Custom Compounding of Purchased Plastics Resins

SIC 3087

Companies in this industry

Industry report:

Custom compounding companies purchase plastic resins from plastic manufacturers. They alter and manipulate the resins to form new compounds, which they usually sell to companies making plastic products. They contribute to the plastic manufacturing process by upgrading the quality and performance of resins, improving the efficiency of the compounding process, and developing entirely new plastic substances. Custom compounding emerged as a separate industry during the 1980s and is credited with increasing the breadth of the U.S. plastics business during that decade. About one-third of all U.S. polymer production undergoes some sort of compounding.

Industry Snapshot

According to industry statistics, there were an estimated 190 establishments engaged in custom compounding of purchased plastics resins in 2008, down from the 579 reported in the mid-2000s. On average, each establishment employed approximately 52 employees and generated revenues of $14.8 million. The industry was valued at $1.47 billion with industry-wide employment of 8,901 workers. The majority of establishments were located in Illinois, California, Ohio, Tennessee, and Minnesota.

Organization and Structure

Plastics are extremely long polymers, or long-chain molecules, which are shaped and molded under heat and pressure to form a resin. Resins typically take the form of pellets, flakes, powder, granules, or liquid. Although many resin manufacturers process their own resins and even make plastic products, they often sell resins to companies that make custom compounds. Custom compounders alter the physical properties of the resins they purchase by mixing or melt-state blending several resins together, introducing additives, or adding fillers and reinforcements. An almost infinite number of compounds, each with varying grades and performance characteristics, can be created.

Several categories of additives are used to make compounds. Plasticizers, the most common additives, are chemicals that increase a resin's flexibility. Similarly, impact modifiers increase stress resistance. Plasticizers and impact modifiers are used, for example, to increase the resilience of plastic automobile body panels or to make polyvinyl chloride (PVC) resins that are used in construction materials. Various stabilizers and antioxidants are used to retard the oxidation and breakdown of resins that results from exposure to heat, light, air, and moisture. Heat stabilizers, for instance, help resins retain their physical structure during processing. Flame retardants are added to reduce flammability, and colorants are used to change a resin's hue.

Fillers and reinforcements are used to add texture, strength, and other characteristics to resins without changing their polymer structure. Examples of fillers are cotton and asbestos flocks, glass fibers, chopped monofilaments, carbon fibers, hollow glass spheres, metal powder, and carbon. Glass fiber, which is integrated as whole or chopped mat, and carbon fiber have traditionally accounted for the majority of filler and reinforcement material used in the plastics industry.

Plastic compounding companies work with and create four general grades of resins and compounds. Commodity resins, which receive little attention in this industry, are low-tech plastics made with standardized formulas. Intermediate resins are slightly more advanced. Engineering resins exhibit higher performance characteristics. Advanced resin compounds, the most expensive class, are those most able to withstand exposure to heat, weight, impact, acids, and other forces. They are typically used for applications in aerospace, microelectronics, and other high-tech industries.

Background and Development

The first plastic, a natural material called keratin, was developed in the early 1700s. Parkesine, the first synthetic plastic, was invented in 1862 by the Englishman Alexander Parkes, but it was the American John Wyatt who recognized the important plasticizing effect of the parkesine production process. Wyatt renamed the substance celluloid in 1870 and is recognized as the founder of modern plastic making in the United States.

The use of plastics increased rapidly during the early 1900s as processing techniques evolved, such as molding. Compounding occurred, but in relatively simple ways. Resins were combined with paints and varnishes, for example, to increase their durability. During World War II, more advanced compounding processes were used for the first time on a broad scale to make items such as airplane gun turret covers and lightweight field equipment. Huge advances in the chemical additives industry during the 1950s, 1960s, and 1970s created a strong demand for new compounds with specific characteristics. As compounders learned to make resins more flexible, durable, attractive, and flame retardant, the need for plastics compounds grew. By the early 1980s, the plastics industry was shipping $15 billion worth of resins, about 30 percent of which were compounded by resin manufacturers or plastic goods producers.

During the 1980s, the U.S. plastics industry began to shift its focus from commodity-like resins and compounds to higher grade products that could be used to replace steel, glass, and other natural, more expensive materials. The development of high-tech additives and alloys allowed U.S. producers to retain their global industry lead in spite of fierce foreign competition from low-cost manufacturers. As the need for advanced, efficient compounding processes expanded, custom compounding firms proliferated.

By 1987, custom compounders processed about 8.5 billion pounds of resins annually, grossing $2.5 billion. Despite a late 1980s recession, production volume jumped to 12.5 billion pounds by 1990, and industry revenues climbed to $5.1 billion by 1993, reflecting average annual sales growth of 8 percent between 1987 and 1993. As plastics consumers increasingly sought the expertise and efficiency of custom compounding companies, revenues swelled at a rate of 7 to 10 percent annually during the early 1990s.

The plastics custom compounding market was strong in the late 1990s because the automotive, electronics, appliance, and construction industries, which were the key consumers of plastic, flourished in the booming U.S. economy. The strength of the automotive industry played a particularly key role in custom compounders' success. By the late 1990s, 25 percent of all plastic compounds were used in that industry, and in 1999 car sales reached an all-time high of over 18 million vehicles. The auto industry increasingly turned to custom compounders to produce inexpensive plastic parts that could be engineered for a set purpose. Underhood and seating applications were the most common new uses for plastic compounds.

