By Tony Deligio
Published: July 1st, 2010
Leaders from Reifenhäuser, Gloucester Engineering, Windmöller & Hölscher, Macro, and Macchi talk new technology, new markets, and new post-2009 outlook for the film and sheet extrusion sector.
Pulling together insights from five leading companies in the film and sheet extrusion market, some themes quickly became apparent in our Q&A survey. Participants represented the film extrusion gamut, covering blown and cast film, as well as winding technology, but all said business in 2010 is much improved over 2009. At its bottom in 2009, Q&A participants saw cutthroat price wars to win the few orders that were consummated, with all deals requiring arduous efforts to secure capital for customer financing as the global credit markets froze.
All were asked to offer advice for processors in the new normal for film and sheet, and several said converters would be wise to target scrap. In addition to (not surprisingly) promoting investment in machinery, there were also calls to invest in human capital through training.
Q: How did the recession of 2009 change your business, your customers’ business, and the market(s) you serve?Reifenhäuser: The recession of 2009 influenced the business of Reifenhäuser Group in an unknown manner. Order income was down over 50%, and the activities of the market were simply frozen. Hardly anyone dared to decide for a new investment and the few who wanted to do so received no bank financing. Because of this situation, the fight for the few remaining orders was brutal. Prices for machines dropped by 10%-15%.
The change from booming 2007/mid-2008 to this disaster was dramatic. Different from that was our customers’ business. Food packaging and hygiene markets, especially, did not collapse and consumption continued at a reasonable level. For that reason, in the fourth quarter of 2009, the demand for new capacities and for product developments switched the atmosphere in the markets.
More projects, more traveling, and more serious discussions have been the result. From the end of 2009 to today, there has been a remarkable change in the market. The levels of 2006 could be reached by the end of 2010.
Jones: The main change seen by machinery manufacturers was a reduction in business conducted as processors cancelled or put on hold capital purchases. Because of the need to keep legacy equipment running rather than retiring it, a proportion of the lost business was regained in the form of refurbishment and upgrade orders. Towards the end of 2009, the volume of business available picked up markedly as an apparently improving economy caused shelved proposals to be dusted off and put out for quote again. With regard to processors, with reducing demand leading to further excess capacity, margins generally appear to have been squeezed even further.
Wheeler: W&H, as a global company, is involved in flexible packaging, not just extrusion or printing. While the North American market is the single largest market for W&H, the rest of the world makes up the majority of our sales. The recession was damaging in North America, but our business here was still strong, fueled by the fact that flexible packaging (food, snacks, etc.) are about as “recession proof” as you can get.
Around the rest of the world, the projects were there, but money—the customer’s ability to borrow—was very tight. Some customers in North America moved cautiously, while others saw the recession as an opportunity to drive their technology forward with the understanding that the stronger, more innovative companies would survive and thrive.
The Multiwall Div. of W&H (paper/poly/foil structures) was affected the most by the recession, as that division is driven strongly by the construction and building industries. Cement bags, for example, are all produced by multiwall machines and new construction worldwide stopped cold during that time.
Planeta: Our business strategy hasn’t really changed as a result of the 2009 recession. Thanks to our capacity to supply custom-engineered machinery, we still saw demand, albeit reduced, from processors looking for something special that would help them gain an edge in their market when it returned. We had several key projects running through the year that kept us occupied until the markets picked up in Q4. We also pushed for more international business, which helped shelter us from the local recession.
Gammell: The recession made borrowing money more difficult for our customer base, while the strong euro made Italian equipment more expensive, which led to lower margins when items did sell. The overall economy made the consideration of capital equipment investments by our customers a difficult one.
Q: What event or condition is having the biggest effect on your sector of the plastics industry in 2010, and which one do you think will be the most important in 2011?Reifenhäuser: In 2010, the main players in the market for plastic products were growing, are growing, and will continue to grow. Those who want to succeed have to adjust to actual market demand. That means new products, better productivity and quality, and new capacities. The K 2010 fair in October will be the ideal marketplace for this changed sector to make new investments.
Jones: Aside from the continuing economic uncertainty, there is a general understanding that in any improving economy, energy and polymer costs are likely to rise substantially. Both are largely determined by oil prices, and the underlying long-term trend of increasing world consumption and level or reducing supply has not changed during the recession. As such, those film producers that can are investing in new machinery that is intended to be more energy efficient and/or capable of providing the same film functionality with less or lower-cost polymer. This is likely to promote further consolidation in the industry as the more efficient producers out-compete and take over the less efficient.
Looking farther ahead, in the stretch film industry there is likely to be more investment in thin-wall core and coreless technology as this gains market acceptance and market share. Downgauging in the stretch industry is likely to continue but with diminishing returns as the physical limits of the polymers used are reached.
Planeta: Exchange rates. Fluctuations in the rates between the Canadian dollar with the U.S. dollar and the euro are becoming more substantial and occur much faster than they used to. As an exporter to global markets, it’s become very difficult to project long-term pricing. This, combined with low-price competition from developing countries, generates a significant challenge for managing prices to remain competitive. We expect this to continue through 2011.
Gammell: In 2010, borrowing difficulties and resin price fluctuation are having the greatest effect on our sector, although the strengthening U.S. dollar vs. the euro may ease customer investment concerns. As for 2011, the way the financial world changes, this is anybody’s guess.
