Building and construction

Plastic pipe demand, for example, is predicted to rebound with above average growth of 2.7% annually through 2009 after losing market share in the early 2000s due to a precipitous drop in communications conduit, according to a July 2005 study from The Freedonia Group (Cleveland, OH). This rebound will create demand for 10.6 billion lb of thermoplastics and, the report notes, plastic pipe poundage will advance at a more rapid pace than will footage, reflecting plastics'' inroads into larger-diameter applications that have greater pressure and crush-resistance requirements.

Polyvinyl chloride (PVC) will remain the dominant pipe plastic with its best opportunities expected in large-diameter drain and sewer applications. High-density polyethylene (HDPE) will experience the fastest growth due to its flexibility, sturdiness, joint integrity and trench-laying capabilities. Growth areas include corrugated drain, gas, and potable water pipe. Crosslinked PE (PEX) represents a rapidly growing niche product in markets such as underfloor radiant heating, says the Freedonia report.

While many U.S. homebuilders see a slight tapering of demand for single-family homes, most remain bullish on the continued strength of the market. New-home construction rose 5.3% in November 2005 from the previous month, the largest monthly increase in housing starts since April, according to the National Assn. of Home Builders (NAHB). NAHB President Dave Wilson, a custom homebuilder from Ketchum, ID, noted that this slowing is a reaction to "higher interest rates and energy costs, along with some buyer resistance to high house prices." The NAHB''s forecast continues to anticipate an orderly cooling down for single-family sales and production in 2006.

Along with home building and home remodeling comes demand for vinyl windows and doors. The Freedonia Group says that the $100 billion worldwide window and door market overall is anticipated to rise 4.7% annually through 2009. Mature markets, such as the U.S., remain dominant. Vinyl, fiberglass, and other plastic doors will grow fastest, followed by plastic and metal windows.

According to a report from the Hackwell Group, a market-analysis, consulting, and environmental services firm based in Kent, England, the wood plastic composite (WPC) manufacturing industry has been hit hard by rising crude oil and plastics prices. Cost for commodity thermoplastics commonly used in WPCs are up 50% since early summer of 2005. "The futures price of PP on the London Metal Exchange has been around $1210 a tonne in early autumn, softening as winter approaches to $1060 a tonne for the start of January 2006," the report notes.

This makes the selling price of WPC high compared to softwood. If plastics prices continue to rise over the next two to three years, there will be an incentive for WPC suppliers to push up the wood-to-plastics ratio in WPC to restrain material costs. Currently, notes the Hackwell report, the wood-to-plastics ratios are already higher in Europe than in the U.S. One of the disadvantages of a higher wood-to-resin ratio is a fall-off in moisture resistance. A greater use of recycled plastics might help costs, and European processors might have to move in that direction to hold the line on pricing. Currently, U.S. WPC manufacturers use more recycled plastics in their products than their European counterparts.

WPCs open new doors

The use of more WPCs in building and construction is opening doors for molders in a number of new areas such as stair spindles, newel posts and caps, kitchen cabinets, and other alternatives to pure-wood products for these have become increasingly costly. Jeff Newman, VP of sales and marketing for Wilmington Machinery (Wilmington, NC), notes recent changes in the marketplace have made conversions from wood to WPCs and other structural plastics more profitable.

"Specifically, industry regulations limiting timber removal now make certain types of wood more difficult to obtain," Newman says. "Other regulations have made wood products more expensive, such as the EPA regulation specific to chromated copper arsenate (CCA), used to treat lumber, which had to be discontinued as a primary wood preservative used for most residential and general consumer construction as of Dec. 31, 2003. Although there are alternatives recommended by the EPA as CCA replacements, they increase the cost of treated wood anywhere from 10%-30%."

Processors of WPCs have begun to explore structural foam molding as a method of replacing some of the building products that have traditionally been manufactured using wood, Newman explains. "Part of the reason is that structural foam products deliver physical property characteristics that are more like real wood than unfoamed products," he adds.

