The tanking residential construction market is projected to get worse before it gets better - bad news for plastic building product manufacturers feeling the squeeze from virtually every possible angle.
There is some debate among economists about whether the U.S. economy is in recession. It will be the end of the year before they know for sure.
The existence of the debate itself is indicative of the times, a 180-degree departure from the construction utopia that was 2005.
Fingers are being pointed at the usual suspects - rising energy, transportation and health-care costs, as well as the outsourcing of manufacturing jobs to lower-cost countries.
Plastic building product makers are impacted by all of it, including recent resin price hikes. And all are at the mercy of the construction industry on which they rely to move their product.
Those looking to point fingers need to look no further than Wall Street and the banking community.
``The biggest problem is the financial market, and it started by the debacle in the subprime lending market,'' said David Seiders, chief economist with the National Association of Home Builders in Washington.
The total residential construction market was down 26 percent in 2007, he said. The housing market is expected to slump further - about 22 percent - in 2008, Seiders said during a news conference at the International Builders' Show, held Feb. 12-16 in Orlando.
Credit quality has completely deteriorated as more and more homeowners default on their loans. Banks have tightened their lending standards. This has lead to a loss of liquidity in the investment community across the board, according to Frank Nothaft, chief economist with Freddie Mac.
Nothaft is predicting economic growth of about 2 percent for this year, which he characterizes as less than ideal.
Plastic products benefit from serving as a replacement material as well as being used in many high-end applications. Wealthy consumers, as always, are less affected by the economic down cycle.
Still, even the rosiest of rose-colored glasses are unable to mask the troubles.
Shipments of vinyl siding, industrywide, were down about 13-14 percent in 2007, said John Wayne, siding group president for Kearney, Mo.-based Ply Gem Industries Inc., in an interview at the Builders' Show.
Ply Gem's siding sales are split almost evenly between the new-construction and remodeling markets, Wayne said, adding that remodeling is always the steadier of the two. However, the loss of equity from troubles in the lending community has dampened that market as well, he said.
``It will probably be a couple of years before you see a real rebound,'' he said.
Consolidation has been the theme of the vinyl-siding industry during the past year.
Ply Gem closed a 110-employee plant in Atlanta in the first quarter of 2007, and just completed the shutdown of a 180-worker Denison, Texas, site in February.
Cuyahoga Falls, Ohio-based Associated Materials LLC plans to curtail production at its Ennis, Texas, plant.
Valley Forge, Pa.-based CertainTeed Corp. is shutting two of its vinyl-siding plants this spring - one in London, Ontario, on March 30; the other in Social Circle, Ga., on May 2, though that building will continue to manufacture cellular PVC restoration millwork and trim products.
Jim Ziminski, president of Crane Performance Siding, said his company is working from a buy low, sell high mind-set. The company is part of Crane Group, headquartered in Columbus, Ohio.
``When's the best time to invest in the stock market?'' he said. Crane will use the lull to continue to invest in its operations and product development to enter the next building cycle stronger than ever, he said.
``The vinyl siding industry is beginning to reposition itself,'' Ziminski said. ``It's still a cost-effective product. And there are still 100 million people that will be added to the United States in the next 30 years or so.''
Wayne concurred. ``We're bullish long-term,'' he said.
Window sales were off 16 percent in 2007 and are forecast for another 12 percent drop in 2008, according to Ducker Research Co. Inc. in Bloomfield Hills, Mich.
The industry peaked at 70 million installed units in 2005. That number will dip to about 50 million in 2008, according to Ducker.
Vinyl, which comprises more than half of the window market, has taken the biggest hit as it serves primarily the low-end and middle segments, said John Swanson, editor and associate publisher of Washington-based Window & Door Magazine, in a telephone interview.
The green building movement will continue to buoy the industry, he said.
``The energy-efficiency side of the equation is a positive for the industry,'' Swanson said. ``Prices to heat and cool your house have gone up a lot.
``As those prices rise, replacing windows becomes a higher priority.''
Consolidation within the industry will continue. There have been several plant and distribution center closings among large window makers, including a 220,000-square-foot Simonton Windows plant in Lyons, Ga., according to W&D.
Officials for Simonton Building Products Inc.'s windows business are somewhat bullish for the year, particularly at the high end of the market, according to the firm's annual forecast.
``While industry observers expect the housing correction will extend into 2008, we believe sales for high-quality vinyl windows for new construction, replacement and coastal markets will hold their own,'' said Chris Monroe, vice president of marketing for Parkersburg, W.Va.-based Simonton Windows.
Plastic pipe - particularly small-diameter PVC and cross-linked polyethylene - should continue to benefit from historically high copper prices, according to Ken Simonson, chief economist for the Associated General Contractors of America in Arlington, Va.
But, he said, concrete is winning the price war against steel and petrochemical-based materials in large-diameter applications.
Rehau Inc., a Leesburg, Va.-based pipe and tubing extruder, has felt the pressures of the residential construction slowdown, but has seen its business buoyed by steady sales in Canada and in the commercial construction sector, said Bill Johansen, department manager for Rehau's heating and plumbing group.
Radiant heating systems are being bought primarily by high-end customers, insulating that segment from the slowdown, Johansen said.
The 2008-09 outlook is wait-and-see for Rehau, he said. But he added that the emergence of ``megacompetitors'' like Charlotte Pipe and JM Eagle to the category seems to indicate it is going to be a ``joy ride.''
``There will likely be considerable opportunity from substitution [copper] and predatory gains among existing PEX manufacturers, though an answer to the question `at what cost?' remains to be seen,'' Johansen said.