The torrid pace of U.S. home building and buying recorded in 1996 seems to be slowing, but that doesn't mean 1997 will be a bad year for plastics companies supplying construction materials.
A record 1.48 million new housing starts were recorded last year, up from 1.35 million in 1995, according to the U.S. Census Bureau. And public companies that supply plastic products to the industry generally were reporting continued growth for the first few months of 1997.
But most economic signposts are pointing to a slightly smaller housing and construction market for the next few years.
Recent statistics from the Census Bureau and the National Association of Home Builders point to a possible construction slowdown in 1997.
First-quarter reports from public companies involved in plastic building products generally confirmed that the growth experienced in 1996 continued through the first part of 1997. Positive results have been posted by:
ABT Building Products Corp. The maker of exterior and interior wall products, including vinyl siding and polyethylene shutters, posted quarterly sales of $77 million, a gain of $2.66 million compared with 1996. But officials of the Neenah, Wis., company reported that sales of its plastics products actually declined, especially for the company's shutter and moldings products. Vinyl siding sales still were up 16 percent.
Eagle Pacific Industries Inc. The Minneapolis-based plastic pipe maker sold 10 percent more pounds of pipe in the first quarter of this year, compared with that period in 1996. That increase boosted Eagle Pacific's quarterly sales to $17.2 million — up 8 percent from 1996.
Fibreboard Corp. The Dallas-based building products maker, which Owens Corning has offered to buy, reported record sales in the quarter ended March 31. Sales were up 45 percent. Vinyl siding shipments increased 42 percent for the quarter, compared with 1996, and new acquisitions accounted for much of the company's growth.
Lamson & Sessions Co. The Cleveland PVC pipe and conduit maker secured $68.8 million in sales — the best first-quarter results since 1989. In a letter to shareholders, Chief Executive Officer John B. Schulze said even with housing starts at a reduced level, Lamson still should be able to see market growth.
Owens Corning. Building product sales helped boost the Toledo, Ohio-based company's first-quarter sales to $875 million, up from $849 a year earlier. Building materials accounted for $500 million of those sales, a $30 million gain from 1996.
Ply Gem Industries Inc. The window, siding and door company from New York increased sales 15 percent, to $162.8 million in the quarter ended March 31, compared with 1996. Sales volume accounted for 75 percent of the increase, while higher prices picked up the rest.
Uponor Group. The Espoo, Finland-based polyethylene pipe maker achieved record sales in 1996 with 3.76 billion Finnish markka in sales (US$817 million) worldwide. Sales were up 4.8 percent in the company's home currency, but a majority of the increase was attributed to the weakening of the markka compared with the U.S. dollar and other currencies. The company is predicting that new residential housing in the United States will grow 3.8 percent and renovations will increase 4.7 percent in 1997. Roughly $153 million of the firm's 1996 sales came from North America.
But most securities analysts are calling for a slower, but still strong housing market.
``We expect single-family starts to decline 3 and 4 percent in 1997 and 1998, respectively, from 1996 levels,'' said Ivy Schneider, an analyst with Salomon Bros. in New York.
But the housing market still will be ``fairly healthy,'' especially with the help of a rebound in California.
``Strength in California could offset weakness in the rest of the United States,'' Schneider said.
Smith Barney is predicting a 2.5 percent decrease in single-family home starts for 1997, compared with last year, to be offset by a 7 percent increase in multifamily housing, according to an industry report published in January.
And the NAHB itself is predicting a slight downturn in housing. Total housing starts are expected to drop 4.4 percent in 1997 and another 5.1 percent in 1998, according to figures available at the association's Web site (http:// www.nahb.com). The group also expects existing home sales to drop during the next two years. Interest rates are expected to hover near 8 percent.
According to the latest Census Bureau estimates, construction began on 433,700 new homes through the first four months of 1997 — down about 3 percent from the same period last year.
Starts are not likely to surpass 1996's pace any time soon. Building permits, which generally predict the number of housing starts in the near future, also were down in the first four months of 1997, according to the Census Bureau. About 440,700 permits were issued through April this year, down from 444,800 in the 1996 period.
Other indicators are giving mixed signals, including:
The May Housing Market Index compiled by Washington-based NAHB dropped to 54 (out of 100) from 56. The index, which also declined in April, rates home builders' assessments of the housing market. Generally, home builders painted a slightly gloomier picture of present sales, future sales and traffic of prospective buyers. An index of 50 shows home builders are evenly split — half with a positive outlook, half negative.
While the housing index declined, consumer confidence in general increased to 127.1 in May — a 28-year high, according to the Conference Board, a private research group based in Washington.
Manufactured home production is down from 1996. According to statistics published by the Manufactured Housing Institute, 114,192 manufactured homes were built in the first four months of 1997, down 2.4 percent from 1996. March sales were almost 5 percent of the pace set in 1996, but April sales rebounded to post a 0.1 percent gain from the previous year.
New home sales actually increased in the first four months of the year, to 282,000 from 261,000, according to the Census Bureau. If no new homes were built, the supply of existing new homes theoretically would meet the demand for the next four months. That figure is lower than the 5.2 average for the previous 12 months.
Canadian housing starts were up a seasonally adjusted 4.6 percent in May, reversing an April slump of 7.8 percent, according to the Canada Mortgage and Housing Corp.
Where do plastics companies turn if the housing market declines?
Even with a slowdown of housing, there are still plenty of opportunities,
``We like vinyl,'' Salomon's Schneider said, adding that the predicted slowdown could lead to ``a lot of opportunities for consolidation.''
``The vinyl siding industry is very fragmented,'' she said. ``With increased pressure, we believe there will be more acquisitions of smaller, mom-and-pop operations.''
There also is plenty of market left to capture for siding companies, even with a downturn, Schneider said.
``According to estimates, 15-20 percent of the vinyl siding produced is going to new residential [construction],'' she said. ``It's still an opportunity.''
Salomon Bros. also is predicting steady, 5 percent annual growth through 2002 in an area in which vinyl manufacturers already excel: remodeling.
``With the aging of housing stock, and the demographics of the baby boomers, you are more likely to see consistency in [remodeling] market growth,'' she said.
Schneider noted the Phoenix market's expected decline from about 24,000 housing starts in 1996 to a predicted 21,000 this year.
``That's still pretty damn good,'' she said, adding that 1996's housing base ``is just not sustainable.''