Wilmington Machinery, with expertise in the manufacture of specialized processing equipment, has achieved success in molding 30% wood-filled polypropylene on a specially designed 375-ton two-stage injection molding machine. "Molded pieces are stiffer than non-filled materials," notes Newman. "They provide the potential for material cost savings due to weight reduction through foaming, as well as the low cost of wood filler versus solid virgin material, and typically can be molded at shorter cycle times."

Thanks to rising demand in world construction activity, extrusion equipment will outperform other product types. Demand for extruded building and construction products such as pipe and siding, and windows and trim, along with improvements in extruder technology, will result in a greater demand for more accurate, productive machinery as plastics processors strive to remain competitive in terms of cost and quality, notes a report from The Freedonia Group ("World Plastics Processing Machinery").

In fact, things in the plastic pipe industry have been moving and shaking of late. Lincoln Partners was instrumental in facilitating the sales of WL Plastics to Sequel Holdings, Crow/Kaminski Capital, and Falcon Investment Advisors. During 2005, Lincoln advised clients on three deals in the plastic pipe industry. WL Plastics is a manufacturer of HDPE pressure pipe, primarily serving the oil and gas, municipal water, mining, and industrial markets, with three facilities located in Casper and Gillette, WY, and Cedar City, UT.

Eric Malchow, managing director of Lincoln Partners, a global investment bank specializing in mergers and acquisitions for sub-$300 million enterprise deals, sees the consolidation trends in building and construction that are impacting other industry groups. Firms are making strategic purchases of companies with niche products for the building and construction industry that include everything from roofing products to siding, windows, and interior products.

"Across the board, we see an increasing presence of companies in this area with lots of cash on the balance sheet that want to acquire companies that can drive double-digit growth in their business," says Malchow.

Andrew Bohutinsky, Sr. VP and head of the building products group for Lincoln Partners, says that building products in general come in two categories: nonresidential and residential. From an investor''s point of view, with the housing market flattening out a bit, some in the residential building products market are being a bit hesitant about putting more money into that sector.

Bohutinsky adds that he definitely sees more plastics processors getting into building products as plastics increasingly offer substitutes for traditional building materials. Three of the deals that Lincoln has helped complete, including the WL deal, were all manufacturers of plastic pressure pipe that is replacing concrete, iron, and steel. "There are nice growth trends [in this market], which makes it attractive for strategic buyers," Bohutinsky notes. "Fiberglass composites, siding, composite decking, other types of structures-those are very hot areas as well, particularly composite decking. Roofing seems to be getting traction. Some of these niches tend to be relatively smaller companies, but with those sectors growing as fast as they are, companies take notice and the interest in acquisition becomes greater."

Clare Goldsberry [email protected]

B&C: Sanitary sector is no pipe dream

Recent data show good demand for composite pipe in hot and cold tap water applications, as well as the underfloor heating sector.

That, naturally, should turn out to be good news for pipe processors. A telling example of demand comes from the U.S. Commerce Dept.''s recently released figures for single-family housing during 2005, which revealed housing starts topped 2.06 million units, up 5.6% over the previous year, and the second-highest number since 1972.

View from the ground

The German Plastic Tube Association (KRV; Bonn) says the sanitation sector was the one area that developed positively with increased sales volume of 2.6% in 2004 and expected 2% growth last year.

Tarmo Anttila, VP at pipe processor Uponor (Vantta, Finland) says, "We see a clear growth in most [sanitation and underfloor heating] markets, the speed of which varies from one country to another, but PEX (crosslinked polyethylene) and composite (multilayer polyolefin pipes with a barrier of metal, generally aluminum foil or EVOH) are doing a good job."

