US custom mixers see market expanding

Akron, Ohio -  Custom mixing companies are making the most of a year of strong growth, pushing for expansion and picking up work from producers who are doing less mixing in-house.

"2017 was a record year for us, I think we were up over 20 percent," Alttran President Dave Topliff said. "We've been growing, we've been adding new employees, we're reaching out so there's more opportunity."

Alttran, based in Hudson, Ohio, added new equipment with an investment of at least $250,000 last year to add testing capabilities, he said in a previous interview. The company's increase comes after multiple years of 20-25 percent growth on average, with a few slower years in between. With that kind of backing, Alttran will be looking to put more investment on the technical side of the rubber business, he said.

For Pinnacle Elastomeric Technology of Lula, Ga., 2017 was a comeback year from a sluggish economy from 2015-16, President Bob Rathbun said.

As a producer of high-performance elastomers mainly for the oil and gas field, Pinnacle has a niche role in the wider rubber market, but saw solid growth as the economy recovered, Rathbun said.

"Even though the price of oil was down a bit, I think they were still producing as much gas as they had in the past," Rathbun said. "But '17 was a bounce-back year, and '18 is off to a great start. It's really encouraging for us."

Companies are using that inspiration to build or upgrade with modern, energy-efficient, clean and climate-controlled facilities, said Jim Nixon, general manager for LMI Custom Mixing in Cambridge, Ohio. That includes modernizing equipment, and looking into automation and control systems, as well as lean manufacturing processes in manufacturing compounding and mixing techniques.

Though custom mixing isn't a major focus for Northstar Elastomers as a producer of high-viscosity compounds without the use of solvents, the last year brought an uptick in prospects asking about custom mixing work, said Jim Judson, who works in sales for the firm. Some of those jobs followed a trend of streamlining parts of the production process without using in-house resources.

A recent example was a potential job with a small shoe company in the US that was interested in doing a partnership with Northstar, where they would bring together materials, compounders, molders and other parts of the process all within a 100-mile geographic area, Judson said.

"If you have all the elements of your production in that tight area, you don't have a lot of the costs and other problems that go along with having a dispersed supply chain," Judson said. "The whole concept was very attractive, we thought."

Maintaining a tight supply chain also means more work for custom mixers, as customers occasionally turn to custom mixers rather than maintain in-house mixing operations.

"It is still a mixed market and probably always will be, but there seems to be a growing trend toward outsourced custom mixing," Nixon said.

Among the advantages to outsourcing for custom mixing is to offset part of the capital-intensive business with a high reliance on asset utilisation and a managed supply chain, he said.

"Custom mixers typically have a higher level of raw material purchasing power, and have processes and systems in place to handle high volumes of materials very effectively," he said.

Marian DeVoe, president of Chardon Custom Polymers L.L.C., said it's been a trend for some time, but one that has largely stabilized for established companies. But newer companies just coming into the rubber industry "tend to be more focused on finished product, and look to the custom mixing companies for technical support and saving on capital expenses," she said.

Custom mixers also manage standard and unique regulatory requirements for workplace safety and environmental compliance, which takes another load off of manufacturers, Nixon said.

Bonnie Stuck, president of Akron Rubber Development Laboratory Inc., said an increasing number of rubber product manufacturers don't want to mix their own compounds because of the difficult regulatory environment. She said the situation is extreme in Europe, but is becoming more predominant in the U.S. as well.

"A lot of people don't want to face the regulatory issues, so they don't want to have a rubber chemist on staff, so they make the decision to go to a rubber mixer," she said.

Technical support

Custom mixers such as Chardon Custom Polymers in Chardon, Ohio, also provide technical support for customers as the rubber sector still seems to have a problem attracting young technical people interested in the business, DeVoe said.

"For many of our customers we act as their technical arm on materials or as an adjunct to their engineering group to support them technically," DeVoe said, noting that her firm tends to develop its own young technical talent.

"That pool of talent is dried up and is either retired or retiring," said Topliff, as manufacturers have had fewer opportunities to train young chemical engineers who could then go back out into the rubber industry to serve as technical directors. "What used to happen that way just doesn't happen anymore. I see more and more people trying to get younger people involved in the technical aspects of rubber."

But the current drying up of the young technical talent pool in the industry contributes to the trend moving away from in-house mixing as well, Topliff said.

"These companies, when they mix, they don't have the technical expertise," Topliff said. "They say they're going to invest a million dollars in new equipment because they need it, but who's going to take responsibility for all that? It's a big deal. If you don't have the technical expertise, a better decision is to farm it out."

Another trend is on-shoring of rubber industry jobs as the U.S. becomes a more attractive environment for business overall. On-shoring is something that's happening across many industries, not just rubber, as companies in the US become more competitive, and foreign costs related to both labour and environmental and safety standards are increasing as well, according to DeVoe.

Topliff said the trend has been continuing for the last two to three years, as he hears from customers like molders and extruders that there are more opportunities appearing domestically.

