FocusUS commercial construction threatens chems

15 November 2007 19:05 [Source: ICIS news]

Nonresidential construction in the US is showing signs of a slowdown By Al Greenwood

HOUSTON (ICIS news)--Nonresidential construction in the US is showing signs of a slowdown, adding pressure to chemical companies that sell products to the building industry.

Commercial construction creates demand for such products as coatings, sealants and adhesives, said Kevin Swift, chief economist for the American Chemistry Council (ACC), a trade group that represents the industry.

"There are some chemicals attached to all of this," he said. "If there was a slowdown, the demand for that type of chemistry would slow down as well."

Already, the slump in US house construction has lowered domestic demand for polyvinyl chloride (PVC), titanium dioxide (TiO2) and other products.

Now, following several months of strong growth, commercial construction is showing signs of a slowdown.

Reed Construction Data, a publication of the Reed Elsevier group that also includes ICIS news, reported that last month's nonresidential starts fell 4.4% from October 2006, according to the Associated General Contractors (AGC), a trade group that represents commercial contractors.

In September, Reed Construction Data reported that nonresidential construction starts rose 17.9% from the same time last year.

Prospects could worsen in the upcoming months, as indicated by the October opinion survey that the US Federal Reserve conducted with senior loan officers.

Roughly half of the domestic banks reported that they tightened lending standards, up substantially from the July survey, the Federal Reserve said.

Only one bank reported that credit has eased, while the remaining 24 respondents reported no changes from the July survey, the Federal Reserve said.

About 40% of the foreign banks reported credit tightening in the October survey, about the same as in the July survey, the Federal Reserve said.

In addition, 35% of domestic and foreign banks reported in October a drop in demand for commercial real-estate loans, compared with 25% in July, the Federal Reserve said.

Kenneth Simonson, the AGC's chief economist, said prospects for nonresidential construction have become more mixed.

The AGC is receiving an increasing number of reports that income-producing projects are having trouble qualifying for financing, he said. In the first months following the August credit crisis, the AGC received almost no such reports.

Some nonresidential projects will be less vulnerable to any upcoming slowdowns, Simonson said. Construction will likely remain strong for power plants, refineries and other facilities related to energy.

In addition, hospitals and university construction will also move forward, since such projects are less susceptible to a single factor, such as credit tightening.

"These guys either have their own financial resources or very good credit ratings," he said.

Moreover, commercial projects will likely continue in Texas, Oklahoma, Utah and other states with strong economies, Simonson said. "But I think the damage from the housing slowdown and the credit-market excesses are hurting nonresidential construction in previously hot states."

By: Al Greenwood
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