America's subprime mortgage debacle has driven down housing starts, and next in line for a fall could be U.S. sales of extruders for making vinyl siding, windows and decking, machinery officials said.
On a brighter note, the market for pipe extruders was unusually strong in 2007.
Packaging machinery continues to sell well: We all have to eat; even subprime-loan homeowners facing foreclosure.
That is the Jekyll-and-Hyde outlook facing extruder makers going into 2008: a feast for makers of film and sheet equipment and famine for those serving the key building product sector. Millions of people who took out adjustable-rate mortgages are seeing them reset to higher interest rates.
Hans-Jurgen Matthesius said the fallout could extend far beyond suppliers of front-line construction products.
``To me, the biggest unknown factor is, how does this loan crisis work itself out? And if the economy really goes into a recession, how many more people would lose their homes?'' said Matthesius, president of Cincinnati Extrusion Inc. in Florence, Ky.
Nobody knows the exact answer. The subprime mess is causing banks to tighten credit. In some parts of the country, home values have fallen. That combination can cut into spending on big-ticket remodeling projects, hurting an important market that usually offsets a downturn in new construction. Spending on remodeling probably will increase a modest 2 percent in 2007, according to the Washington-based National Association of Home Builders.
``Normally when housing starts go down, remodeling goes up almost enough to cover total construction spending. But it just hasn't happened this year,'' said Kurt Waldhauer, president and chief executive officer of American Maplan Corp. in McPherson, Kan.
NAHB projects new housing starts will fall 25 percent in 2007, to 1,363. For 2008, NAHB economists think starts will decline another 12 percent before rebounding in 2009.
In plastic building products, some sectors are harder hit than others. Several plant closings have affected vinyl siding. Ply Gem Industries Inc. closed a siding plant in Atlanta in the first quarter of 2007 and plans to close another plant, in Denison, Texas, in early 2008. Both were former Alcoa siding plants.
The siding and window segments also have consolidated this past year. CertainTeed Corp. bought Owens Corning's siding and distribution operations, then sold its vinyl window business to Ply Gem. Rollex Corp. sold its vinyl siding business to Jancor Cos. Inc., which owns Heartland Building Products and Infinite Building Products.
Fiber cement has eroded some of vinyl siding's market. Several major vinyl siding makers have invested in production for fiber cement.
``Vinyl siding is just not going anymore. Customers want to have something more solid to look at and feel,'' Matthesius said. But he said vinyl siding producers are responding with foamed siding, and using fillers and wood fibers to reduce thermal expansion and get a more substantial appearance, he said.
Wood-plastic composite decking based on polyethylene has been a hot U.S. market, but problems with weatherability have prompted deck board makers to look at new formulations and materials, such as polypropylene and foamed vinyl.
``The wood composite market has not been strong, but it's not been negative either. There's some consolidation out there,'' said Tom Brown, sales and marketing for extrusion at Milacron Inc.
Cincinnati-based Milacron has had a strong two years in the overall U.S. extruder market. But everybody selling extruders these days is eyeing the depressed housing market, Brown said. ``I think right now we're optimistic, but in a guarded way,'' he said.
Brown said the pipe market has picked up, with the most investment in new extruders since 2000.
``We saw a fair amount of investment into new pipe plants starting last year and carrying over into this year,'' Brown said.
Pipe makers are adding machinery to serve the municipal water, sewer and drainage markets - fixing America's aging infrastructure. Maplan's Waldhauer agreed the pipe market has picked up. ``PVC pipe has been very good this year'' for both replacement machines and new pipe capacity, Waldhauer said.
``Our infrastructure in the United States is getting so bad, it's time for folks to step up and address it.''
The siding and window markets are slow, but that opens up business for pipe and special applications, according to Reiner Bunnenberg, vice president of the extrusion division at Krauss-Maffei Corp. in Florence, Ky.
``It's all going for larger systems and for applications a little off the beaten path,'' Bunnenberg said.
Extruder business at Davis-Standard LLC is evenly split between building products, custom profiles and medical tubing, said Jim Murphy, president of extrusion systems.
``We had a nice expansion of our core businesses,'' he said. ``The North American market stayed solid for us, but it wasn't across the board.
``Our backlog's up from a year ago. We have a very healthy, solid backlog,'' Murphy said. The firm's fiscal year began Oct. 1.
Growth areas for the company in Pawcatuck, Conn., include sheet, medical tubing, and wire and cable.
Vinyl windows have been ``very flat,'' but fence makers are buying DS extruders, the company said. Since Davis-Standard makes small to midsized extrusion lines, it sells to entrepreneurs and even fence installers looking to get into the business, Murphy said.
Medical tubing machinery sales also have helped Harrel Inc. stay busy in East Norwalk, Conn., according to President Holton Harris. A very good 2006 carried over into this year.
What does Harris predict for 2008? ``Well, things have slowed down a little bit, but we're hoping it's going to pick up,'' Harris said.
Based in Concord, Ontario, Deltaplast Machinery Ltd. has its own problems - the strong Canadian dollar. The extruder business is competitive, so Deltaplast has to cut profit margins instead of boosting prices, said Dirk Koch, vice president of sales.
Still, even with the currency disadvantage, even with the weak U.S. housing market, Koch said: ``I'm bucking a trend: My American business is up.''