"To me, people are really seeing the true costs of getting all of their materials from overseas," he said. "Before, they would just see a cheap price. But they didn't think about: 'If I have a bad product, how am I going to get rid of that? How do I talk to somebody to change this spec right away?' Why not just do it here?"

Also, most custom mixers are relatively shielded from off-shore foreign competition because of the fact that mixed rubber compounds with curative are perishable goods with a finite shelf life, and shipping rubber long distances presents a variety of packaging and logistical challenges, Nixon said.

Finding a niche

Market consolidation has been a major trend for custom mixers in the recent years, as smaller custom mixers are purchased by larger companies, Topliff said.

"Certainly the big boys have been buying up the little ones. I don't expect that to stop," he said.

Companies like Hexpol AB and Preferred Compounding Corp. have led the overall consolidation, especially with an eye toward globalization, Rathbun said. That consolidation trend will continue, though "I don't know who else there is to buy," he said.

DeVoe expects there to be some more consolidation in the custom mixing business, but there may not be as many opportunities as in the past, she said.

"You have a few companies out there very actively trying to purchase anybody with any custom mixing capability, or any mixing capability at all, to help their growth strategies," she said.

That strategy might create new opportunities for smaller companies to gain some business, Rathbun said.

"Sometimes that doesn't sit well with customers, this consolidation, because they feel the bigger they get, the smaller I get," he said. "I'd say that's a big challenge for the people that are consolidating, to keep that service level up and the intimacy levels with their customers up."

Pinnacle has seen a small amount of fallout from acquired companies, with a few companies calling up to request quotes for business, Rathbun said.

"Right when it happens, it seems like people panic a little bit. It's emotional as well as realistic in some ways," Rathbun said.

Stuck said that even with the consolidation in recent years in the custom mixing arena, smaller compounders still can carve out a niche in the market, particularly in such applications as oil and gas or aerospace, where materials are dealing with more extreme environments.

"I think there's room for the people who are smaller who do high-end jobs and do things that are more specialized, value-added mixing," she said.

Maintaining a niche in the larger market is especially important now as larger companies bring on additional mixing capabilities, Judson said.

"There's so many types of mixing needed in the chemical industry, and so many companies can probably do that mixing. We like the idea that there are very specific types of applications that our equipment and our technology fits perfectly because we've got some advantages that we offer in low production cost and the benefits of green technology," he said. "Being niche, to me, is really important."

No custom mixing business can be good at everything, and a custom mixer should play to its strengths while maintaining a firm understanding of its weaknesses, Nixon said.

"The name of the game is continuous improvement and staying agile as a business to capture a new opportunity, or adapt to a new market challenge. At LMI, we encourage both risk-taking and embrace failure," he said. "Both are very much part of the learning process, and particularly important to new product development."

Whatever any company's strategy or business model is, you have to be able to execute it, DeVoe said. Many of the firm's competitors, she said, are successful at high-volume, lower-margin type products, or with continuous manufacturing processes.

"You can also be successful as more of a job shop and a specialty niche supplier, and that is the area that we focus on," she said. "We offer more personalized, value-added services. We feel we excel in our technical support and development, and building long-term relationships with our customer base."

DeVoe said it all comes down to demand for services, fiscal discipline, quality and customer satisfaction.

"If you're not satisfying the customer with a good quality product, at the end of the day, you're not going to be around," she said.

Moving into a niche market can be difficult for custom mixers that aren't already geared toward one, Rathbun said. One company makes an investment to make an additional four cents per pound on a compound, whereas the focus of a company like Pinnacle is to make an additional $1.25 per pound on a specialised compound.

"You either are, or you aren't," he said.

Making that move is especially difficult when the market is at a busy pace, as there's less capacity for experimentation in specialty areas, he said. That can change when the market is slower and companies have excess capacity to work with or upgrade to bring in new capabilities.

"That's when we start seeing competition," he said. "But when they're full, they don't mess with us that much."

Growing market

DeVoe said GDP growth in the US globally has had a long, steady, moderate growth over the last several years, and Chardon Polymers hopes to see that continue. She added that her firm has been growing at a much higher rate than GDP, largely because the custom mixer started in 2010 and was working from a smaller base.

"We also have a very diverse and broad spectrum of customers, which helps," she said.

That market growth will be enhanced if manufacturing in North America, and specifically in the US, remains supported, Nixon said.

"Recent changes in US corporate tax rates should allow companies to compete with other areas of the world, which could create additional stimulus for domestic manufacturing," he said.

Topliff sees more potential in the growing industry, especially as on-shoring continues and more customers need a good technical eye for compounding. Going forward, Alttran plans to spend more on hiring, technical capabilities and production to prepare for the upcoming year.

"I would say the opportunity for growth is certainly there," he said. "It's not just the mixing. It's the technical aspects of the whole rubber market, and they need somebody else to help them. We're very excited about 2018."