While wood-plastic composites now are considered mainstream building materials, there remains huge potential in current and emerging markets as technology continues to improve, according to officials from Principia Partners of Exton, Pa.
Industry executives and other speakers talked about the state of the market at Principia's Wood-Plastic Composites Conference 2004, held Oct. 11-12 in Baltimore. The event attracted 250 people.
The market leaders are either those firms first on the scene, or established companies. ``Me-too'' companies face a stiff challenge in decking. The next level belongs to innovators, regardless of whether a company is large or small, officials said. There still is room for newcomers, even in decking and railing.
``It's not a slam-dunk by any means. Those days are over,'' said Jim Morton, senior partner with Principia. He emphasized that newcomers have to play it smart - like Alcoa Home Exteriors Inc. of Pittsburgh, which teamed up with Dayton Technologies Inc. of Monroe, Ohio, to make a composite deck board.
``We're dealing with a segment that has very large scale. The penetration with [wood-plastic composites] is only $650 million, a 15 percent penetration on overall industry,'' he said. ``This industry in five years could see 25 percent penetration. To get there means there's a lot of material going into the marketplace. Someone who wants to still come in, I don't think the opportunity is closed.''
Entrants will want to focus on innovation, including different geometric shapes or formulations. General construction is at an all-time high, spending on remodeling is unprecedented and there is more disposable income and a large supply of aging housing stock, industry officials said. Also, because of increased consumer awareness, branding helps category growth. They emphasized improvements in composite decking and railing products, and in technology and manufacturing.
Even though the markets are profitable, a company must have the right distribution strategy to accommodate shifting channel dynamics, Morton said in an Oct. 27 telephone interview.
``I think the real key about the shifting is that the market, even though it's in a hypergrowth stage, it's taking on some maturity in terms of how building products are moved in the market,'' he said.
In the early stages, firms like Trex Co. Inc. had to create dealer networks, he noted. ``The large lumberyards, the specialty one-steppers, you have a variety of ways that these sellers can move product. The real key is now, how do they go about doing that?''
Even distribution leaders point out that strategies for moving product can differ depending on geography, or what U.S. region is being targeted. Makers are finding it more feasible to have a good/better/best product offering. Do-it-yourself stores like Home Depot Inc. add market dynamic. For instance, Home Depot's offerings include its private-label composite deck board, marketed as Veranda. Working with a few manufacturers, Home Depot can set its own specs for what it will make or sell, Morton said.
``It shows you the power of a [Home] Depot or Lowe's,'' Morton said. ``They're so large, they need a very consistent supply chain. They're also selling Trex, so they took a two-pronged approach.''
Distribution becomes more complicated as one company's deck board is differentiated from another, he said. ``I do not believe that we've hit commodity status, but at the same time, [producers] have to be careful that the product doesn't reach a truly commodity status,'' Morton said.
What started in profile extrusion has grown into other processes, including injection molding. Applications are evolving as well, as processors tackle segments like roofing.
``Everybody wants something new, but they want it to look old,'' Jim Nash said of consumers. Nash is president of Wellington Polymer Technology Inc. of Chatham, Ontario, which compression molds roof shingles sold under the Enviroshake brand.
Wellington is looking to open a four-line operation near Detroit in 2005. Through 2004 the firm worked to improve production capacity at its Chatham site, Nash said.
``Our product looks like 5- to 8-year-old, aged cedar roof,'' Nash said Oct. 11 during the Principia event. ``We were [trying] to replicate nature. Now, we're aggressively going to be scaling up so we can better address the market. We believe it's the future of roofing. We have a niche market. We don't intend on going beyond that. We don't ever stop in research and development. I don't think any of us can.''
Many attendees agreed that the recent class-action lawsuit involving Trex caused general industry anxiety. Many feared that because Trex is an industry leader, the lawsuit would open the door for others like it, adversely affecting the industry's image.
``I don't see the level of anxiety as I did a few months back,'' Morton said. Over the past few years, the evolving industry has learned how to market products, such as not using absolute terms in advertising such as ``no maintenance.''
The industry is looking at the next generation of changes, including in additives and resin grades. The momentum is necessary to move the industry forward, Morton said.
``If in fact the [decking] category was harmed severely, then that would set back the industry to be able to penetrate other areas,'' he said. ``All synthetic building products, especially in the plastics area, tend to be held to a higher standard than natural materials. The consumer demands perfection.''
Trex Chairman and Chief Executive Officer Bob Matheny said it was in his firm's best interest to settle the case.
``Our system allows people to make claims with no merit and that's what has happened in a New Jersey court,'' Matheny said. ``There was no finding of fact in this case. In our case, we have chosen to short-circuit this. It does create concern in the marketplace and [Trex] didn't want [to continue] to address it for three to five years.''
Despite the growth of wood-plastic composites in profile extrusion, industry executives said more progress is necessary. Several areas require attention, according to a recent report from Plastic Custom Research Services in Advance, N.C. Part of the problem, the report said, is that most market players have old plants with old machinery. As more players enter the business and supply catches up to demand, established players will have to update machinery and equipment to stay competitive.
``We're not there yet,'' said Plastic Custom's Peter Mooney, author of the 2004 report, ``The Profile Extrusion Business: Review and Outlook.'' ``It parallels struggles that the fiberglass people had decades ago.''
Considerable material research and development continues in the United States and Canada, as universities, government and commercial players address function, appearance, ease of use and product liability issues, Mooney said.
Additive suppliers have been involved as well. Clariant Masterbatches, based in Holden, Mass., in June announced a series of new additives designed to improve the performance of plastic lumber and wood composites. Officials from Clariant said they have seen customer requirements change as competing brands offer more-extensive and longer product warranties. To be chosen over wood, plastic or composite lumber has to demonstrate that it is markedly better. The industry has learned in the past few years that additives makers can provide the technical help needed to make a strong case to both lumber suppliers and end consumers, officials said.
At the conference, U.S. Borax Inc. of Valencia, Ca., presented field data on wood-plastic composites that indicates decay may be an issue. Biocidal additives may offer cost-effective inhibition of surface mold and nonmicrobial stains, said Mark Manning, global manager for preservation technology.
According to his presentation, wood-plastic composite samples exposed to decay fungi for 16 weeks in lab tests can exhibit weight losses greater than 20 percent. For materials with a 50-50 mix of wood and plastic, that equals a weight loss for the wood component of greater than 40 percent. The tests were performed on unweathered samples.