Booming construction industry fueling strong sales for pipe, profile extrusion suppliers

With Statistics Canada reporting slumping sales for petrochemical feedstocks and plastic products as a whole, promising economic news could be dismissed as little more than a pipe dream.

Then again, the phrase may be more appropriate than you think.

Suppliers to pipe and profile extruders suggest this sector of the plastics industry remains strong thanks to everything from a recent building boom to improved products.

“Demand for building products has increased considerably,” said Alan Benlolo, marketing manager of Custom Downstream Systems (CDS) in Lachine, Que., which makes downstream extrusion equipment. “Window frames, fencing panels — anything related to building a home has gone up.”

Custom applications in the extrusion market are “extremely good” as products continue to evolve, added Sainte-Julie, Que.-based Auxiplast Inc.’s president Francois Cot, who noted that business related to these booming markets has grown as much as 25 per cent in the past two years. “We see a lot of new, different products coming out … we have replaced almost everything in the building industry.

“People have started with the windows, and now the membrane for the roof. You’ve got siding. You’ve got everything inside and outside [made with plastics] when it’s not structural,” he added.

Dave King, president of the Kirkland, Que.-based Accuplast Solutions pointed to growth in sales of a foamed polyvinyl chloride (PVC) sheet, which is replacing concrete in backer boards or window borders.

“It’s lighter, easier to use. It’s going to have the same wear or maintenance characteristics as siding,” he explained.

The growth in offerings isn’t simply limited to all-new applications, either. For example, PVC and wood-plastics composites (WPCs) are available in an ever-widening choice of colours, broadening the market for those materials, Benlolo said.

“They’re finding additives that are more durable, that can sustain these colours for a long period of time,” he explained. “The use of other resin additives and modifiers are helping a lot.”

PIPE DREAMS

The most promising segment of the industry, however, may be hidden from view.

“We have seen a significant increase in activity with large-diameter (greater than 1,000 mm) polyethylene (PE) pipe,” said Paul Godwin, director of sales for American Maplan Corp., in McPherson, Kan.

To date, more than 100 Canadian municipalities have said they’re willing to consider large-diameter vinyl water mains. And extruders were given an added boost by a recent University of Toronto study estimating that Canadian cities could reach 10 per cent of their emission targets under the Kyoto Protocol by replacing hydraulically-deficient iron pipes with plastic alternatives like vinyl. The lower emissions would be linked to the need for less energy to pump water, thanks to the pipes’ smoother interiors, according to the study..

However, he doesn’t expect that growth to last forever and does not know when it will plateau.

“I think it will ultimately flatten out,” he said. “If you have a pipe manufacturer that has an order for ‘X’ miles of 1,600 mm- or 1,100 mm-thick wall pipe, some of those pipes weigh 200 lbs. per foot. Do the calculations of how many feet there are in 30 miles. How long would it take to manufacture that?”

PVC products already account for about 85 per cent of Canadian sewers and smaller 4.5-inch water mains, said Richard St.-Aubin, business development manager for municipal systems at Ipex Inc. in Toronto. “The same thing with collector sewers as well — SDR 35 smooth-wall pipe as well as profile pipe.”

However some industry groups say the biggest opportunities lie south of the border, where the ductile iron pipe industry is strongest.

According to analysts with the Freedonia Group in Cleveland, Ohio, U.S. demand for plastic pipe used in highway and street construction will exceed any gains in copper, aluminum and concrete. “Resin and processing improvements will further enhance plastic’s advantages,” the firm reported.

“But traditional materials are not that easy to displace,” St.-Aubin admitted, referring specifically to applications such as pipe for water mains that are more than 400 mm in diameter, and pipe for sewers over 525 mm.

But the transformation may simply be a matter of time.

“Municipally, the main people in charge of the water and sewer infrastructure are conservative and notoriously slow to move,” he explained added. “[But] there has been a lot of PVC in their systems for many years, and they see how well [they] perform.”

COMPOSITE CHALLENGES

Even though WPCs are now in their third generation, boasting key improvements over their predecessors, the market for composite decking is still marginalized, said Accuplast’s King.

