AKRON, OHIO (Jan. 12, 10 a.m. EST) — Consumers want no-maintenance construction products, making plastic an even more critical element in building materials in 2004, according to some experts.
Processors serving the market have to be savvy to compete among consolidating builders and price-focused big-box chains like Menard's and Home Depot Inc.
One area of continued growth is composite decking.
“We're doing very well competing with cedar and redwood at the very high end,” said Mark Suwyn, chairman and chief executive officer of Louisiana Pacific Corp., based in Portland, Ore.
“The key challenge there over the next year or two is going to be our ability to develop a product that can go head-to-head with treated Southern yellow pine. That's where the real volume is. That's where we're going to have to have a product that has a lot of the features we have in our premium product, but has a lower cost base.
“And so we're investing in technology there to try to learn how to make that product in a way that it can get down to the kind of price points necessary to go head-to-head with the treated materials.”
Suwyn spoke at the annual Global Paper, Forest Products and Packaging Conference, held Dec. 4 in New York.
According to Archbold, Ohio-based Style Solutions Inc., customized products and large builders will drive the growth of urethane millwork in 2004. Any home improvement center is a testament to the growth of the product category, officials said.
“Five years ago, you'd go in the molding aisle and find an abundance of wood molding profiles and just a few engineered plastic ones,” said Dave Goulette, vice president and general manager. “Not today. Now you'll find lots of low-maintenance products, such as urethane, composite and plastic moldings, suitable for all regions of the country.”
As for customized products, Goulette said his firm created more than 360 customized products in 2003 for builders across the United States, where increased consolidation is taking place. Style Solutions has focused on speeding up its processes.
“They want consistent delivery, quality's a given, and they want good pricing,” Goulette said in a recent telephone interview. “If you can do all that, you're going to win. In 2011, you don't know who's going to be left standing. It's a crapshoot. You have to be attuned to what they're doing.”
Among economists and forecasters, 2004 means housing starts will dip from nearly 1.8 million to 1.7 million, resting at about 1.66 million in 2005. But 2004 was a record year for housing starts, when in November the indicator hit a 19-year high, officials said.
Key drivers have been the favorable interest rate structure and ongoing solid increases in housing values, according to the National Association of Home Builders, based in Washington. Economists don't expect the Federal Reserve Board to increase rates until the latter part of 2004. Surging immigration rates also are a factor, officials said.
“It's one of the greatest uncertainties in terms of the number of starts, perhaps the most important uncertainty,” said NAHB Economist Michael Carliner.
“Immigrants typically provide an initial stimulus to rental markets for their first few years in the U.S. After becoming established, they become a major factor in the for-sale marketplace. Since the 2000 census, it appears that immigration has accelerated with a net of about 1.5 million new immigrants coming to this country annually.”
Those same indicators are fueling optimism in the remodeling sector, officials said. The rebounding economy and rising consumer confidence are expected to have a positive effect on that segment.
“Houses on average are older,” Carliner said. “We now have a median age of homes that is 32 years. It looks like that's probably the oldest, ever, in history.”
On the commercial construction side, activity in retail construction usually aligns itself with housing starts. Commercial construction hit bottom over the last few years, and should begin crawling back during 2004.
“Retail never really saw all that much of a decline in activity,” said Brian Lego, an economist with Economy.com Inc., based in West Chester, Pa. “Office industrial has been hanging on the bottom for a year. 2001 and 2002 were really bad. It was just a steep, steep drop. The pipeline is about half as big as it was then. For 2004, in terms of commercial construction, we're calling for about 150 million square feet of new construction for office properties.”
The area will see more strength into 2005, Lego said in a recent telephone interview.
“2004 is more of a transitional period when you're coming off the bottom,” he said.
PVC pipe firms, like Beachwood, Ohio-based Lamson & Sessions Co., are looking forward to commercial construction's recovery. The firm anticipates sales growth of 6-8 percent in 2004, officials said, as they recover from a year of reduced margins. In a Dec. 31 revised fourth-quarter earnings estimate, officials blamed intense price competition and weather conditions that led to extensive plant shutdowns during the latter part of 2003.