08 June 2012 21:49 [Source: ICIS news]
HOUSTON (ICIS)--With the US construction sector fitfully showing improvement this year, there are indications that polyvinyl chloride (PVC) producers may start looking increasingly to American markets to sell the durable pipe and construction industry material.
Approximately 40% of the domestic market for PVC, one of the main end-products of the chlor-alkali chain, is used in the manufacture of pipes for use in both residential and commercial construction. PVC is used mainly in building and construction applications in the US and in house building for pipes, siding, window profiles and floor covering.
Approximately 40% of the domestic market for PVC, one of the main end-products of the chlor-alkali chain, is used in the manufacture of pipes for use in both residential and commercial construction.
PVC is used mainly in building and construction applications in the US and in house building for pipes, siding, window profiles and floor covering.The housing industry and its underlying subprime mortgage crisis was one of the primary factors behind the Great Recession of 2007-2009. Since then, the real-estate market has struggled to absorb a glut of foreclosures and underwater homes, so called because the size of the mortgages exceed the value of the houses.
Each of the past two springs, when home building typically begins in earnest, there have been predictions that the industry was about to recover. Each year, those predictions have disappointed.
This year, the signals have been mixed, but with a general trend toward a rebound in the housing sector.
In mid-May, the National Association of Home Builders (NAHB) reported that its monthly survey of contractors showed a 5-point gain in the group’s housing market index (HMI), climbing to 29 from the downwardly revised April figure for 24.
A reading of 50 or above on the 100-point scale indicates that home builders are confident about their prospects over the next six months.
While the May figure was low, it is still well above the index's all-time low of 8, reached in January 2009.
David Crowe, chief economist for the NAHB, said in a semi-annual housing construction forecast in April that home building would begin to recover this year and pick up in 2013.
“We should reach 500,000 housing starts in 2012 and it will be even more solid in 2013,” he said.
Also in mid-May, the US Department of Commerce said that US housing starts in April were at a seasonably adjusted rate of 717,000, up 2.6% from the upwardly revised March rate of 699,000.
April’s rate was 29.9% above a revised rate of 552,000 in April 2011, the department said.
By the end of May, however, the National Association of Realtors (NAR) reported that US pending home sales fell sharply between March and April. The trade group said its pending home sales index (PHSI) fell in April to a reading of 95.5 from the March figure of 101.1
Just a month earlier, the NAR had cited a previous string of improvements in the index as a sign that “the housing market has clearly turned the corner”.
Perhaps more troubling, the ratings agency Standard & Poors (S&P) said that US home prices fell to new lows in the first quarter of 2012. Its closely watched survey of nationwide housing prices, the S&P/Case-Shiller national home price index declined 1.9% in the first quarter of 2012 over the first quarter of 2011. Average home prices are generally seen as a barometer of the health of the homebuilding sector.
“While there has been improvement in some regions, housing prices have not turned,” David Blitzer, chairman of S&P’s indexes committee, said on 29 May.
For the major manufacturers of PVC in the US – including Shintech, Georgia Gulf, Formosa Plastics USA, OxyVinyls and Westlake – the slump in US construction has forced them to look abroad to move their wares.
The export market, particularly in Latin America, has helped the companies remain profitable, or at least afloat, as the US economy continues to struggle out of its doldrums.
That trend may continue for some time, according to at least one petrochemical industry observer.
Fred Peterson, chairman of New Hampshire-based Probe Economics, an analysis and consulting firm, said current economic signs indicate that in a worst-case scenario, the US homebuilding sector might not fully rebound until 2018.
And by rebound, Peterson does not mean to the levels seen during the 2005-2006 peak of the boom.
Instead, Peterson said, a recovery will likely show homebuilding at the levels seen around 2000, just before the real estate bubble began. Instead of a new normal, construction will be back to the old normal, according to Peterson.
“There was nothing normal about 2005,” he said.
But even if home construction does not get back into full swing until 2018, Peterson said indications are that there will be steady growth. And with that growth will come increasing domestic demand for PVC, he said.Follow Ken Fountain on Twitter
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