Slowing House Construction Affects North American Vinyl Producers

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Researched by Industrial Info Resources (Sugar Land, Texas)--While one generally regards the slowing of the housing-construction market as primarily affecting contractors and the manufacturers of structural materials such as cement, the market is also affecting the Chemical Processing Industry, particularly manufacturers of vinyls, which are used in products such as vinyl siding, moldings and PVC piping. A company particularly affected by the housing slowdown is Georgia Gulf Corporation (NYSE:GGC) (GGC) (Atlanta, Georgia). The company manufactures vinyls and aromatics including acetone, cumene and phenol. These represent about two-thirds of the company's revenue, while the remaining revenue comes from vinyl-based home moldings and outdoor building products.

At the recent Bank of America Credit Conference in Orlando, Florida, GGC CEO Paul Carrico spoke about the effect of the softening economy and slowing housing construction on the company. Noting that the construction of new houses in the U.S. had approximately halved since March 2005, moving from 2,000 houses per month in 2005 to about 1,000 new starts in September 2008, Carrico said, "The likelihood is that building products will continue to be stressed as we go into 2009." North American vinyl demand is easily at the lowest point since 2004.

Because of a strong first half of the year, the company's year-to-date sales are about the same as they were at this point in 2007 at $2.38 billion. However, the company's third-quarter earnings report, released earlier this month, showed a major decline in profit from the same period last year. GGC had a net loss of $17.4 million for Q308, compared with a near break-even loss of only $300,000 in Q307.

The economic downturn is, of course, a global event, and GGC's PVC export market fell significantly in the second half of the year. Exports of PVC accounted for about 20% of PVC sales in the first half of 2008. "It's clear that the export market was good up until about September when the hurricanes hit," Carrico said. "At that point, the exports were limited because of the hurricane restrictions on production, and then as we moved into the October-November timeframe, the impact of the financial burden that people had both in the U.S. and the other parts of the world greatly restricted the availability of that opportunity in the most recent months."

GGC's forecast for 2009 is somewhat bleak. The company expects the housing-construction market to continue to soften through 2009. GGC has taken cost-cutting measures, including the idling of one PVC plant and the shutdown of another. A cutthroat element also looms in the forecast. "It's our expectation that [financial] stress will reach a level where some people just aren't able to participate at the same level they've done in the past," Carrico said. "And for us, assuming that we put ourselves in the right cost position and the ability to deal with the business going forward, we should be able to pick some of that up."

Industrial Info is currently tracking more than $13 million of GCC's projects, ranging from a $1.5 million, seven-day steam outage at a caustic chlorine plant in Louisiana to a $3 million maintenance outage at the same plant scheduled to begin in January next year. Information on this and other projects can be found in Industrial Info's http://www.industrialinfo.com/prodserv/prodserv.jsp?pagerequest=dbproducts North American Industrial Database.

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