Market Snapshot: Industrial 470

Unlike automotive, the industrial manufacturing sector appears to be holding its own, particularly the industry leaders, with many CEOs looking toward new geographic markets and better penetration of existing markets to promote growth.

It can’t be much of a surprise that many CEOs in the industrial segment “expect a slow, gradual recovery over the next three years.” This comes from PricewaterhouseCoopers’ (PwC) latest survey of 60 CEOs in industrial manufacturing companies. The report said that “CEO confidence has plunged to its lowest level since 2003, when PwC began tracking CEOs’ forecasts, with just 21% of CEOs saying they were very confident of revenue growth in the next 12 months, down from 50% in last year’s survey.” The survey results were released at the World Economic Forum annual meeting in Davos, Switzerland on Jan. 27.

Worldwide, CEOs are also less optimistic about longer-term growth, with only 34% saying they were “very confident” of growth over the next three years, down from 42% last year, when CEOs were just beginning to recognize the full impact of the credit crisis on the global economy. “Pessimism prevailed across all geographic regions, business sectors, and levels of economic development,” the survey said. “Only 15% of CEOs in North America and 15% in Western Europe expressed confidence about growth prospects for the next 12 months.”

Technological innovation supported by collaboration remains a priority for industrial manufacturing CEOs, noted the PwC survey, as it is seen as “critical to the industrial manufacturing” sector. “As many industrial manufacturing companies are forced to scale back on R&D investment, management will have to look for creative ways to support innovation. CEOs said that they are already collaborating with supply chain partners as well as with customers and clients. Expanding such partnerships to include new product development and other kinds of innovation may provide one way of solving the problem.” The survey revealed that 23% of the respondents were looking to new product development as a way to grow their business over the next 12 months, up from 18% in 2008.

Step up and serve the best

Patrick Hunter, VP of sales and marketing for Quickparts (Atlanta, GA), confirmed that from that company’s vantage point, many large companies in the industrial segment are cutting back on their R&D in design and tooling. “I would say they are still looking at prototypes, whether that’s prototyped parts or molds, but the economic downturn has meant they’ve reduced how extensive that is. They might do only two iterations of a new part instead of the five they would have done a year ago,” he explains.

Another area in which Quickparts is seeing increased demand from its industrial customers is in design for manufacturing. “They may know what their design is—what looks good to marketing people—but not whether or not it’s designed for optimum manufacturing, so they’re pushing their suppliers to use their expertise here,” says Hunter.

To meet demand for this service, Quickparts launched a Design for Manufacturing (DFM) service in December. “As plastic product designs become more complex, DFM plays an important role in successfully launching new products on time and under budget,” says Hunter. “We’re seeing a big push for this service.”

Greg Botner, president of thermoformer and injection molder Wilbert Plastic Services (Broadview, IL), says his company has seen a 20-30% decline in demand from its industrial customers. “That lines up with what we’re seeing in other markets,” Botner states. What has become apparent to Botner during the downturn is the advantage of working with companies that have top market positions. “The companies we serve that are the leaders in their markets aren’t as bad off as those in the next tier down,” he says.

The future: Alternative energy applications

Many industrial giants are looking to the alternative energy sector for growth over the next few decades. For instance, UTC Power (South Windsor, CT), a United Technologies Corp. company, announced that the first two production units of its PureCycle geothermal power system installed in July and early August 2008 at the Burgett Greenhouse in Animas, NM are exceeding expectations. It is the first geothermal power plant to come online in New Mexico.

The PureCycle system produces no emissions in generating electricity, and its fuel—geothermal hot water—is a renewable resource. The power from the units is used to displace grid electricity required to support 32 acres of greenhouse operations at the site. Similar systems have been in operation since 2006, including one at Chena Hot Springs Resort in Alaska. And Raser Technologies of Provo, UT has ordered 200 PureCycle systems for various projects it’s developing throughout the western United States.

Alternative energy markets present some decent opportunities for resin producers as well. Sabic Innovative Plastics (Pittsfield, MA) and Canadian Solar Inc. (Markham, ON) teamed up to meet the latter’s need for a tough but good-looking cover material for its solar-module batter connection box. The boxes are being manufactured at Canadian Solar’s Chinese subsidiary, CSI Solar Technologies Ltd.

No domestic Chinese polycarbonate that CSI tested could meet all of the company’s specifications for low-temperature toughness, aesthetics, electrical properties, and flame retardancy that supports global environmental initiatives. Since solar modules are positioned outdoors in a variety of harsh conditions, their components must be able to withstand weathering and possible damage while also maintaining high-quality, long-term aesthetics. And, since CSI’s units are sold around the world, the module also had to be able to meet global standards for quality and safety.

