March 24, 2004

The Honorable Donald Manzullo
Chairman, House Small Business Committee
Room 2361 Rayburn House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

The Society of the Plastics Industry, Inc. (SPI) is pleased to provide testimony for the record for the Small Business Committee's March 25 hearing on metal prices and job creation. Founded in 1937, SPI is the trade association representing one of the largest manufacturing industries in the United States. SPI's members represent the entire plastics industry supply chain, including processors, machinery and equipment manufacturers and raw materials suppliers. The U.S. plastics industry employs 1.4 million workers and provides nearly $310 billion in annual shipments. More information about the association and its members can be found on the Web at www.plasticsindustry.org.

The plastics industry may not seem like an obvious casualty in the current situation with escalating steel prices. However, as noted, SPI's membership includes the manufacturers of molds, components and plastics production machinery that are made almost exclusively of metal and steel. In addition, plastics processors, the fourth largest manufacturing industry in this country, cannot make plastics products without equipment, machinery and molds that are made from steel. Processors and equipment suppliers are getting squeezed by higher health insurance premiums, product liability costs that result in needless litigation, skyrocketing energy prices and intense global competition. The rising costs of steel can only make the situation worse. Much worse.

The recent surge in steel prices has sent the plastics equipment industry reeling just when the industry thought its worse years on record were behind them. Overall plastics employment declined more than 9 percent from 2001 to 2002 due to the manufacturing recession and an increasingly competitive global environment. Some key plastics industry states saw even higher employment declines. For example, Michigan's plastics employment declined nearly 15 percent; plastics employment in Illinois dropped more than 10 percent and a decline of nearly 12 percent occurred in North Carolina.

SPI recently asked its members to tell their stories about how the price of steel has impacted them. Below are excerpts:

"We have seen increases across the board of 20 percent over the last three to four months. There have been numerous times when we have paid 60 percent or more. While we try to pass through increases whenever possible, deep cuts will continue until we can increase our margins. We just lost a $100,000 order from a customer that bought from Korea. Their price was 40-percent less that our price and the squeeze, we feel, is coming from China, which is buying steel at unprecedented rates. Panic buying is stripping the supply, and people are taking advantage of it to near unethical levels." An equipment manufacturer in Wisconsin.

"Beginning in April 2004, our steel supplier is charging us a monthly 5- to20-percent surcharge, which is announced monthly. This highly variable surcharge fluctuates as the Chinese are buying up supplies of key domestic steel raw materials. We have no ability to pass this cost on to our customers due to high pricing competition in these lean times. We therefore project a significant margin impact going forward." An equipment manufacturer in Virginia.

"We are experiencing price increases of more than 33 percent in 2004 over 2003. This has a huge detrimental impact on our competitiveness internationally. The steel industry will not guarantee pricing at this time beyond the current 30-day period; however, both pricing and surcharges are changed without notice or consideration of firm/confirmed purchase order agreements. The current administration took steps to protect the steel industry in 2002; now it is time to take positive action to assist all of U.S. manufacturing." An equipment manufacturer in Virginia.

"Customers are deferring some projects until this settles down. Steel price increases and availability decreases coupled with delayed projects and deferred orders will have a significant negative effect on our industry just when we were seeing signs of a recovery. There will be no plans to add any jobs. A plastics equipment manufacturer in Pennsylvania.

"Due to the economic downturn and global competition we have been in a cost-reduction/efficiency-improvement mode for several years and certainly we have already been forced to cut benefits and research and development. These price increases in steel have put us back to square one. Now our steel suppliers have warned us that availability is going to be a problem soon. We are gravely concerned about the steel price increases but are even more concerned that we may not be able to win orders because raw material is not available!" A plastics equipment manufacturer in Michigan.

"While we have not let jobs go, our current hiring freeze is ongoing. What has most suffered are the margins, especially on projects that have been quoted, as the prices have been going up monthly and even faster." A plastics equipment manufacturer in New York.

"Our biggest fear is increases in the future affecting work we have already quoted. Our customers will not allow us to re-quote work adding cost or time. This puts our industry and my company in a lose, lose position." A plastics equipment manufacturer in Ohio.

"We have seen almost every supplier that incorporates any form of steel in their product raise prices. These 'second-tier' increases have been in the 6- to 22-percent range. We are now seeing increases from our 'third-tier' suppliers, ranging from 3 to10 percent. This is in addition to the up to 25-percent increases in the price we pay for carbon, stainless and structural steel. This is having a dramatic and instant impact on our margins and profitability. Therefore, we do not project any new hires for 2004. Furthermore, the price increases, coupled with the fluctuating exchange rate of the dollar, will weaken our international position." A plastics equipment manufacturer in Maryland.

"We have experienced dramatic increases in steel, plate and shapes that has reduced our ability to remain competitive in the global market. Not only has the price increased an incredible 30 percent, the price changes daily. We either increase our pricing, accept lower margins, or allow this to drive us out of the market or, worse case, out of business. Because certain steel sheet is not even available I am forced to "make do" with substandard materials. Is this anyway to run a business in the most powerful nation on Earth?" A plastics equipment manufacturer in Georgia.

In addition to these comments directly from manufacturers regarding steel, the Committee should be aware of the current plastics trade position as global competition, coupled with the increasing price of steel, is a serious situation indeed. In the past few years, devastating economic conditions and ruinous domestic and international policies have coalesced to drive companies out of business or offshore, force workers into unemployment and, in just two years, according to U.S. data, cause the industry's $894-million trade surplus in products to plummet to a $1.4-billion trade deficit. To make matters worse, when all the diverse applications not counted under the government's definition of "plastics" are added to the equation, results show that from 1998-2002, the "true" deficit for plastics increased 229 percent to a whopping $14 billion.

SPI has expressed its support for a number of proposals that would help improve the competitiveness of U.S. plastics manufacturers. These include an energy bill that would increase supply of natural gas, product liability legislation to release the stranglehold the legal system has on U.S. manufacturers and enforcement of existing trade laws on our trading partners. However, the steel situation defies any easy answers and, unfortunately, SPI does not have a "silver bullet" suggestion to provide a remedy. However, we are hopeful that providing such real-world examples as we have here today will help focus Congress's attention on the issue - eventually leading to a meaningful solution.

SPI thanks you for this opportunity to voice its concerns. Please contact me at 202/974-5281 or by e-mail at landerso@socplas.org if you have any questions or would like to discuss this further.

Sincerely,

Lori M. Anderson
Strategic Planning and Industry Relations Officer

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