As long as hammers keep swinging at construction sites across North America, PVC executives will be smiling.
That again was the case in the first half of 2004, as PVC sales in the region jumped almost 9 percent. Rigid pipe and tubing - representing 45 percent of all first-half domestic PVC use - also jumped 9 percent, while siding uses skyrocketed 11 percent, according to APC.
The strength of the housing market has outlasted even the most optimistic of predictions. The rate of new housing starts in August was 12 percent higher than it was a year ago, according to the Department of Commerce.
``Housing numbers continue to look pretty good,'' said Dick Mason, controller at PVC maker Shintech Inc. in Houston. ``But we don't expect growth to continue at this rate.
``A lot is in housing construction, obviously, with infrastructures for new subdivisions,'' added DeWitt's Duke. ``There's also a lot of people upgrading their houses with vinyl products, and that's a part you don't really hear about.''
Raw material pressure from natural gas and crude oil have led PVC makers to raise prices about 25 percent this year, but the rate of increases slowed in late summer.
``PVC makers have done a good job [raising prices], but they probably haven't extracted enough value from their product, based on the feedstock situation,'' Duke said.
``It's been difficult to keep our costs under control,'' Shintech's Mason said.
Duke said part of the pricing squabble might be linked to the nature of PVC buying at pipe firms, which are highly competitive and ``not as disciplined'' in their resin buying as PE or PS buyers.
Mason added the North American PVC market is in good shape from a capacity standpoint, although supplies are expected to tighten through 2005. He estimated current operating rates at or around 90 percent, and said the PVC fencing and decking markets continued to grow at faster rates than the overall market in 2004.
Annual PVC growth in North America could return to 5 percent next year, Duke said.
``That's a good general number for housing growth and a good number for PVC as well,'' he said.
North American nylon resin sales are on track to finish the year with growth of at least 4 percent, a feat that's surprising in light of flat North American auto builds. U.S.-only auto builds are down almost 1 percent through September. The automotive market accounts for about 40 percent of all North American nylon resin uses.
``Auto builds are down, but there's more nylon on each vehicle, so there's a multiplier effect,'' said Ed Guerrini, nylon marketing director for BASF Corp. in Florham Park, N.J.
That effect has sales up, even as nylon resin prices have catapulted at least 25 percent.
``The real challenge is in dealing with these sharp and sustained raw material increases that have affected benzene, cyclohexane and caprolactam,'' said Dave Donofrio, Americas regional business and marketing director with market leader DuPont Co. in Wilmington, Del.
``The overall dynamics of the supply chain have changed to the point where you've got major manufacturers and buyers on one end and the oil and petroleum companies on the other end,'' Donofrio said.
``We've got three price increases in and we're still not covering our increases in raw material costs,'' added Joe Venner, BASF director of product management and technology.
``It's almost transparent in a sense, because every day you see something about oil on the news and you see higher prices at the gas pump,'' he said.
In another unlikely twist, a reduction in nylon fiber use in apparel has created more capacity for resin making.
That trend should last for the next six to 12 months, according to Ian Julian, a market analyst with CMAI.
Looking ahead, nylon is replacing steel in auto seat pans because of stiffness and impact strength, according to BASF commercial technology director Mark Minnichelli.
New hybrid metal-plastic technology known as collar-joining also has the potential to combine steel and plastic in automotive and major appliance applications, Minnichelli added.
DuPont's Donofrio said his company continues to see some large opportunities in under-the-hood and powertrain areas for automotive.
Rocker covers and engine covers still offer big conversion opportunities from metal as well, he said.
``There's also continued penetration in air-intake manifolds, and metal-replacement opportunities in tougher areas where there's direct contact with oil or transmission fluid,'' Donofrio said.
``Nylon also is replacing thermosets in electrical and electronic parts for automotive. Outside of automotive, we see opportunities in all-terrain vehicles and snowmobiles with underhood parts and noise-reduction systems.''
BASF also expects to commercialize a surface-enhanced nylon for the furniture industry by the end of 2004.
In spite of these advancements, predicting a growth rate in the nylon resin market remains difficult.
Donofrio said 2005 growth may continue at 2004 levels, but CMAI's Julian was a little more flexible in his outlook.
``North American growth should be flat to 4 percent in '05,'' Donofrio said. ``But if automotive's down, there could be a loss.''
Roger Rumer doesn't mince words when talking about the impact of benzene on the 2004 polycarbonate market.
``Benzene price increases have been excruciating,'' said Rumer, PC business director with Bayer Corp. in Pittsburgh. ``We've initiated surcharges to deal with it. There's some room for end-use markets to increase prices on processed goods.''
At GE Advanced Materials in Pittsfield, Mass., Vice President and general manager John Dineen is equally blunt.
``There's been a raw material shock,'' he said. ``We've had three surcharges in three months, but demand has remained strong.''
North American PC makers have nominated 60-70 cents in price increases this year, with about half of that amount sticking through the end of August. Dow engineering thermoplastics business director Karen Shepard-Jackson described those high levels as ``the new prices in the industry.''
