THE CHEMICALS AND CLEANING/FINISHING PRODUCTS SEGMENT HOUSEHOLD, COMMERCIAL, AGRICULTURAL AND INDUSTRIAL

Transcription

1 THE CHEMICALS AND CLEANING/FINISHING PRODUCTS SEGMENT HOUSEHOLD, COMMERCIAL, AGRICULTURAL AND INDUSTRIAL The Segment Defined This segment is comprised of two distinct product groups: chemicals intended for industrial, commercial, agricultural, and garden use; and cleaning and finishing products designed largely for domestic use. Essentially all of the segment s manufacturers are classified within SIC 28 Chemicals and Allied Products. Included among the more common domestic products are: laundry detergent, bleach, furniture polish, liquid and powdered sink and tub cleansers, dishwasher detergent, paint, stain, insect repellent, pesticides, water conditioning and neutralizing chemicals, and others. The industrial, commercial, agricultural, and garden group includes: inorganic and organic chemicals, fertilizers and other agricultural chemicals, insecticides, and resins. Spending Decline Expected for 2006 According to their estimates, respondents from the industries that make up the chemicals segment will reduce spending for packaging machinery by -2% to -4% in 2006 to an estimated volume of $342 million (Figure C-1). As shown in Figure C-2, 51 percent are budgeting less, while just 34 percent plan to spend more this year and 15 percent expect to invest roughly the same amount as in A more detailed breakdown of the increasedecrease data is presented by company size in Figure C-3. While no fewer than half the companies within each size category are planning to cut-back on packaging machinery expenditures, the smaller plants (fewer than 100 employees) exhibit the least favorable ratio. While, certain external market factors (to be discussed) have significantly influenced the 2006 outlook for the smallest plants as well as for the market as a whole, it is worth noting that in 2005 the segment s smallest plants exhibited the best increase-decrease ratio favoring positive breadth. Therefore, the cyclical effect of recent heavy spending for that group undoubtedly played a role in their 2006 projections. But Respondents Allow Possibility for Improvement With the understanding that budgets for capital expenditures are often subject to change, each respondent was asked a pair of questions dealing with the potential for revisions in their 130

2 spending plans as the year progresses. The first asked them to rate on a scale of 1 to 10 their packaging machinery budget s susceptibility to adjustment either up or down in response FIGURE C-1 HISTORICAL PROJECTED GROWTH OF U.S. DOMESTIC SPENDING FOR PACKAGING MACHINERY BY THE CHEMICAL PRODUCTS SEGMENT ACCORDING TO THE PMMI PURCHASING PLANS STUDIES (Percent Range of Projected Annual Growth) % Change 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% High Point of Range Low Point of Range to changing economic and/or market factors. A rating of 1 means that they feel their budget is set in stone and a rating of 10 means that it is very susceptible to change. As shown in Figure C-4, one-third rated their budget plans at 1 or set in stone, leaving two-thirds that characterized their estimates as at least somewhat changeable based on ratings between 2 131

3 and 10. Moreover, 44 percent placed their rating between 6 and 10 insinuating their plans are fairly to very changeable. As a follow-up, they were asked: If the budget were to be adjusted, which direction would you expect it to likely go up, down, or is either FIGURE C-2 PERCENT OF THE CHEMICAL PRODUCTS SEGMENT SAMPLE PROJECTING AN INCREASE, DECREASE, AND NO CHANGE IN PACKAGING MACHINERY EXPENDITURES COMPARISON 2006 VERSUS 2005 (Based on Conditions Existing as of January & February 2006) Will Increase Spending 34% Will Reduce Spending 51% Will Spend About the Same 15% direction equally possible? Based on the response, it appears that the segment s spending budgets are much more likely to be adjusted higher than lower as the year unfolds (Figure C- 5). Many who favored an upward revision commented that the possibility of additional business from new product introductions and/or stronger than anticipated market demand was the basis for their reasoning. Others simply stated it can only go up because their current estimates only include purchases that are absolutely necessary and do not account for unanticipated needs that may arise during the year. On the other hand, the vast majority of those leaning toward a downward revision attributed their reasoning to the potential for further slowing of market demand. 132

4 FIGURE C-3 PERCENT OF THE CHEMICAL PRODUCTS SEGMENT SAMPLE PROJECTING AN INCREASE, DECREASE, AND NO CHANGE IN PACKAGING MACHINERY EXPENDITURES 2006 VS 2005 BY COMPANIES' EMPLOYEE PLANT SIZE (Based on Conditions As Of January/February 2006) 100% 90% 80% 70% 50% 53% 50% Project Decrease for % 50% 40% 30% 20% 10% 23% 27% 6% 41% 50% Project No Change for 2006 Project Increase for % Less than 100 Employees 100 to 499 Employees Over 500 Employees Reasons for Less Spending This Year As revealed earlier, slightly over half the chemical segment s respondents (51%) expect their plant(s) to spend less for packaging machinery this year than in 2005, and as shown in Figure C-6, 48 percent of those attributed the cut-back to the adequacy of their existing machinery to handle their current packaging needs. An additional 33 percent specifically noted that they spent heavily for packaging machinery in 2005 and therefore are either adequately equipped or unable to match the volume of spending again this year. 133

