DETROIT—The U.S. plastics industry is under pressure from rising material costs, supply chain kinks and a dearth of job applicants amid high unemployment.
Welcome to the post-pandemic recovery, where inflation woes are driven by economic stimulus and the threat of competition from low-cost countries looms large for businesses.
Mold builders, tooling suppliers and processors are all facing higher prices for steel, aluminum and resin as well as shipping delays, tariff fights and the need to offer higher wages and incentives to fill many vacant positions.
The issues were discussed during formal presentations and casual conservations at the 2021 conference of the American Mold Builders Association in Grand Rapids, Mich., from June 22-24.
"This probably affects some of your customers more than you, but there is definitely a fallout. It's not just about microchips, which is what everyone talks about," Laurie Harbour, president and CEO of Harbour Results Inc., told AMBA members.
About 150 people from the trade group's 200 member companies and 50 partner suppliers attended the conference, which was one of the U.S. plastic industry's first in-person events in 15 months.
Supply chain problems aren't going away, Harbour said. Companies should plan for steel pricing and availability problems through the end of the year resin fluctuations though the second quarter of 2022, and shortages of truck drivers and microchips to be long term.
Still, Harbour is bullish for tooling manufacturers because of all the new product rollouts put on the back burner last year during COVID-19 lockdowns and restrictions.
"Everyone is launching a new appliance, a new snowmobile, a new ATV, and all of them require different tooling," Harbour said. "We need tools in the marketplace and we have some incredibly competitive shops. We're getting better every day."
For example, Harbour said she has a client making big fascia molds for cars who has cut six weeks from his lead time.
"He hasn't told his customer that. He stores them," she added. "He literally finishes the tools and puts them in the warehouse across the street and doesn't tell the customer until he's ready to pull them. He fights China all day log and he beats them on pricing. It's there, if we're willing to challenge ourselves to get more competitive."
Competition from low-cost countries topped the list of industry issues for AMBA members, followed by access to labor and raw material pricing.
Made in China
The Chinese economy was hit hard by COVID-19 and now census data indicates the nation's population growth is close to a standstill and at risk of entering an irreversible slide that could increase the burden on workers and weigh on productivity.
However, China is holding on with a vengeance and looking to make a comeback, according to Harbour.
"We are seeing tool dumping like I've never seen it before with prices in automotive 50, 60, 70 percent lower than what you guys can quote on any given day," she said. "China always works to rebuild its economy off manufacturing. … They will do what they can, including eating some of the expedited shipping freight, to bring tools here."
At some point, there may be a limit to the shipping losses Chinese firms will absorb.
"There will be challenges for them to continue," Harbour said. "We're still not flying a lot of commercial airlines back and forth, and DHL, UPS and FedEx are charging a fortune to bring tools over. And there are lead time issues and so on."
While labor problems were the No. 2 concern for mold builders, Harbour said it's No. 1 for their customers.
"It's a little different for you because you tend to pay a higher wage out of the gate," Harbour told AMBA members. Some processors are moving their starting wages from $11-$12 an hour to $15-$16.
"They're competing with unemployment and Tim Hortons and Amazon, which are all offering jobs at higher rates of pay," Harbour said. "The $15 minimum wage is not as big an issue for tool builders."
Even so, mold builders and their suppliers are dangling other carrots in front of prospective new hires.
"We're eager to find good, qualified people just like everybody. We offer a $1,000 signing bonus for new employees as an incentive because of the challenges. I think that's almost universal right now," said Robert Harvey, North American sales director for Oerlikon HRSflow, which makes hot-runner systems.
The unemployment rate edged lower in May to 5.8 percent with the number of unemployed people falling by 496,000 to 9.3 million, according to the latest figures. While unemployment is down considerably from highs in April 2020, it remains well above their levels prior to the pandemic, when 3.5 percent, or 5.7 million people were out of work in February 2020.
"I always tell toolmakers to figure out how to get the bartender or chef who lost his job into tool making. I know I make it sound easy," Harbour said.
To that end, businesses should have someone in charge of human resources, but many mold making and tooling companies lump personnel in with marketing, Harbour said.
"An HR person doesn't know how to market your business and a marketing person doesn't know how to hire somebody, but the two of them together are unstoppable," she said.
Harbour encourages businesses to update their branding and show applicants a clean, high-tech, exciting place to work.
"Toolmakers are some of the smartest people in the world. …You see in 3D and reverse engineer like no one can. It's a cool job. What are you really doing about it?" Harbour asked.
Nerves of steel
As for increasing material costs, steel prices have tripled in some cases in the last year. Analysts point to the so-called bullwhip effect as the root cause, noting capacity was scaled back early in the pandemic ahead of unexpected spikes in demand for automobiles, new houses and backyard decks.
"It's taking a much longer time to get in terms of lead time, and the prices have gone up like over 200 percent from what I'm hearing form some tool suppliers," Harbour said of steel.
Rodney Yeomans, vice president of sales and marketing for Superior Die Set Corp. in Oak Creek, Wis., has seen prices climb for "spot buys" of steel, which happen if the company and its suppliers are out of stock.
