While some warn that high demand and low supply have landed the PVC pipe industry in its worst predicament ever, many others say to enjoy these flush market conditions while you can. "Almost every pipe company I know of is having serious problems with production," said an Atlanta-based PVC pipe dealer.
He claims the industry is oversold by about 20 percent, and there just isn't enough resin to go around.
In fact, he said, January and February pipe sales are equal to peak construction season numbers usually seen in May and June.
Pipe makers' concerns about having enough resin to produce the pipe needed at construction sites across the country are being spurred by a North American PVC resin market that even the most skeptical of buyers admits is tight.
North American PVC plants are running at more than 90 percent of capacity, with no substantial new capacity set to arrive until Shintech Inc. opens a massive 1 billion-pound-capacity plant in Addis, La., in mid-2001.
But there's a difference between a tight market and one in which pipe manufacturers have to shut down individual lines or plants because there's no resin to be had, according to several resin makers and pipe producers that were contacted.
The consensus feeling is that there's no cause for alarm, even if pipe makers are starting to feel the pinch.
"What happened is that pipe prices got way too low at the tail end of 1998, and the pipe makers realized they weren't being paid a reasonable price for their product," according to a resin industry executive who declined to be identified. "Now they're coming out of a good year, profit-wise, and they need more material to keep things rolling," he added.
In the meantime, some pipe industry insiders warn PVC producers that continuing price hikes and the lack of available resin could backfire.
"What goes around will come around," said George Coleman, an industry consultant in Houston. "Right now, the resin people have the hammer and they're hammering the pipe guys pretty good. They're making the pipe companies dance."
Backlogs as usual
Pipe extruders have two to six weeks of orders backlogged — a little longer than usual but nothing to balk over, according to some executives.
"We've always had a backlog. It's a healthy way to run a business," said Uponor North America President Frank Bailor.
National Pipe and Plastics Inc. has a backlog of four to six weeks, but that's normal just before the start of the heavy construction season, according to Armand Olevano, the company's purchasing director.
Pipe for municipal projects, such as underground water pipe, is "very back-ordered," according to Barry Hendrix, vice president of sales at Oxy Vinyls LP, the Dallas-based firm that ranks as North America's largest PVC resin maker.
Hendrix added that the market for plumbing pipe is strengthening after a winter slowdown. Plumbing pipe producers currently are seeking their fifth price increase so far this year, according to Hendrix.
Pipe makers who are heavily backlogged may be at fault for their own situation, a Texas-based pipe maker suggested.
"Some people are heavily backlogged because they hold prices too low for too long and, naturally, when you do that you're going to get a flood of backlog," he said.
Well running dry?
PVC resin producers claim they are supplying contracted amounts of material to their customers, but don't have material available to satisfy additional orders. This could become a larger issue as the traditional spring construction season swings into high gear.
"We're meeting contracted amounts, but there's not much material left after that," said Wayne Morse, senior vice president of vinyls for PVC maker Westlake Group of Houston.
Westlake supplies PVC to its North American Pipe Corp. unit — which ranked sixth in Plastics News' 1999 survey of North American pipe, profile and tubing makers — and sells to other pipe producers as well.
Industry sources also agree that the spot market — where PVC processors could purchase an extra rail car or two of material, often at lower-than-market prices — essentially disappeared when prices began to shoot up in early 1999.
Smaller debottleneckings at plants run by Oxy Vinyls LP, Georgia Gulf Corp. and Borden Chemicals and Plastics LP could alleviate some of this pressure, but none of these projects had been approved as of late March.
Borden provided some much-needed help in February when it reopened its general-purpose PVC plant in Illiopolis, Ill., putting about 200 million pounds of resin back into the market. The plant had not made general purpose PVC since early 1999 because of depressed business conditions at Columbus, Ohio-based Borden.
With that in mind, industry insiders have speculated that Westlake would do the same at its Pace, Fla., plant that closed in late 1998. Westlake has no plans to do so at this time, according to Wayne Morse.
Morse also dismissed an industry rumor that Westlake was unable to restart the 400 million-pound capacity Pace site because it had transferred machinery from the site to its Calvert City, Ky., plant.
"All of the equipment is still there," he said. "But it would take us about two months to reopen because we'd need to retrain personnel."
Building brings resin
The North American housing market has done its part to keep the pressure on pipe makers to keep up with its needs. New home sales totaled more than 900,000 units in 1999, and U.S. contractors haven't built fewer than 800,000 new homes in a year since 1996.
By comparison, new home sales had dipped to 509,000 units in 1991 before low interest rates and a recharged U.S. economy ignited the market.
With the skyrocketing market for products such as vinyl fencing, decking, siding and windows, it's no wonder there's not enough PVC to satisfy everyone, Coleman said.
"[The pipe manufacturers] are fighting to get the same amount of material they got last year. It's something they should definitely be worried about," he said.
Unusually mild winters also might be a factor in the booming housing market.
"This is the second consecutive year of a very mild winter that has allowed construction to happen almost constantly," the Atlanta pipe dealer said.
Making a switch
Once the Shintech plant comes online, there will be too much resin in the marketplace, forcing prices back down, Olevano predicted.
Until then, with competing materials such as ductile iron and polyethylene grabbing their share of the market, contractors might turn away from PVC pipe because of longer lead times, he said.
But industry officials aren't very concerned about competition from other materials. Westlake's Morse thought the only competition might come in large pipe sizes of 36 inches or more, while Oxy Vinyls' Hendrix downplayed the threat that ductile iron poses to the PVC industry.
"The reality is both PVC and ductile iron are sold out," Hendrix said. "It's a matter of who can have the pipe available at the job site. It doesn't have much to do with price."
Hendrix added that a recent report of a truckload of PVC pipe being stolen in Florida was "a sign of the times" that showed how tight the market was.
Enjoy the ride
Though resin supplies are expected to be tight for quite some time and pipe producers predict they will be oversold throughout the summer, many say stop complaining.
"They should be enjoying the best margins they've had in a long time," Coleman said.
"We're not alarmed. In fact, we're pleased. It's a good time to be in the PVC pipe business," Bailor said.