending automotive projects continue to require large machines for model changes and new capacity. The aging fleet of dedicated automotive machines remains high, so customers are replacing equipment to remain competitive, the company said.

Sonny Morneault, vice president of sales at Wittmann Battenfeld Inc. in Torrington, Conn., said the automotive downturn will impact new press sales, but he agreed with Milacron's assessment on replacement machines for the sector.

"There is a huge installed base that is over 20 years old that need replacement," he said. "We only do about 30 percent of our business in automotive here in the states, mostly with Tier 1 and 2 suppliers, and they are still growing and investing in new equipment."

Morneault said Wittmann Battenfeld is in a good position going into the new year.

"We have high hopes for 2019. There are several large projects in the queue for 2019 that include new corporate expansion and replacement programs that will utilize the cash from the corporate tax breaks. This, along with strong consumer confidence and wage inflation, means we expect to have a record year here in the U.S. for machine sales," Morneault said.

Ube's Ann Arbor expansion doubles production capacity for assembling large-tonnage injection presses, from 720-3,000 tons. General Manager Koji Watanabe is one executive who is bullish on automotive molding, even though the production drop this year caused customers to slow down machine buying, which he said was an expected development.

"However, there will be new model activity in 2019, and auto makers have started to plan expansions and/or replacements. We are hearing active reactions from the automotive sector," he said.

The expansion will help Ube keep pace, after sales increased by about 10 percent this year, as of mid-November. "It indicates that the demand for large machines is constantly increasing," Watanabe said.

Ube, based in Japan, has some assembly plants in China, and buys some parts from China, so the tariffs hurt, but Watanabe said Ube was already looking at options for production.

"Right now, we are considering the best locations for production and are considering multiple resources for production, such as Japan, China and the USA, and also some other countries," he said. "It wasn't only because of tariff issues, but we have been planning to expand U.S. production and it is already moving forward."

Market dynamics

Friedrich Kanz said medical molding is the biggest U.S. market for Arburg Inc. in Rocky Hill, Conn., where he is president.

"Medical is on a solid level, which is good for us," he said. Packaging is also steady, and Kanz said he doesn't get alarmed when he sees anti-plastics headlines.

"If the regulations get stronger, that means we need to use our brain a little more," he said. "Which other materials do we have available to fit better in the environment? There's room for improvement—new developments, different materials."

Automotive is an important machinery market.

"I do not expect a sudden drop. Maybe it will be a little slower sometime in 2019," Kanz said.

Finding skilled workers remains a big challenge. At trade shows, the German parent company Arburg GmbH & Co. K.G. runs a dedicated recruiting stand. In Arburg headquarters at Lossburg, Germany, a record of 67 new students started their apprenticeship training this fall.

"This is really critical for our future and we are investing a lot of money, but that is well-spent," Kanz said.

Krauss-Maffei's Caprio said the automotive segment "is still very healthy, but it's normalizing. Automotive just can't keep up the past that they've been investing in the past decade."

Strong markets for KM include medical, electronics and recycling carts. The trend of supermarkets delivering groceries to your car is "really impacting the companies that create those collapsible crates," he said.

Next year is a K show year. Officials from some machinery companies downplay the K show's impact on U.S. business, but Engel's Sankovitch is already excited.

"That's the show to bring out the newest and greatest technology," he said. "There's a lot of dynamics in the marketplace."

He said Industry 4.0 will take the next step at the show in Germany.

Sumitomo's Martich said all-electric presses are growing in the mid-tonnage range, from 500-1,000 tons of clamping force. He said that's a strong point for the company, which makes the IntElect all-electric.

What markets are driving demand for all-electrics?

"It's a combination," Martich said. "I like to consider the medical market as sort of 'slow and steady.' And the packaging market, (is) particularly driven by consumer products and retail. As all-electric machines continue to grow and advance in technology, I think the precision lends itself more effectively. If you can make an all-electric go high-speed, I think that's the future."

Medical is a strong area for Boy Machines Inc. of Exton, Pa. President Marko Koorneef said tax reform, including the 100 percent write-off, is helping companies reinvest in new equipment, expand operations and even start some research and development projects.

But he's studying the market closely as the year ends.

"A lot of people seem to be on hold, slowing down, and I think that they're waiting for the fourth quarter of this year to see what they're going to do," Koorneef said. "And the fourth quarter is going to determine for us what's going to happen next year."

Russ La Belle, president of Wilmington Machinery Inc., said the press maker is winning orders for one-way pallets, such as those for shipping plastic resin.

"This has been a very good year, and next year we're going into it with a decent backlog," he said. The company is in Wilmington, N.C.

Daiichi Jitsugyo America, the U.S. distributor of Niigata injection molding presses, made news at NPE2018 by announcing it is now distributing machines from South Korean manufacturer LS Mtron Ltd.

DJA, based in Wood Dale, Ill., is stocking LS Mtron presses and handling sales, service and parts for U.S. customers.

Maruka USA Inc. of Kansas City, Mo., sells Toyo and Fu Chun Shin injection presses. Kevin Bruce, vice president of sales, said 2017 was one of Maruka's best years.

"We had hoped it would continue for 2018, but we have seen a slight pause in the market," he said.

The year is ending on a strong note, though. Bruce said Maruka increased its year-end stock machines.

"This has paid off as we are landing multiple orders with customers looking for quick deliveries," he said.

Toyo had a successful year in the medical market, he said.

Cincinnati Process Technologies' General Manager Mike Green said sales of new Asian Plastic Machinery from Chen Hsong have been "somewhat slow" this year. Service and controller retrofits, the company's other business, have remained busy, he said.

"But we're seeing activity on new equipment too, tick upward," Green said. "Quoting activity's high and that's usually a good indicator."

Medical and appliance molding is getting an increased number of inquiries for L.K. Systems Inc. in Ladera, Calif., President Dave Fung said.

He added that the trade war is causing some customers to hesitate and delay orders.

"The year of 2019 is full of turbulence and instability," which he said makes it hard to predict sales. "There is not much confidence for us to measure how far we could go at this point," he said.