Slumps in PVC demand and profitability are leading Georgia Gulf Corp. to idle 700 million pounds of PVC capacity in North America.
The Atlanta maker of plastics, chemicals and building products announced the move Nov. 1 - the same day it reported a third-quarter profit of less than $100,000. In the same quarter of 2006, the company reported a profit of $22.7 million.
Through September, the firm posted a 2007 loss of $38.7 million.
Company officials said the resin cuts are temporary and will be partly offset by the addition of a new 450 million-pound-capacity line in Plaquemine, La., in early January. Georgia Gulf ``is temporarily removing its least-efficient production capacity, in an effort to improve operational efficiency,'' Chairman, President and Chief Executive Officer Ed Schmitt said in a news release.
``In the near-term, we are preparing to confront slower seasonal market conditions.''
In a Nov. 2 conference call with investment analysts, chemicals and vinyls Vice President Paul Carrico said the locations of the temporary closings will be decided ``in the next couple months.''
Schmitt said permanent resin cuts ``are always an option.''
Market contacts said PVC production in Sarnia, Ontario, is likely to be closed. Other cuts could hit sites in Oklahoma City; Aberdeen, Miss.; and Plaquemine.
The Sarnia capacity has been used in-house by Royal Group Technologies Ltd. of Woodbridge, Ontario, which Georgia Gulf bought in 2006. Georgia Gulf has closed several Royal plants, and two in Woodbridge will close in early 2008.
Through September, Georgia Gulf's PVC-related sales fell 20 percent to less than $1.1 billion, while the unit's operating profit fell 60 percent to $84.1 million.
``If there is a surprise here, it's that the capacity closures are not advertised as permanent,'' market analyst Kevin McCarthy of Banc of America Securities in New York wrote in a Nov. 2 note to investors.
In spite of a slump in the housing market - which accounts for at least 60 percent of North American PVC demand - Shintech Inc. and Formosa Plastics Corp. USA each have large expansion projects under way. In total, the region is expected to add 1.5 billion pounds of capacity next year.
Based on estimated 2007 sales, Georgia Gulf ranks third in the North American PVC market with a 15 percent share.