Photo: Underground Solutions Inc.

Robust demand and high energy costs have seen polyvinyl chloride prices rise for three consecutive years, culminating in a 20% increase between August 2005 and 2006, reports the U.S. Bureau of Labor Statistics Producer Price Index. Hurricane Katrina last year helped spike prices. Spot shortages followed because PVC and other vinyl products use ethylene resins produced from oil via naphtha or natural gas via ethane.

Hurricane-related shutdowns sent resin prices soaring to 72¢ per lb as standing inventories were quickly absorbed, says Frantz R. Price, of Global Insight Inc., a Waltham, Mass.-based research firm. Prices have since flattened to about 65¢ per lb during the last six months due to a housing market slowdown and softening economy, Price adds.

“Although PVC operations will still run flat-out through the summer, production is expected to ease-up as the housing market slows further,” says Michael S. Carliner, vice president of economics with the National Association of Home Builders, Washington D.C.

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Additional cost relief could come from lower gas prices, which dropped 11¢, to $2.67 per gallon in early September, or 33¢ below post-Katrina levels, reports the Energy Information Administration. But PVC producers like PW Eagle Inc., Eugene, Ore., anticipate a 3% annual increase in demand for waterworks, irrigation, and electrical products through 2011. “Housing starts couldn’t stay at the level they were at, but that’s only part of the overall market,” says Jerry Dukes, PW Eagle president and CEO.

CONTECH Construction Products Inc., Westchester, Pa., is similarly forecasting solid growth, especially in the southwest and northeast. Sales have jumped 10% over the last two years, says Ted Capossela, the company's vice president and general manager of plastics.

Construction products make up 70% of the $5.3-billion domestic PVC market, which, because of hurricane-related disruptions, saw a 7-million-lb dip in sales last year, says Allen Blakely, spokesman of The Vinyl Institute, Arlington, Va. PVC sales totalled 16 billion lb in 2004, a 6.6% gain over the previous year, he adds.

Contractors are seeing volatile PVC prices from suppliers, many of whom are holding bids for a week or less. Firms, in some cases, are adding cost escalation clauses to construction contracts that pass increases onto the owner. “We previously had the ability to price pipe ourselves by determining what our suppliers were paying for resin per pound,” says Kelly Duke, vice president of preconstruction services for ValleyCrest Cos., Calabasas, Calif. “Now we get a separate quote on every job, and budget in escalation.”

While supply remains tight and prices high, some analysts think both will improve when Houston-based Shintech, a subsidiary of Shin-Etsu Chemical Co., Tokyo, opens a new $1-billion, 1.3-billion-lb capacity PVC resin plant in Plaquemine, La., in late 2007.