Talking With… Larry Meehan, President, Royal Building Products, on the Hurricane Aftermath and the Effects on the Vinyl Siding Industry. Royal Building Products is one of North America’s largest manufacturers of vinyl building products and a valued supplier of vinyl siding for Allied.
From Michael Lynch, CEO, Allied Building Products
Allied Building Products is committed to providing our customers and contractors with up-to-date, clear information during this time of turmoil in the pvc conversion industry in the aftermath of Hurricanes Katrina and Rita. This is a time of unusual confusion and uncertainty. It is with this in mind that we are speaking with several industry leaders to assist you in understanding the principal reasons behind price increases and material shortages in the production of vinyl siding products, and to enable you to inform your customers.
Allied will always strive to be your finest partner, both in good times, as well as in times of major natural disaster.
In many ways, we are still only learning the damage the storms have caused in different parts of our business, especially supply chain shortages. As such, following please find the first in a series of articles featuring industry leaders to learn about their major concerns, where there efforts are focused, and what they anticipate for the future.
Talking With… Larry Meehan, President, Royal Building Products, on the Hurricane Aftermath and the Effects on the Vinyl Siding Industry.
Royal Building Products is one of North America’s largest manufacturers of vinyl building products and a valued supplier of vinyl siding for Allied.
How has the recent Gulf Coast hurricanes affected your business?
The combination of the two hurricanes has had a devastating effect on the petrochemical industry, which naturally has had an effect on Royal’s supply source. As of the end of September, virtually 100 percent of the crude oil production and 80 percent of natural gas production were shut down in the gulf coast. It will improve as facilities get up and running again, but as of the end of the month they were virtually shutdown. North American capacities of these products are supplied out of the gulf, so this has had a tremendous effect on Royal.
Explain the derivatives of PVC resins that are in high demand and short supply.
I have some frightening statistics: As of the end of September, about 55 percent of the supply of ethylene, a major PVC component, was shut down. This led to significant price increases for ethylene as well as ethane, another key feed stock, as a result of decreased production from storm damaged facilities. Additionally, vinyl chloride monomer, a key foundation for PVC resin, is also in limited supply – about 25 percent of that capacity was down as of the end of September, also due to damaged factories. This has all contributed considerably to PVC shortages, with about 20 percent of its total capacity down in North America.
As a result, the shortages are causing raw material suppliers to declare force majeure [a contractual claim that excuses a party from liability if some unforeseen event beyond the control of that party prevents it from performing its obligations under the contract]. In essence, this opens us up to volatile market conditions. We are now facing dramatic price increases from all manufacturers; we have not seen price increases of this magnitude before.
Additionally, because force majeure allows manufacturers not to deliver as per contractual obligation, some vinyl siding manufacturers will not be getting their product requirements. I know for a fact there will be shortages.
By good fortune, Royal has its own supply of PVC, made in Ontario, and our feedstocks are located in Kentucky. If there is any good news here, it’s that we probably have a good supply of PVC for our product line.
What other factors are affecting business?
Devastatingly, nearly 300 million pounds of resin production have been lost to date due to the storms. Prior to Hurricanes Katrina and Rita, resin inventory [at the producer level] was at about 5 days worth. Additionally, railway issues – due to driver shortages and increased fuel costs - have led to escalated freight costs, impacting transportation costs at all levels of the supply chain. FEMA is offering big money for people to bring product into the area via one-way traffic.
In such an environment, what do you see as the biggest challenge in trying to conduct business as usual?
In my opinion, the biggest challenge will be difficulty meeting the busy seasonal demand, as this is the busiest time of year and the supply chain has been disrupted severely. I think it will be 3-4 months before the supply chain side of things can been fixed.
Regarding the cost end, prior to the hurricanes, raw material suppliers were aggressive in pricing. In the last 12-18 months, the raw materials used to manufacture vinyl siding rose nearly 50 percent, and those increases were not moved to the end user. Now, with the devastation of the supply chain, it’s a totally different picture and we are seeing very aggressive pricing.
How long do you think it will take the industry to recover?
As of today, I can not predict relief coming before January. We are in daily communication with suppliers down in the gulf to keep current on how serious the damage is and how close we are to getting back to full production. Communication is key at this time.