Many extruder makers seeing record sales

This year is going down in the record books for many extruder builders and the history book for one with some more chapters to come about advanced battery technologies and reshoring.

Lebanon, Ore.-based Entek Manufacturing Inc. received a $200 million grant from the U.S. Department of Energy to construct two lithium separator plants that will be equipped with its own twin-screw extruders and associated equipment. Another company division, Entek International, manufactures the battery separator films.

The funding comes from the Bipartisan Infrastructure Law and is part of a $7 billion initiative to build a robust U.S. electric vehicle and energy storage battery supply chain.

"The EV market is finally here, and we're super excited about it and incredibly confident it's the right thing to do — to make our product with U.S. labor to U.S. environmental standards and without risk to imports that could stop at any time," Entek President Kimberly Medford told President Joe Biden during an Oct. 19 news conference.

The goal is to expand domestic manufacturing of batteries for electrical vehicles and the electrical grid as well as materials and components currently imported from other countries, according to Entek Sales Vice President Linda Campbell.

"With this, Entek will be building production equipment for products that are currently being purchased offshore," Campbell said in an email. The products include the battery separators, which Entek manufactures from multilayer films with biaxially oriented ultrahigh-molecular-weight polyethylene.

Medford told Biden how Entek produced separators for lithium batteries in Oregon from 2001-13 with early sales to China.

"So we primarily exported until 2013, when there was a massive decline in our sales because China, through state-sponsored competition and high tariffs, made it really difficult, if not impossible, to compete," Medford said.

"We continued to innovate and remained confident that the U.S. domestic lithium battery market and the EV market would develop here," she added.

The patience paid off. While 2022 had been slower at Entek compared with 2021, there is much excitement about the federal grant, which will help the machine builder scale up production to supply the insulative material for 1.4 million electric vehicles annually.

Meanwhile, for Davis-Standard LLC, a Pawcatuck, Conn.-based manufacturer of extrusion and converting equipment, 2022 will be another year of record sales. Founded in 1848, the machine builder offers 11 product lines for plastics processors in the automotive, consumer products, construction, medical and packaging markets.

"At the moment, all of our end markets are thriving with record delivery numbers for all segments," President and CEO Giovanni Spitale said in an email.

Spitale stepped into the position in February with experience on his resume from machine builder Milacron, which is now part of Hillenbrand Inc.

At Reifenhauser Inc. in Maize, Kan., 2022 started off flat but has since rebounded for the maker of blown and cast film equipment.

"I would say we are over by at least 10 percent now," President and General Manager Steve DeSpain said. "Our strongest markets are all over the place, from trash bags to medical and food packaging with MDO'd [machine-direction orientation] films gaining traction in the North America. Sustainability is the driving force in the market now."

Hosokawa Alpine American Inc. in Northborough, Mass., had an "exceptional" financial year in 2021 and 2022 was a repeat for the blown film extrusion equipment manufacturer serving the flexible packaging market, according to President David Nunes.

"While the range of equipment changed, the bottom-line results were essentially the same," he said, adding many markets remained strong in 2022 with food packaging leading the way.

In McPherson, Kan., Battenfeld-Cincinnati USA is having a strong business year in all market sectors, President and CEO Paul Godwin said. "This is likely influenced by the recovery from COVID-19 constriction," Godwin said of the machine builder for manufacturers of pipes, window and door profiles, conduit for communication cables, and food packaging in the form of boxes, blister packages and sleeves.

Sales flirted with records at Krauss-Maffei Corp., which supplies machines and systems for manufacturing nearly all extruded plastic and rubber products.

"Our extrusion division had one of the strongest years in the history of the company, which is attributed to our experienced hardworking team in Florence, Ky.," Extrusion Sales Director Aaron Gordon said.

A lot of the newly built extruders went to processors serving the construction market, which Gordon said was "very active" in vinyl window replacement, fencing, decking, pipe and recycling applications.

At Windmoeller & Hoelscher Corp. in Lincoln, R.I., President Andrew Wheeler said the company measures its business in years not quarters. "It has been strong and steady. Order intake has never been higher," he added.

Back at Entek, Campbell said 2022 started off strong and then soften midyear as one of the company's two main end markets, which had performed well since the pandemic, weakened. "Packaging remains strong, however, building has slowed," Campbell said. "We attribute this to the increase in interest rates."

Entek's business stayed healthy during the pandemic in 2020 and 2021, but this year brought some headwinds.

"We've seen more of a negative impact recently as a result inflation and interest rate hikes," Campbell said.

Extruders of building materials are facing challenges in the residential construction market while faring better in remodeling markets, where a lot of siding, windows and decking are replaced.

With rising mortgage rates, homeowners are staying in place with an "improve-in-place" mentality, according to Home Depot Chief Financial Officer Richard McPhail.

Building material supply chain disruptions, high inflation and elevated home prices also have hampered the new housing market.

The National Association of Home Builders says housing affordability has fallen to its lowest level since the trade group began tracking in 2012.

"Builder sentiment has declined 10 straight months and worsening affordability conditions remain a top concern as single-family production continues to decline and buyers pull back because of rising interest rates," NAHB Chief Economist Robert Dietz said in a Nov. 10 news release.

The best way to reduce housing costs is to boost supply, Dietz said. "Policymakers must prioritize fixing building material supply chains and easing excessive regulations to help bring down construction costs and enable homebuilders to increase housing production," he said.

While the national median home price fell to $380,000 in the third quarter, it is still the second-highest median price after the $390,000 recorded in the previous quarter.

Meanwhile, mortgage rates are up. At the end of October, the 30-year fixed-rate mortgage topped 7 percent for the first time since April 2002, according to Freddie Mac.

NAHB is forecasting that the remodeling sector will hang on during this housing contraction.

