17 January 2012 22:48 [Source: ICIS news]
HOUSTON (ICIS)--US-based vinyls producer Westlake Chemical made its $1bn (€790m) unsolicited bid for Georgia Gulf amid signs of what an economist said on Tuesday was an improvement in the US housing market.
Westlake's bid comes to $30/share.
However, any recovery this year will be slight and will be from low levels of construction, said Jim Gaines, a research economist for the Real Estate Center at Texas A&M University.
Moreover, the industry is still contending with several trends that are holding back growth, such as tight credit and a large number of foreclosed homes that could still enter the market.
House construction is an important end market for polyvinyl chloride (PVC), so the prospects for both industries are tied together.
Unusually, Westlake's stock price has maintained its gains since making the bid.
Prices for other chemical companies tied to the housing market have also increased, although to a much smaller extent.
"The housing industry is expected to do better this year," Gaines said. "We've hit a bottom. It just wasn't going to go any lower," he said.
Already, some statistics point to an improving market. US new-home sales in November rose 9.8% year on year to 315,000 units, the highest total in seven months, according to the US Department of Commerce.
Low prices and mortgage rates are inducing buyers who postponed purchasing a house, Gaines said. Also, former home owners who moved in with roommates or with family are returning to the market.
Plus, the housing market has a natural rate of expansion caused by a growing population and by people starting families, Gaines said.
Because of that and other trends, this year should be the first of several years of growth in house construction, he said. However, that increase will occur from exceptionally low levels.
In addition, other trends are still working against the industry.
Credit is tight for home owners, home builders and land developers, Gaines said.
For land developers, the tight credit is preventing them from preparing new lots that are ready for home construction, Gaines said. In areas with high demand, there is actually a shortage of lots, and companies cannot acquire the credit to develop new lots.
The US still has a large supply of foreclosed houses, and those houses compete with new ones, Gaines said.
This year is an election year in the US, so businesses are delaying investment decisions until they know what kind of regulations the next president and congress will pass, he said.
Additional reporting by Bobbie Clark
($1 = €0.79)
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