The electronics and appliance industries were equally healthy, and they further drove demand for custom compounded plastics. While appliances accounted for about 13 percent of the total market for custom compounds, plastics' role in the sector was expected to increase. As plastic increasingly came to supplant metal in small appliances such as toasters, blenders, and mixers, custom compounders looked forward to burgeoning sales to appliance makers. Moreover, consumers' growing use of personal computers and portable electronics (such as pagers and cellular phones) assured plastic compounders a stable future market.

Some of the challenges the industry faced in the mid-2000s included rapidly escalating resin prices and rising oil prices, which significantly drove up operating costs. For example, the cost of materials grew from $4.4 billion in 2002 to $5.7 billion in 2005. Moreover, producers could not simply pass the increased costs along to their customers, who as the end users of plastic compounds were reluctant to pay a higher price, since cheaper import compounds were gaining a foothold in the market.

Despite these challenges and the drop in industry establishments from 829 in 1999 to 579 in 2002, the plastic resin industry continued to grow through the mid-2000s. According to the Society of the Plastics Industry, the U.S. plastics industry was the fourth-largest manufacturing market in 2004. In 2004, production grew to 115.2 billion pounds, up 8.2 percent from the previous year. Sales also rose 7 percent, the highest growth rate since 1996.

About 30 percent of the resin produced in 2004 was used for packaging, 22 percent went to consumer and institutional use, 18 percent was for building and construction, and 11 percent was exported. The remaining percentage went to other markets, including transportation, furniture, electronic/electrical, and other uses.

Net trade in plastics also improved in the mid-2000s. U.S. exports of plastic resins rose 18.9 percent in 2004 to $24.9 billion, and imports rose 17 percent to $14.2 billion, resulting in a net surplus of $10.6 billon in 2004. Markets in East Asia were particularly strong in the mid-2000s.

Current Conditions

Consolidation and streamlining was at the forefront of the compounding of purchased plastics resins industry as the global economy worsened in mid-2008. Industry leader PolyOne Corporation cut nearly 400 jobs, and closed three plants, and A. Schulman, Inc. also cut 160 jobs and reduced output at two of its plants.

U.S. exports and imports increased in 2008; however, apparent consumption of plastics fell 1.7 percent compared to 1.3 percent a year earlier. Still, the U.S. was responsible for 80 percent of plastics and resins production. By 2009, demand began to rise again, albeit slowly.

Despite the limited outlook within the plastics and resins industry, one industry watcher did anticipate a turnaround. Based on a study conducted by BCC Research of Wellesley, Massachusetts, the industry was projected to produce 11 billion pounds of material in 2009 and roughly 13 billion pounds by 2014.

Industry Leaders

In the mid-2000s, PolyOne Corporation of Avon Lake, Ohio, was a leader in the plastics compounding industry. Formed by the 2000 merger of plastics companies Geon and M.A. Hanna, PolyOne had 2008 sales of $2.7 billion and 4,400 employees. The company added a Specialty Engineered Materials sector that included subsidiary GLS Corporation's thermoplastic elastomers (TPE) business in 2008. Another leader was A. Schulman, Inc. of Akron, Ohio, with $1.2 billion in 2009 sales and 2,000 employees. LNP Engineering Plastics of Exton, Pennsylvania, was owned by GE Plastics, which was acquired by Saudi Basic Industries Corporation (SABIC) in May 2007 for $11.6 billion. Based in Houston, Texas, SABIC Americas has had operations in the U.S. for 20 years, partnering with leading companies like ExxonMobil and Shell. The company reported revenues of $40.1 billion in 2008 with 31,000 employees in 2007. LNP had 11 plants worldwide and served mainly the automotive, health care, technology, and industrial markets.


There were 20,167 employees in this industry in 2005, compared to 21,463 in 2002. By 2008, that total had plummeted to 8,901 employees. In fact, between October 2008 and June 2009, the industry shed some 100,000 jobs. In the meantime, the Washington-based Society of the Plastics Industry Inc. was working closely with the Council of Manufacturing Associations to determine how the economic meltdown could affect the turnaround in employment.

Research and Technology

A technological focal point in the mid-2000s was the development of techniques that allowed resin processors to create compounds and alloys while extruding plastic into molds. By melting and mixing compounds during the molding process, processors were able to eliminate problems caused by heating resins twice. Such compound/molding techniques resulted in higher performance and less expensive plastic products. Specifically, new grades of materials created using these new compounding techniques were capable of making products with thinner walls, greater product uniformity, and more even molecular distribution. These improvements allowed for increased use of plastics in automobiles and packaging industries, for example.

Significant expenditures were also being directed toward the development of new environmentally safe compounds. Companies attempted to meet new chlorofluorocarbon (CFC) emission regulations by developing compounds that would not require hazardous manufacturing processes. Similarly, new additives and compounds were under development that would accelerate the natural breakdown of plastics products and reduce landfill waste. Although technologies like weak-link and bacterial polymers showed promise, extremely high production costs made them commercially impractical for most purposes.

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