During the 8th International Conference of Woodfiber-Plastic Composites, Lou Rossi, with the Jersey City, N.J.-based Principia Partners, suggested that WPC products will account for 25 per cent of the decking and railing market in 2005, up from 15 per cent in 2004. In part, growth has been limited by an industry that has been able to do little more than “tweak” existing designs, he said.

Auxiplast’s Cot also noted the slower-than-expected growth for WPCs.

“Everybody’s talking about the wood composite business, but we don’t see it right now,” he said. “My point of view is it’s a good market, but the big guys [such as Anderson Windows] are already in there.”

However, opportunities exist for WPC fencing profiles.

“On our PVC fence application, we have a unique tooling design for fence profile calibration and extrusion, and that’s been very successful,” American Maplan’s Godwin said. “Profiles have come a long way for the fence and handrail industry. That’s made them more pleasing to the consumer, getting the surface finish and gloss that people are looking for.”

In fact, Godwin expects fence profiles to be among the strongest areas for potential growth, along with PE pipes and WPCs.

“It seems like either (the PVC pipe industry) is discovering that some of the tooling technology has a lot of merit and benefit,” he said, referring to the new tooling being invested in the standard PVC pipe industry.

King, meanwhile, suggested the interest in PEX (cross-linked PE) has not grown as rapidly as expected, despite the fact that contractors would likely prefer a pipe that can be bent and connected without the flame of a torch.

“In principle, the cost of doing a house should be reduced, and you should have more flexibility,” he continued. “I don’t think enough has been done to get it into specs and get the installers on-side.”

BETTER APPROACHES

Regardless of the interest in specific product lines, extruders on a whole are investing in better technology for their businesses.

“The bottleneck was the downstream equipment,” Cot said. But that’s changed, as several equipment-related improvements have helped boost production. Additionally, the widespread use of twin-screw extruders has improved output by as much as 50 per cent, and slashing the raw materials cost, he said.

“From a machine standpoint, people are obviously looking at using higher-speed tooling, requiring larger-output extruders and getting better technology, graduating from being a single-screw operation up to twin-screw and that type of thing, especially in the profile market,” said Dirk Koch, vice-president of sales at Deltaplast Machinery Ltd. in Concord, Ont. “We’re actually decreasing the number of machines per company, but just [increasing] the line speeds.”

“The benchmark for people looking at new equipment purchases is around 80 per cent utilization, and some of the industries are approaching that,” Godwin added.

According to Statistics Canada, plastics processors were operating at 88.6 per cent of their capacity in the second quarter of this year.

However, Koch suggested profile extruders are using more of their capacity. Still, so
me of their additional business may be due to survival of the fittest.

“There are certainly companies that are very strong [but] some guys are just taking away business from the other guys,” he said. “Everybody’s margins are lower, [so] they’re trying to be more competitive.”

Perhaps bigger leaps in productivity will involve automating the way final products are pulled off a line. Most extrusion equipment suppliers refer to the benefits of using robotics.

“Automation is something that’s growing fast in extrusion,” Cot added. There is the growing interest in lasers to measure the dimensions of profile tubes or pipe in on-line settings, re-adjusting such things as water temperature while products are still being created.

“You cut the waste and you cut the rejects dramatically,” Cot explained. “People don’t want to pay for a guy at the end of the line to check it … you see a lot of customers that have 30 to 40 per cent defects. Some people have five per cent defects, but overall it costs them a fortune [without automation].”

Koch agreed: “I’m somewhat surprised we haven’t seen more invested in capital equipment.”

THE PROFITABLE FUTURE

For the immediate future, there may be an increase in sales relating to the infrastructure damage caused by hurricanes Katrina and Rita.

While this is the traditional end of the season for construction sales, which typically runs from February to August, Koch said many of his customers are building up inventories of profiles.

There may even be higher profits to be had in the process. The LA Times, for example, recently said costs for PVC sewer and water pipes in the Los Angeles region had jumped about 10 per cent in the past year, and credited part of that increase for a surge in demand.

But manufacturers will be reluctant to buy additional equipment to meet the need, Koch adds. “That’s a momentary blip in the screen … That’s not sustainable.”

In Cot’s mind, the most promising markets will require more shifts to in-line extrusion, with operations making their resin and profiles in one location.

“That is really cost-efficient, when the customer makes the same product over and over,” he said.

And that promise of extra business is more than a pipe dream.