New Compounding Capacity Expected Online Soon, Keeping Future Capacity Investments Minimal

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Researched by Industrial lnfo Resources (Sugar Land, Texas)--Even prior to the economic meltdown that began across the globe in the summer of 2008, the plastics compounding business had begun to slow and show signs of weakness here in North America. This segment of the Chemical Processing Industry (CPI) has historically followed the spending and investment habits of general industry as many of its products are driven by consumer demand. Considering the large number of automotive and tier suppliers in the United States that have ceased production over the past several months, it isn't surprising that investments in new compounding capacity will be limited for the near future.

Sumika Polymer Compounds America (New York, New York) has completed construction of a new polypropylene compounding plant in Griffin, Georgia, that cost an estimated $30 million to construct. Sumika Polymer is in the final phases of validation and start-up with commercial operations expected to begin in the very near future. This will be the second compounding plant to begin operations this year. Louisiana Elastomer LLC (Abbeville, Louisiana) completed construction of a new plant in Abbeville, referred to as its Vidalia plant site, late last year and began commercial operations in the first quarter of 2009.

These two new plants will likely be the only significant amount of new capacity seen in this segment of the CPI for quite some time or at least until consumer driven markets return to level of healthy demand. PolyOne Corporation (NYSE:POL) (Avon Lake, Ohio), along with several majors of this industry segment, have consolidated or closed compounding capacity during the past several years. PolyOne has permanently ceased operations at three locations this year already and at least one production unit elsewhere, and the dismantlement or sale of these assets is already under way.

Outside of the few projects mentioned already, the remainder of spending planned to get under way this year is limited to very small incremental capacity increases, maintenance spending and new capacity to meet the need of tolled clients or niche markets. Colortech Incorporated (Brampton, Ontario) is one of the few producers considering an expansion this year where construction could begin during 2009.

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