Q: What was your company’s top technology development in 2009? What will it be this year?Reifenhäuser: Technology development was one of the main issues of 2009. The free capacities in engineering during the crisis led to some ambitious R&D targets. In particular for Reifenhäuser, the acquisition of Kiefel and the merger of blown-film activities to a best-of-two technologies led to an improvement of all parts of our blown-film technology. We had remarkable improvements and the actual order income proves the relevance to customers’ demand. The technology development in 2010 will again top that of 2009 and will be a highlight of K 2010, not only in blown film, but all other technologies as well.
Jones: With increasing sophistication in production machinery, developments tend to be spread over more than one year. The biggest efforts in progress are on the WOW project, a revolutionary new high-speed winding system for stretch film, and Symphonix, an integrated line control and HMI system based on a 24-inch touch screen and vector graphics, while utilizing off-the-shelf hardware.
Wheeler: W&H had an open house in November 2009, which was attended by 1300 people from more than 50 countries, where several significant technological developments were presented. It would be difficult to say which one was the “top” development. At that event, we introduced W&H’s new:
1) MDO (Machine Direction Orientation) line.
2) Aquarex water-quench blown-film line for up to nine layers, with high output and clarity.
3) Optimex low-cost blown film line
4) Opticool, a revolutionary (single) air ring design for extremely high output—we have hit 50 lb/in of die circumference.
5) Filmex cast-film line with nanotechnology running 34 micro layers of stretch film.
6) Vistaflex 10-color printing press with full robotics and a large 49-inch repeat length running 2650 ft/min.
7) Easy Col automatic color-matching capability.
Even for an engineering-focused company with more than 1500 patents, 2009 was an outstanding year of breakthroughs at a time when every other company was scaling back.
Planeta: Macro invests heavily in R&D, so we had several key technology developments last year, the most important being a new PVC cling film line, a new reversible surface winder with zero-foldover transfers, and improvements to our biax extrusion technology, gauge control systems, and extrusion output capacity. In 2010, we’re following the same path of putting priority on improving our systems to meet customer wish lists. Our current focus is on increasing line speeds of our extrusion systems and enhancing their automation features, such as self-adjusting control based on recipes.
Gammell: In 2009 our top technology development was the air ring cooling improvement that led to increased production rates while maintaining stability and quality, as well as control system technology and other undisclosed projects.
Q: What advice are you giving to processors on how to prosper in these tough times? Besides investing in more efficient and productive technology, what else should your clients be looking at?Reifenhäuser: The key for success in good and in rough times is to focus on your specialties. To be the best in class in your niche, to concentrate on customers’ demands, and employ the best people. Never wait, but react on the actual situation in a strong and dedicated manner.
Jones: There is increasing pressure, both consumer and legislative, to improve environmental credentials. The jury may be out on the real ecological impact of biopolymers and biodegradable polymers, but there are still steps that can be taken to reduce environmental impact and carbon footprint, regardless of the industry. And that applies not just to the products themselves and their methods of production, but to the whole infrastructure associated with them. Everything from in-house recycling to low-energy buildings has a part to play and is an investment towards a viable and sustainable future.
Wheeler: Of course W&H’s position is that companies are always stronger in tough times if they have set themselves apart from their competition with better technology. There is still too much scrap being run even with resin prices where they are, and suppliers are being squeezed for every last penny. That is an area that can still be greatly improved upon. It also goes directly to our customers’ bottom line, as their customers do not pay for the amount of scrap they might generate.
Planeta: Improve the process to save on scrap. Make process changes as fast as possible and reduce line startup times to minimize the amount of scrap generated. Investments in gauge control technology will also provide cost savings through tighter use of the more costly materials, such as barrier resins. Alternately, a switch to a higher-value product or a unique product may generate better margins.
Gammell: Invest in training of personnel specifically in understanding the workings of a line and line management. Run ongoing and consistent preventive equipment maintenance programs. Explore available resins for source duplication and alternative materials, as always, downgauging to reduce resin cost.
Q: Will you be expanding your company’s geographic reach, either in sales or manufacturing, in 2011? If yes, where?Reifenhäuser: Expanding in geographic regions is not the actual target. Supporting and encouraging the revival in all our well-known regions is the name of the game.
Jones: Gloucester Engineering is already a global supplier; for top-end capital equipment suppliers, limited geographic presence is no longer an option. Currently manufacturing is predominantly in the U.S., but with the opening of Kabra Gloucester Engineering, a joint venture with Kabra Extrusion Technik in Damman, India, manufacturing capacity will increasingly be available from the subcontinent. And with regard to systems integration, for a substantial proportion of Gloucester’s business, global component sourcing is already a reality.
Wheeler: We have made a concerted push into Canada in the past year or so. We were always represented there, but perhaps approached the Canadian market too much the way we do the U.S. We now have excellent Canadian representation and have sold a number of machines there in the past year, which, we believe, positions us for further growth.
Planeta: We are expanding in all markets, with specific plans to expand manufacturing, sales, and service into the U.S., followed by an additional sales and service branch in Europe. We have already expanded our Canadian operation through the acquisition of an additional 50% of production floor space and the hiring of 35% more staff.
Gammell: Macchi will continue expansion into India and the Far East.
