AKRON, OHIO (Feb. 3, 9 a.m. EST) — Polyethylene pipe makers struggled last year in a market plagued by a collapse in the telecommunications segment, unstable resin pricing and weak demand.
Needless to say, confidence is not the reigning attitude, especially as resin prices trend upward.
“I'd like to say I see 2003 a lot better,” said Paul Van Warmerdam, president of KWH Pipe Canada Ltd. “But there's nothing in the market to indicate that it will be better.”
Several federal funding initiatives make sources hopeful, but the industry can't ignore one salient fact: States are facing severe budget crunches, which makes it less likely that they'll be able to match federal funds on projects such as highways.
“I'm not optimistic,” said Tom Walsh, a Houston-based consultant. “Next year is uncertain.”
You could blame telecommunications customers. Utilization rates in solid-wall pipe production have been well below historical rates for the past two years due to the death of that business. The conduit market has gone from 550 million pounds in 1997 to roughly 150 million pounds now, according to industry sources.
“Our statistical analysis looks like 75 percent in terms of volume decline from mid-2000,” said Richard Kraft, vice president of sales and marketing with Endot Industries Inc. in Rockaway, N.J. “From what we see in the marketplace, there's nothing that would indicate a return to the heyday.”
Walsh predicts 3 percent growth for the overall industry from 2002-03. Longer-term growth could be better, edging up to nearly 5 percent, he said in a Jan. 13 telephone interview.
“We should at least parallel [gross domestic product] growth in many market segments,” Walsh said. “I do not believe telecomm will come back.”
During the telecomm heyday, many large companies installed extra conduit, much of which remains empty.
Still, there may be a ray of hope for nonpressure applications: Several states are pushing initiatives to bury utilities. If one state passes legislation, it could influence others to make similar moves, officials said.
“This is what could help conduit business to recover somewhat,” Walsh said.
Many firms that produced conduit now are turning to the more-stable water market, where performance is tied to housing starts. Housing starts are expected to decline slightly in 2003: 1.63 million starts this year, down from 1.69 million in 2002, according to the National Association of Home Builders in Washington.
Similarly, certain infrastructure projects will have to be funded no matter what, officials said. The Clean Water Infrastructure Financing Act of 2003 is giving officials hope: The bill, introduced recently to the House of Representatives, would provide $25 billion over five years for the state revolving fund used for water and waste-water infrastructure repairs and upgrades.
“That is a drop in the bucket for what's needed out there,” said Rich Gottwald, executive director of the Washington-based Plastics Pipe Institute. “It's a small step in the right direction. As infrastructure debate takes shape, we're going to be well-positioned to have a positive role in the future.”
Kraft said 2003 means expansion for Endot. The firm plans to select its fourth site soon for growth in the West.
“We're working on a number of options and we're hopeful that it will happen soon,” Kraft said.
Water pipe is a steady, ongoing business for Endot, and the firm had not committed all of its resources to telecommunications.
“We were very skeptical of where it was going,” Kraft said.
The firm operates facilities in Greeneville, Tenn., and South Point, Ohio, in addition to its headquarters facility. Endot makes conduit, plus small-diameter pipe for residential water wells, municipal and lawn irrigation.
“We feel confident that business will be relatively stable next year,” Kraft said. “Some of our growth has been market share and unique branding efforts to identify Endot's products from the rest.”
Charter Plastics Inc. is confident that its business will remain steady in 2003. The Titusville, Pa.-based firm will have new production capability by the end of the year. It embarked on a $10 million expansion in 2000 that will result in two full production facilities.
“What we've seen is growth in some of those small-diameter-pipe markets in the water industry, so that certainly has been a growth area for us,” said Donna Stoughton, director of sales and marketing.
The firm is converting a former foundry from 90,000 square feet to 165,000 square feet. The building is across the street from its original, 150,000-square-foot facility. The new facility will be equipped with two extrusion lines, with room to grow as needed, Stoughton said.
If Rinker Materials Polypipe Division's predictions become reality, pressure-pipe markets will see their third consecutive year of decline in 2003.
“We would see next year's market being down slightly from this last year, say 1 percent to 5 percent,” said Dave Fordyce, general manager of Rinker, based in Gainesville, Texas.
“The only thing we see saving 2003 is the shutting of excess capacity by higher-cost competitors,” he said in a Jan. 13 telephone interview. “Unless supply balance comes back into play, next year will be a very tough year for pipe producers. That's the only salvation I see for 2003, because we don't see a demand uptick.”
The firm produces half-inch to 54-inch pipe for markets including gas distribution, municipal water and sewer, irrigation and industrial.
KWH in October closed its facility in Shafter, Calif., where it produced large-diameter pipe. The United States remains a strategic part of business, representing “a significant” portion of sales, Van Warmerdam said.
“Financially, [Shafter] was a difficult operation,” he said. Most of that equipment has been moved to KWH facilities in Saskatoon, Saskatchewan, and Huntsville, Ontario.
There are bright spots in other segments. Utilization rates have not dropped off in the corrugated sector, officials said. Walsh said the market will continue the growth it has enjoyed during the past 10 years, making inroads against other materials such as concrete, which dominates 80 percent of the storm-drainage market.
“Starting in 1990, it took off,” Walsh said of corrugated PE pipe. “They still have room to grow. Part of the problem was lack of confidence in the product.”
Bill Altermatt, vice president of sales and marketing with Hancor Inc. in Findlay, Ohio, said his firm is seeking to fulfill system needs required by the Environmental Protection Agency's Stormwater Management Program.
“I think the biggest challenge from a technical point of view is our industry's ability to provide an ongoing high-quality, field-proven product for watertight systems,” he said. “It's these watertight systems that are ultimately required for these EPA systems.”
Cross-linked PE pipe also holds promise. Industry officials have seen nearly 25 percent annual growth in PEX during the past three years. There's a big move toward use of the material in radiant floor heating. Also, the Plastic Pipe and Fittings Association of Glen Ellyn, Ill., recently won a battle for code approval in the state of California.
Copper still has the lion's share of the plumbing market, at about 80 percent.
“I think we expect to grow the business by growing market share of PEX … and there's certainly still plenty of that growth available,” said Gary Runyan, manager of product development and engineering with Qest Plumbing Systems. The firm is owned by Erie, Pa.-based Zurn Industries Inc.