(March 28, 2005) — When Shintech Inc. announced plans to build a massive PVC complex in Louisiana, it raised more than a few eyebrows in the plastics industry. Conventional wisdom said nobody was adding capacity in North America anymore.
What else are Shintech executives doing? Investing in dot-com firms? Watching movies on Betamax tapes? Calling customers on rotary phones?
Regardless of their retro tastes, Shintech clearly is sold on the idea, believing that the North American construction market — which consumes about 60 percent of the region's PVC output — will remain strong. That faith is fueling a $1 billion investment in Iberville, La., to create 1.3 billion pounds of PVC capacity and almost 4 billion pounds of capacity for related feedstocks. Construction begins this summer, and half of the plant should be operational by late 2006.
It's not a trendy move. Anyone even remotely connected to the North American resin market will tell you that high feedstock costs — primarily for natural gas — have taken away the cost advantage the region had enjoyed for many years.
But the positive outlook by construction market participants evidently carries more weight. Listening to the folks over at the National Association of Home Builders — a 220,000-member trade group based in Washington — is a prime example of this optimism. NAHB chief economist David Sieders contends that one of the challenges facing home buyers isn't finding houses, it's finding land.
“The main concern builders are citing right now pertains to availability and pricing of lots for development — which itself is a symptom of strong buyer demand,” Sieders said in a recent NAHB news release.
Sieders has reason for optimism. U.S. housing starts grew 6 percent in 2004 to almost 2 million units. The total has increased in eight of the past 10 years and is almost double the 1991 level. Booming construction fueled a sales jump of almost 7 percent in the U.S./Canadian PVC market last year, according to the American Plastics Council in Arlington, Va. In a recent APC report, officials listed “several changes in housing market dynamics” — including the increasing size of homes, increasing number of windows per home and higher number of bathrooms per home — as reasons behind PVC demand growth.
There are a couple other factors at play. Industry sources have said Shintech does not want to have to depend on Dow Chemical Co., which supplies almost all of the vinyl chloride monomer feedstock used by a massive Shintech plant in nearby Addis, La. The new plant is seen by some as an insurance policy in that regard.
Shintech still must proceed cautiously so as not to ruffle feathers among state officials and local residents. So far, however, environmental concerns surrounding the plant are nowhere near the levels they were in 1997, when protests led Shintech to build a scaled-down plant in Addis, rather than the major one it wanted to build in Convent.
Granted, the construction market goes in cycles. The 1991 low point for housing starts, for example, came after five straight years of drops. But Shintech is confident this cycle hasn't peaked yet. NAHB — whose members probably don't care if homes are made of plastic, metal, sticks, bricks or straw - would seem to agree.