"The growth rate for improvement spending will slow due to declines for existing home sales," Dietz told CNBC. "However, an aging housing stock, work-from-home trends and a decline for household mobility all favor remodeling spending."

Back in the production halls, the supply chain is a challenge for most machine builders. At Davis-Standard, Spitale said raw material supplies are improving, "but areas such as electrical/electronic components continue to be volatile with longer lead times."

DeSpain feels the pain at Reifenhauser: "Supply issues are our biggest headache now, in particular drives and PLCs [programmable logic controllers]. After that, shipping is another issue with the shortage of containers and truck drivers; it just adds to the problem."

Battenfeld-Cincinnati's Godwin put it this way: "Supply chain issues are the new norm."

Entek's Campbell added, "The biggest challenge has been around motors and drives and other electrical components."

At Krauss-Maffei, Gordon said, "The chip shortage is still a continuing issue that is affecting all companies globally. We are currently looking at other solutions in-house where we have more control of the situation."

At one point, moving products by air, water, rail and truck was fraught with headaches and higher costs. All logistical methods were extremely strained, Spitale said. "We see that improving and costs coming back in line, but it is far from normalizing," he added.

DeSpain said shipping challenges are widespread.

"The additional costs — more than double — are terrible and then the availability of ships and the delays at the ports only slows things down even more," DeSpain said. "We used to quote freight costs for our customers but can no longer do this because of the volatility of costs."

Gordon said the biggest challenge for Krauss-Maffei has been sea transportation, particularly the delay in ships departing from their ports and the shortage of booking options on ships.

The shipping delays are a leading contributor to the increased lead times, Godwin added.

Freight has been the big challenge for Entek along with the costs for raw materials and purchased components continuing to climb rapidly. "Keeping on top of the price increases and managing that against our estimated costs has required us to assign resources to focusing just on freight costs and how to get creative on ways to reduce them," Campbell said.

Like Entek, other plastics processors are investing in new extruders as part of efforts to reshore manufacturing.

Krauss-Maffei's Gordon said, "There has been a move of companies starting U.S.-based manufacturing facilities for consumer products that were mostly made overseas in years past so that manufacturing control and deliveries become easier."

However, Battenfeld-Cincinnati's Godwin said he doesn't see reshoring projects influencing any machine sales, while Davis-Standard's Spitale sees projects moving forward "in a measured way."

"Nothing is free, and tight labor markets across North America and Europe present challenges with reshoring," Spitale said. "While the pandemic and the lingering effects are a factor, it is not the only one we are watching and evaluating."

At Entek, company officials said they look forward to creating more American jobs to produce advanced technologies. "We need to build our supply chain that our customers and the American consumer can really trust," Medford said.

At the news conference with Biden, Medford said she expects the U.S. battery and EV markets to grow rapidly.

"We know speed and scale are important, and we're vertically integrated to make the most of our own production equipment and are ready with our investments in both Oregon and Nevada to produce that equipment and scale rapidly," Medford said.

Presidential web meetings aside, for the most part, business is back to the pre-pandemic norm for extruder builders.

"We are very happy to see that most face-to-face visits have resumed," Entek's Campbell said.

So are Krauss-Maffei's Gordon and Battenfeld-Cincinnati's Godwin.

Meanwhile, at Reifenhauser, DeSpain said the number of in-person meetings has increased, but there must be "a real reason" for them.

"We still do a lot of Teams and Zoom meetings, and I think this will continue," he said. "I do not see it ever getting back to pre-pandemic levels as too many companies have realized just how efficient these mediums can be. They can't replace in-person meetings 100 percent, but for a lot of these meetings they work just fine."

Heading into the new year, Davis-Standard officials won't be surprised if there's a tapering of new capacity demands, Spitale said, but they remain optimistic. The company will continue to focus on delivering novel solutions for customers that will be augmented with high service levels, Spitale said. He summed up the company outlook as "blue sky ahead."

"While changes and shifts create pause for critical thinking and deliberation, we are generally very bullish about the future," Spitale said.

At Reifenhauser, DeSpain expects 2022 and 2023 to both be strong years.

"We have a strong backlog and a full pipeline, so 2023 looks to be a pretty good year," he said.

Worldwide sustainability efforts will drive some of the extruder sales.

"Many of the CPGs [consumer packaged goods producers] have made bold statements related to sustainability by 2025, and this is coming at us fast, and the market needs to respond," DeSpain said. "Again, whether it is a PET replacement in structures to create an all-PE product for recyclability or the technology to add at least 25 percent PCR into products, these are the hot topics right now."

At W&H, Wheeler said the business outlook for 2023 is "excellent" based on feedback from customers at the K show and a simultaneous expo held at the W&H Technology Center in Germany as well as the company's stable end markets for food and medical packaging.

"This type of packaging is always needed, and flexible packaging offers exceptional benefits for these types of products," Wheeler said.

Nunes agreed with his industry counterparts for the most part — but with a caveat for what's on the horizon: "Due to a strong backlog, the outlook is very good. However, rising interest rates and the real possibility of a pending recession could dampen the outlook beyond 2023."

Wheeler said interest rates haven't affected W&H business yet, but they likely will.

"That said, there are still extremely attractive incentives on new capital equipment. These will continue to help companies invest in capital machinery," Wheeler added.

At Battenfeld-Cincinnati, Godwin said, "Based on economic evaluations and customer input, we expect 2023 to be a stable year."

At Entek, Campbell said the outlook calls for "a slower-than-normal Q1, with projects starting to pick up in midyear."

Krauss-Maffei's Gordon doesn't see many signs of a slowing business climate going into 2023.

"Currently, the interest from customers in adding lines to grow their business seems to be strong as proof from increased quotation activity and higher attendance at the many industry trade shows," he said.

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