5 FIGURE C-4 THE CHEMICAL SEGMENT SAMPLE S RATINGS REGARDING SUSCEPTIBILITY OF THEIR 2006 PACKAGING MACHINERY BUDGETS TO CHANGE FROM CURRENTLY PROJECTED LEVELS (Respondents rated their budget s susceptibility to change on a scale from 1 to 10 with 1 meaning the budget is set in stone and 10 meaning it is very changeable ) 70% 60% 50% 44% % of Responses 40% 30% 33% 23% 20% 10% 0% 1 2 to 5 6 to 10 Ratings Reasons for Higher Spending in 2006 Of the 34 percent of chemical segment respondents planning to increase spending for packaging machinery in 2006, the vast majority (91%) indicated that at least in part, they are doing so to improve packaging line efficiency and/or productivity (Figure C-7). Fifty-three percent said they need to increase the capacity of their existing packaging operation, and 34 percent are aiming to reduce labor and/or maintenance costs. Trends to Watch in 2006 While the respondents comments provide fairly general insight into their current budgetary considerations, the following underlying market trends merit monitoring throughout the year. 134

6 Factors Limiting Packaging Machinery Spending in 2006 A. Look for continuation of effects from high raw material costs Leading up to 2006, high oil and natural gas prices have forced chemical companies to either pass the added manufacturing costs on to customers or to endure lower profits. B. Expect lingering effects of 2005 Gulf Coast hurricanes Many chemical product manufacturers with plants on the gulf coast continue to suffer the damaging effects from the recent hurricane season. FIGURE C-5 THE SAMPLE'S ASSESSMENT: IF THEIR CURRENT 2006 PACKAGING MACHINERY BUDGETS WERE ALTERED, WOULD THE REVISION MOST LIKELY BE HIGHER OR LOWER? (Based on Conditions Existing as of January/February 2006) Equal Chance It Could Go Either Way 25% More Likely Would Be Revised Higher 57% More Likely Would Be Revised Lower 18% 135

7 C. More production to be moved overseas Reflecting rising costs of doing business in the U.S., particularly in light of higher natural gas prices, many chemical producers are moving their manufacturing operations to lower-cost regions such as Asia and the Middle East. D. Slower demand expected from the auto industry Chemical companies supplying coatings for automobiles will continue to endure slowing sales to the struggling North American auto industry. FIGURE C-6 THE UNDERLYING REASONS FOR REDUCING SPENDING ON PACKAGING MACHINERY IN 2006 BY THE CHEMICALS SEGMENT (Of the Respondents Who Indicated They Will Reduce Spending in 2006) Outsource Packaging More 5% Closing Plant/Consolidation 5% Lower Sales, Rising Costs 10% Existing Machinery is Adequate 48% Made Major Purchases in % 0% 10% 20% 30% 40% 50% 60% 136

8 Factors Supporting Spending in 2006 A. Possible easing of natural gas prices this year Many chemical industry analysts are optimistic that chemical companies profits will improve in 2006, based heavily on the expectation of lower natural gas prices. Notably, a significant number of the segment s respondents made it clear that their spending projections for this year are not set in stone and could go higher if the market improves (Figures C-4 and C-5). B. High rate of new product introductions U.S. chemical product manufacturers will continue to introduce many new products as a way of differentiating themselves from competitors. FIGURE C-7 THE UNDERLYING REASONS FOR ORDERING PACKAGING MACHINERY IN 2006 BY THE CHEMICALS SEGMENT (For Respondents Who Indicated They Will Order Packaging Machinery in 2006) Building New Plants 3% Accommodate New Product Lines/New Package Designs 22% Improve Efficiency/Prod. of Existing Packaging Ops. 91% Improve Ergonomics/Worker Safety Add Flexibility/Reduce Downtime 9% 12% Reduce Labor/Maintenance Costs 34% Adding Capacity to Existing Packaging Operations 53% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 137

9 C. Continued focus on improving plant efficiency In light of increased manufacturing costs, many chemical product firms are focusing efforts on expanding automation and improving efficiency of their U.S. plants. Figure C-7, reveals that 91 percent of the respondents who plan to increase packaging machinery spending this year are doing so, at least in part, to improve packaging line efficiency/productivity. D. Lawn and garden products sector to remain a bright spot Linked with robust home improvement product sales that appear to be continuing into 2006 despite a slowdown in the housing market, lawn and garden chemical demand will remain solid. E. Robust paint and coatings sales for home improvements The Chemical Segment Sample Respondents from 44 companies classified within the chemical products segment were interviewed in connection with the study. Of the total, three answered for all of their respective organization s domestic plant operations. The data provided by the sample covered the packaging decisions of 68 plants and establishments. Significantly, 95.4 percent of the sample s respondents took part in the study last year as well. 138