In Canada, where home construction remains strong, Deltaplast is selling extruders to the building products and automotive markets. ``We find we're doing a lot more custom products, instead of standard extrusion,'' he said. ``Being smaller, you're able to do more custom engineering compared to larger companies. That gives us an advantage.''
Packaging fuels sales
Although the outlook is shaky for construction products moving into 2008, officials of companies that make film and sheet machinery are upbeat. Leading the way is Frank Nissel, chairman of Welex Inc.
At K 2007, held Oct. 24-31 in Dusseldorf, Germany, Welex took out a small booth in the North American Pavilion. No equipment, just Welex executives meeting customers. ``We got orders for a whole year's worth of business. It was totally unbelievable,'' Nissel said.
Welex took orders for five sheet lines at the K show. After following up post-K, Nissel said the company will end up booking about 30 lines. ``I'm a conservative guy, but holy mackerel!'' he said.
In early 2007, Welex moved its manufacturing to Greenville, N.C., a building better laid out to handle sheet line production. Its headquarters is staying in Blue Bell, Pa.
Welex extruders make sheet from PET and corn-based PLA, or polylactic acid.
Processing Technologies Inc. of Aurora, Ill., also focuses on extruders to make packaging sheet and on the emerging paint film market. ``This year's story is coextruded sheet lines,'' PTI President Dana Hanson said.
``We've seen most of our activity in multilayer polypropylene and [amorphous PET] systems for disposable packaging. That continues to be very strong.''
Hanson said barrier film continues to be a good business. PTI has sold machines for laminating film onto sheet substrates and the growing practice of extruding barrier resins directly onto multilayer structures.
The wood composites market has pulled back a bit because of the slowdown in construction, he said.
Gerry Sposato, vice president of sales and marketing for HPM, said the firm in Mount Gilead, Ohio, has sold equipment to make sheet for refrigerators. HPM also built lines to extrude panels for recreational vehicles.
``Packaging still leads the way, but there is activity in other applications, in customized lines,'' Sposato said.
U.S. demand for all types of packaging equipment gained 8.4 percent in 2006, to reach $6.6 billion, according to the Packaging Machinery Manufacturers Institute in Arlington, Va.
In the blown film arena, multilayer film and the conversion of some rigid packaging to pouches combined to keep machinery makers humming.
David Nunes, president of Hosokawa Alpine American, took a breather at Alpine's K 2007 booth, where the company was running shrink film and packaging from four different materials over the course of the show.
Alpine makes its blown film lines in Germany, and Nunes said the strong euro and weak U.S. dollar have made U.S. sales more difficult.
``Overall it's been a good year. The last three months or so, things have slowed down, I think as a result of some anticipation of the K show. For anyone that's selling equipment from Europe, the euro/dollar exchange rate has been a negative as well,'' Nunes said.
In the U.S. market, he said, ``there continues to be a push toward seven- and nine-layer barrier film applications.''
Natick, Mass.-based Alpine American has sold single-layer lines, too. Nunes said PE prices in China are now on par with U.S. prices. ``So the imports have gone from a huge percentage of the bag markets, to almost nothing, overnight,'' he said. ``As a result of that, we've just seen this all-of-a-sudden push into institutional trash-bag-type markets that has typically been low.''
But the big-layer blown film lines are getting the attention. Multilayer machines allow processors to make more types of film with barrier layers for food packaging, downgauge in certain applications or run lines faster.
``Food is a very healthy market,'' said Steve DeSpain, vice president of sales at Kiefel Inc. ``We see a lot of technology taking that next step. Yesterday's monolayer is becoming today's three-layer is becoming five layers, and so on and so on.''
Analyses by Wrentham, Mass.-based Kiefel have shown that today's smaller households and two-income families prefer ready-to-eat food. Translation: multilayer barrier film.
But for Kiefel it goes beyond film. Kiefel AG was bought by Bruckner Maschinenbau GmbH in January. The combined company offers Kiefel's blown film and thermoforming equipment, coupled with Bruckner's film stretching machinery. That means, for example, the company can supply an entire line to make atmospheric packaging, from the sheet to the lid.
Andrew Wheeler, vice president of sales at Windmoeller & Hoelscher Corp. of Lincoln, R.I., reports ``very strong'' U.S. business in 2007, for both blown film and printing equipment. ``We will have a record year here,'' he said.
Wheeler said food packaging is moving up to nine-layer lines, although he called three-layer lines the ``meat and potatoes'' of the company's business. He called pouches ``a huge growth business.''
During the K show, parent firm WindmÃ¶ller & HÃ¶lscher KG shuttled about a thousand visitors to its headquarters in Lengerich, Germany, to see four blown film lines and four printing presses.
Macro Engineering & Technology Inc. sold two lines at the K show to customers in India, a PVC cast film line and a seven-layer machine that can be changed to a nine-layer line. Right after the show closed, Macro sold two more lines, a nine-layer and a three-layer to customers in Europe, said Mirek Planeta, president of the Mississauga, Ontario, company.
Planeta said most of its multilayer lines are going into food packaging.
Macchi North America Corp. sells three- and seven-layer blown film lines, said Steve Gammell, North American sales manager for the Gainesville, Ga., firm. The company's Italian parent is making its first nine-layer machine right now, he said.
Gammell said the dollar/euro situation has hurt Macchi's sales in the United States. ``I also think there's a downturn ahead in the U.S. economy,'' he said. Nevertheless, ``Food and medical are going to be stable markets for our customer base. Everyone still has to eat and everybody still has to have medical care.''