Formaldehyde outlook rises on pent-up US housing demand - Hexion

15 September 2010 22:43  [Source: ICIS news]

HOUSTON (ICIS)--The North American formaldehyde industry could get a quick jolt from pent-up demand in  the US housing market, an executive with Hexion Specialty Chemicals said on Wednesday.

The fortune of the formaldehyde industry is largely tied to the US housing market, said Dave Collins, vice president of formaldehyde and derivatives for Hexion. Collins spoke at the 8th annual Methanol Forum, held in Houston by consultancy firm Jim Jordan & Associates.

Formaldehyde is one of methanol’s primary end-markets, and the housing sector represents about 60% of its demand.

“The impact of that pent-up demand could be severe,” Collins said.

However, such demand was unlikely to be unleashed for at least the remainder of 2010, he said.

In recent years, the struggling housing sector dragged down demand for formaldehyde, Collins said. Industry utilisation rates have been in the low 70% range in 2010, he noted, and formaldehyde demand has dropped by more than 15% since 2006.

Prior to 2006, formaldehyde was growing at 3-4%/year in the US – roughly level with GDP growth, Collins said.

Moreover, forecasts for home remodeling and furniture demand over the next two years are largely flat. As such, any significant recovery for the formaldehyde market is tied to a recovery in housing.

New home sales have cratered in recent months, following the expiration of a federal new home-buyer tax credit on 30 April. That led some analysts to predict a double-dip recession for the sector.

However, the US monthly annualised rates of building new homes are nowhere near the long-term run rates needed to meet population growth, he said, quoting industry analysts.

As such, when the US unemployment picture improves, people could look to buy new homes quickly. That, in turn, could bring a speedy recovery to the formaldehyde industry, Collins said.

“Is there an imminent recovery? I don’t know, but if you look at where we’ve been, it looks like we’ve bottomed out,” Collins said. “At some point, this thing will get turned around.”

Over the near term, demand in 2011 should at worst be even with 2010 and likely higher. That would represent the first year-over-year demand growth since 2006, he said.

The Methanol Forum lasts through Thursday.

For more on formaldehyde visit ICIS chemical intelligence
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By: Ben DuBose
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