At competitor Pipelife (Wiener Neudorf, Austria), Zoran Davidovski, VP R&D, says plastics pipes are significantly increasing their share against competitive nonpolymer materials such as copper and steel, which have increased in price significantly more than polymer. "Overall, people are spending more for new houses and renovation and that is driving the demand," Davidovski says.

Pipe extruder REHAU Inc. (Leesburg, VA) says demand for composite pipes is growing faster in Europe than in North America. Yet the company still sees good prospects in the U.S. It has invested more than $20 million in a PEX pipe plant expansion at its Cullman, AL facility, which will double output. REHAU says plastics pipe prices have remained more stable than metal pipes targeting the same sector. However, REHAU says the failures during the 1980s of polybutylene pipe connections and joints in the U.S. have not been forgotten, which could explain slower U.S. growth. And it has only been since 1997 that codes for use of PEX have been applied.

Andreas Türk, sales manager at Krauss-Maffei Corp. (Florence, KY), says the market is seeing a trend toward switching from aluminum to steel layers for barrier, and that these layers are themselves becoming thinner for cost reasons.

Hans-Jürgen Matthesius, president of Cincinnati Extrusion Inc. (Erlanger, KY), says that California has allowed installation of PEX pipe in residential buildings, but that plastics pipes are still facing an uphill battle there. The issue is being fought in court by an organization, backed by the plumbers'' union, that fears loss of plumbing volume. Because PEX pipes are light and easy to bend, there is fear that homebuilders could install their own sanitation and heating systems and avoid union wages.

Lots of advantages

The benefits of PEX piping were convincing to Martin Ball, managing director of plumbing company M. Ball Plumbing (Ashford, England). During installation of PEX pipes in a London housing complex he says the firm needed less storage space because PEX pipe could be coiled; he saved time because no special permits for "hot work" were required as with metal; labor costs were down since one man could do the work of two in a day; and he wasn''t faced with theft, a problem when leaving copper pipe at building sites overnight.

PEX composite pipes are finding their way into some innovative new applications as well, including the 20,000m of Pronto-PEX 5-layer EVOH barrier pipes (processed by Micrex Profiles of Stalybridge, England) that were installed at the Xscape Leisure Complex indoor snow slope. A mixture of glycol and water is pumped through the pipes to freeze the surface of the skiing slope.

Composite pipes, according to statistics from the KWD-Globalpipe website, are growing fastest in Western Europe and the new EU countries of Central Europe. East European countries employ more polypropylene pipes because of their low cost; North America and Scandinavia are PEX-dominated; while Latin America, Africa, and Australia are still copper-oriented. KWD sees China, Japan, and eventually India opting for composite pipes with aluminum or steel-foil barrier. European PEX pipes are said to account for 180,000 tonnes/yr, and are growing at 12%/yr. By contrast, copper usage in Europe has dropped from 750 million meters in 1998 to 650 million in 2004.

KWD says installers can expect (in one to two years) a significantly improved composite pipe technology produced at higher output speeds, but companies are not talking about these yet.

One development having an impact on the market is PE-RT (PE raised temperature resistant), a Dow Chemical (Midland, MI) development. Its Dowlex 2344 and 2388 grades are a specialty ethylene-octene copolymer designed to resist temperatures up to 95°C.

"Since PE-RT requires no post-treatment with steam to crosslink as PEX does, the material is easier to process [no crosslinking catalysts, no pre-crosslinking effect, and no expiration dates], the scrap is reusable, and, most important, the price is ?1500-1550/tonne, ?150-200 less than the PEX recipe per tonne," says Pipelife''s Davidovski.

Rena De Zanet from base plastics Europe/Middle East-Africa, Dow Europe (Horgen, Switzerland), says Dow sees 10%/yr growth for composite pipes, mainly in PE-RT/aluminum/PE-RT multilayers, where the inner and outer layers inhibit scaling and corrosion and the center layer provides barrier and strength. This growth, she says, is coming at the expense of metal pipes.

Robert Colvin [email protected]

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