``We don't expect major price reductions,'' she said. ``Global supply/ demand balance has become very tight. In some cases, producers have had to cut back on production because of a lack of [PC feedstock] bisphenol-A.''
In spite of those challenges, expectations of strong growth continue for 2005. Producers expect growth of no less than 8 percent next year, with 2004 anticipated to finish with a double-digit growth rate.
Sales growth for digital versatile discs and rewritable DVDs are part of the reason for the optimism.
``Older CD-based music is on a downward trend, but DVDs have remained strong,'' GEAM's Dineen said. ``DVD-Rs are growing at a faster rate than CD-Rs.''
Bayer's Rumer added his firm has been pleased with results in water bottles, food, medical and sheet and film.
``It's high-quality product and there's still some product differentiation,'' he said.
New product growth at GEAM should be driven by the firm's SLX and XL films, while Dow expects good things from Blu-ray technology, which will allow more data to be stored on CDs and DVDs. Commercialization of PC-based auto window glazing also is expected to boost PC use in 2007 and 2008.
On the capacity front, Bayer is adding capacity in China in 2006 and is considering adding capacity ``in a rational way'' in North America, Rumer said. At GEAM, Dineen said ``demand will dictate'' when the firm brings on its second 300 million-pound-capacity plant in Cartagena, Spain. Minor production issues at GEAM's PC plant in Mount Vernon, Ind., have been resolved and the site is running at normal operating rates, Dineen said.
Globally, PC operating rates are expected to remain in the 85-90 percent range.
ABS is counted out almost every year, but it continues to lift itself off the canvas like a boxer with six hungry kids and a big mortgage payment.
2004 offered more of the same, with a first-half growth rate of almost 7 percent, according to APC. First-half growth of sales for ABS, styrene acrylonitrile and other styrenics were focused heavily in the construction market, where sales were up almost 40 percent.
``The core driver has been the turnaround in the economy, but that doesn't explain all of our growth,'' said Laurie Andriate, BASF's North American styrenic copolymers business manager. ``A lot of our business in building and construction has been core growth in sectors like the pipe market.''
``Construction numbers are really up,'' added Kevin Dunay, ABS business director for Lanxess Corp. in Pittsburgh. ``ABS is replacing fiberglass in the sheet area on performance basis. The appliances market also is still strong.''
Dunay added that ABS also is finding uses in reinforced panels in the truck and bus market, where it is also replacing fiberglass.
Benzene again has played a major role in the ABS market, leading producers to announce 40-60 cents in price increases. About half of that total has held through August, but BASF's Andriate said the increases haven't kept up with the raw material storm.
``In pricing, we're seeing a new benchmark, a new frame of reference,'' she said. ``But the value proposition of ABS is solid and remains solid. Success for us is being a low-cost, commodity business model.''
Global ABS operating rates remain low because of 2 billion pounds of new capacity that's been brought on since 2003. Most of the new capacity has been in Asia, but BASF also has added 450 million pounds in the Netherlands and still has capacity available at its 270 million-pound styrenics plant in Mexico.
As a result, there's plenty of capacity available, even though high styrene monomer profit margins recently have led some producers to sell that material rather than convert it to ABS.
Although final 2004 North American ABS sales growth should be 6-10 percent, producers expect those rates to drop to 1-5 percent in 2005.
Thermoplastic elastomers operate at the higher end of the resin market, both in price and profit margin, but they've been hit by raw material pressure this year just the same.
``Benzene, polyols and [methylene diphenyl diisocyanate] are all affected by natural gas prices,'' said BASF thermoplastic polyurethane business director Stefane Morin. ``Raw materials are up more than 12 percent. We issued a 15 cent increase Aug. 1, and we need it to be able to continue to invest in our business, for survival's sake.''
``TPE sales have grown, but they're still dependent on ethylene and propylene prices,'' added Faisal Syed, a market analyst with Chemical Market Resources Inc. in Houston. ``The only difference would be [TPEs] don't see as much cyclicality. Raw material increases chew into their margins, but not as much as on the commodity side.''
Morin estimates TPU growth for BASF at about 12 percent this year, thanks to high growth in consumer goods, industrial goods and automotive. Growth in 2005 should fall back to the 6-8 percent range.
Syed expects most TPEs - including TPUs, thermoplastic vulcanizates, styrenic block copolymers and copolyesters - to grow 3-5 percent at least through 2007. Thermoplastic olefins should have a higher growth rate - about 6-8 percent - in that span.
BASF has focused its North American TPU marketing efforts on compounds for wire and cable and on combining TPU with TPV and other TPEs. The firm also recently commercialized a new glass-filled TPU for body-side molding in automotive.
BASF also is using cross-linking technology to make purer TPUs, aliphatic TPUs for automotive and soft, plasticizer-free TPUs.
Across the TPE automotive market, there's been continued replacement of flexible PVC components in favor of polyolefin-based TPE materials, said CMR's Syed. Elsewhere, higher growth has been in soft-touch grips and similar overmolding applications.
TPU capacity will be affected by the opening of a plant in China by the Noveon unit of Wickliffe, Ohio-based Lubrizol Corp. later this year or in early 2005. BASF plans to open a production site in Pudong, China, in 2007.