The material chosen for the battery connection box housing was Lexan EXL9330 resin, a copolymer of PC and siloxane, a material that Sabic said combines the best of PC and silicone chemistry to produce a thermoplastic resin with exceptional low-temperature toughness to -60°C, excellent long-term weatherability, excellent dimensional stability, the CSI value of 2 required by the customer, and UL94 5VA flame retardance on 3-mm walls. —[email protected]

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Further application inroads into alternative energy

Sabic IP’s Ultem resin was chosen for Munich, Germany-based SFC, a leader in portable fuel cells based on direct methanol fuel cell (DMFC) technology, because of Ultem’s ability to withstand the effects of liquid methanol, an aggressive solvent that can harm many thermoplastics. These fuel cells are new electrochemical conversion devices that keep on going as long as there is a supply of chemicals, typically hydrogen and oxygen. However, hydrogen presents drawbacks including availability, storage, and distribution problems and restrictions from being used on aircraft and in other environments. The use of liquid methanol instead of hydrogen offers a simpler and more convenient solution.

Ticona (Florence, KY) has developed a number of materials over the years to serve the unique property requirements for industrial applications, including many that replace metal where the intrinsic properties of the plastic material meet a specific need. Some of those requirements include electrical insulation, performance consistency, and durability—the ability to withstand the heavy-duty use that industrial products typically demand.

Ticona’s industrial-strength materials serve segments such as fluid engineering and material handling, two important areas where the company’s engineering thermoplastics provide significant customer value. One example is conveyor belt components made from Celcon or Hostaform acetal copolymers. Another is oilfield pump housings made from Fortron PPS. Also, Vandar polyester alloy is used as a linkage between conveyor elements and provides the strength, toughness, and flexibility required by this application.

DuPont’s (Wilmington, DE) Delrin acetal resin is used in industrial conveyor belt linkage applications particularly in the beverage and electrical industries because of Delrin’s low-wear, low-friction characteristics. Parts including chain links and fasteners require little to no lubrication. Flat-top conveyor chains with very low friction are being made by molding individual flights from Delrin with a silicone oil added during the molding process. Three grades of conveyor flights with coefficients of friction ranging from 0.18-0.12 are available, and come color coded for easy identification. Benefits of Delrin acetal resins in conveyor chain applications also include less noise and the chains consume less energy in operation due to their low friction coefficient, and they last longer than their metal counterparts.

New markets such as alternative energy, as well as mature markets looking to new products, will continue to drive the industrial market. Reduced workforces fueled by the economic slowdown mean that mold suppliers and molders will be asked to step up when engineering assistance is needed. Quickparts’ Patrick Hunter believes that demand in this area will continue to grow.

“They’re needing more help from suppliers, and that includes help ranging from new product design to redesign of an older product to give it new life in a mature market, as well as help in understanding design-for-manufacture to reduce costs and optimize manufacturing,” he states. “We’re seeing fewer companies manufacturing products. They’ve become innovators and marketers, which means engineering at these firms is at a disadvantage. Many of their engineers don’t come from the shop floor, They’re just doing what looks good to marketing. That’s where mold and molding suppliers need to step in and provide this badly needed support.” —[email protected]

And the CEOs said ...

• Senior executives of U.S.-based industrial manufacturers project an average –2.4% growth over the next 12 months; 25% expect positive growth, 34% project zero growth, and 33% expect negative growth.

• Pessimism toward the U.S. and world economies over the next 12 months is in sync, with 70% pessimistic toward the U.S. economy and 69% pessimistic toward the world economy; 5% are optimistic about the U.S. economy and 4% are optimistic about the world economy.

• International sales were up for 28% of those surveyed, and down for 44%. However, industrial manufacturers selling abroad project a solid 37% contribution to total revenue over the next 12 months, above last quarter and last year.

• Only about 12% of respondents said they were looking for growth opportunities through mergers and acquisitions, compared to 17% in 2008.

• Concerns: 85% are concerned about lack of demand; 62% are concerned about decreasing profitability. Other concerns were about available capital and taxation policies that might arise as potential barriers to growth over the next 12 months.

• Costs:
25% reported increased costs of oil/energy and commodities
32% reported decreases
15% raised their prices
33% lowered them

• Future planning:
33% plan to make major new investments of capital over the next 12 months
57% plan operational spending increases, a drop from 64% in the prior quarter and well below last year’s 83%
32% plan to expand to new markets abroad
30% plan for form new strategic alliances
10% plan new hiring
35% will be reducing their workforces, with workforces contracting 3.2% overall on average

Source: PricewaterhouseCoopers’ survey of industrial manufacturing, January 2009