Superior Die Set supplies equipment to injection molding manufacturers and the metal stamping and forging industries.
"We've got a pretty solid supply chain, and our standard thicknesses and sizes are well covered. It's the spot buys that are affected," Yeomans said, standing by a company exhibit at the conference.
"Our biggest challenge right now is the ability to predict pricing," he added. "We're seeing about an 80 percent increase from last year to this year with nothing really on the horizon for relief."
In response, Superior Die Cut and other companies have changed the way they quote projects.
"We've got three days as opposed to weeks or months," Yeomans said. "You have to adjust long-term agreements with customers because of the volatility in the market right now."
Harvey, the sales director for Oerlikon HRSflow, said he hasn't seen steel prices climb too high—yet.
"I am a little nervous about it," Harvey said. "We're enjoying a very high level of business right now, which means we're consuming more steel and our customers are, too. It's something to keep an eye on. No doubt about it. If an infrastructure bill were to go through and investments were made on a large scale very quickly, that will affect steel availability, too."
Steel prices likely will continue to rise for another quarter, but once steel demand and production level out, this market should return to normal, analysts say.
Volatile resin markets are also impacting processors. Polyethylene prices are up 38 cents so far in 2021 and 58 cents since January 2020, according to Plastics News data. PVC prices have increased 22.5 cents so far in 2021 and a net of 38 cents since January 2020.
"Your customers are absolutely struggling with resin prices and availability, so product is not being produced because they don't have the parts even if they have the people," Harbour told AMBA members.
The Manufacturers Association for Plastics Processors, which shares an office and staff with AMBA, tries to help members with their resin challenges.
"MAPP is constantly sending emails: 'Do you have this resin? Do you have that resin? Can we swap? Can we share? Can I buy it from you?' We're seeing this across the board," Harbour said.
In the meantime, resin producers are anxious about the upcoming hurricane season, she added.
Trade and tariffs
Tariff talks might be heating up around that time, too. There's a short-term threat to lift plastic injection mold exclusions if a U.S. Trade Representative portal opens in August or September, according to John Guzik, a founding member of The Franklin Partnership, which is AMBA's lobbying firm.
The firm will be looking for industry testimonials to build a case to keep molds, dies and tooling protected, Guzik added.
In December 2019, the U.S. government reinstated a 25 percent tariff on injection molds from China, following a lobbying campaign by the mold building industry.
Mold tariffs are expected to stay in place through 2021 but could be revoked by President Biden, Harbour said.
"We as mold builders are a very, very small fish in the pond of the (Section) 301 tariffs. When you have a tariff on a product that brings tremendous revenue vs. tooling, it gets clouded by that," she said. "Biden could unilaterally remove the (Section) 301 tariffs. Our job is to continue that fight."
Chips are down
Sales surged for laptops, cellphones and gaming systems at the onset of the pandemic, which is also the time the automotive industry shut down and stopped demanding parts for some eight to 12 weeks, including microchips.
"You ended up with the chips having been moved all around," Harbour said.
Then, automotive sales picked up, in part because people preferred driving their own vehicles rather than taking public transportation during a pandemic.
Chip makers have been trying to catch up ever since.
"The impact is we will see some permanent loss of production for the vehicle market. Probably somewhere around $100 billion in revenue is what most analysts are forecasting for 2021," Harbour said.
The automotive industry is selling vehicles at an 18.5 million unit pace if just the month of May is annualized, Harbor said.
To save on chips, Nissan is leaving navigation systems out of thousands of vehicles, Ram no longer offers its 1500 pickups with a standard intelligent rearview mirror that monitors for blind spots, and Renault stopped offering an oversized digital screen behind the steering wheel on its Arkana crossover.
However, Ford was really caught with its pants down, Harbour said.
"If you live in the Detroit area or fly in, there are tens of thousands of F-150s in parking lots everywhere with the hood crack and no semiconductors in them," she said.
Taiwan Semiconductor Manufacturing Co. Ltd., the world's biggest contract chip maker, is expanding capacity but says tight supplies will likely continue into next year.
For all the new car and truck launches, auto makers planned to invest about $9 billion in new tooling this year.
"Based on our data, sitting here at the end of June, we haven't launched $4.5 million so there's a lot more coming in the back half of year. Some of that will probably spill into next year," Harbour told AMBA members.
Most industries are performing well, she added, pointing to medical, lawn and garden, lighting, heavy truck, consumer products, electronics, appliances and aerospace in addition to automotive.
Harbour isn't concerned about higher prices for most goods and service increasing the cost of living and putting a dent in Americans' purchasing power.
"Inflation is really being driven heavily by stimulus. It's different than the last time inflationary period back in 2008-09," Harbour said. "The situation now is that people have more money. They're buying things and it's not slowing down. It's a good picture in terms of the economy itself rebounding."
Overall, Harbour said, "We're very bullish about the economy but there's enough uncertainty you have to keep watch and ultimately think how do I create a flexible organization to manage the ebbs and flows."