Recovery in housing to benefit cellular vinyl, not WPCs

27-Jan-10

Residential decking and railing demand is expected to improve in 2010 compared to 2009 as home construction and R&R recovery begins a development that will benefit cellular vinyl but not wood-plastics composites (WPC), according to a new study by Principia Partners. Lumber and resin price volatility has affected the substitution dynamics between composites and wood decking and railing. Pressure-treated lumber prices plunged when the residential housing market collapsed, at a time when resin prices were soaring. The North American residential decking/railing market fell from US$4.6 bln in 2006 to US$2.8 bln in 2009, the study said, changes caused largely by the deep economic recession which dramatically reduced the homeowner's ability to finance a new deck or replace an existing deck. Total value for WPCs and cellular vinyl decking is estimated at about US$725 mln, about 26% of the total decking and railing market in 2009. Demand for cellular vinyl in residential decking has grown from about US$5 mln in 2004 to over US$95 mln in 2009. Cellular vinyl demand growth is at the expense of polyolefin-based WPC decking. As a consequence, composite decking is losing market share to wood on the low end and losing market share to cellular PVC on the high end. Reduced demand, combined with resin prices, severely stressed WPC suppliers' margins and forced the closure of plants and overall reduction in capacity as several large producers and small start-ups, have exited the business. Building products distribution has changed. Early-buy programs and product inventory levels have been vastly reduced. Supplier-distributor relationships continue to change. Sole sourcing is a big change from the boom days, when distributors and dealers carried multiple product lines from multiple suppliers. The number of renovation and remodeling projects financed via home equity will not soon reach the levels of the boom years.