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Fiberon looks closely at raw material costs
5 years, 8 months ago Posted in: Manufacturers News 1

By Mike Verespej | SOURCE: PLASTICS NEWS 

10/27/2011 — Fiberon LLC executive Bill Ross says the company is “looking at investing in new raw materials sources” in order to gain more control over the price of the raw materials it uses to make decking.

Ross — who is vice president of sales — declined to disclose the company’s specific plans, or whether the plans are related to its wood-plastic composite or cellular PVC decking. But in an interview at Deck Expo in Chicago in mid-October, he said Fiberon was “actively in the development” of an investment related to raw materials.

However, Ross did shed some light on those raw materials issues at the Principia Partners Wood- Plastic and Natural Fiber Composites conference in Charlotte the week before Deck Expo.

“There have been horrendous increases in prices the last few years in PVC,” said Ross at the WPC conference. “The demand on PVC slowed down, but the prices didn’t decline. It has been like a linear equation. That’s not the same with WPC.”

But, in the WPC market, there’s been a different complicating competitive issue — specifically the plastics film recycling plant that Advanced Environmental Recycling Technologies Inc. opened in Watts, Okla., 18 months ago. AERT said that plant has reduced its raw materials costs by 20-30 percent, giving it a raw material cost advantage over many of its competitors.

In the interview at Deck Expo, Ross also said that rising raw material prices present a challenge for the entire industry, and that the low existing dealer and distributor inventories could be self-defeating down-the-road for both those channels, as well as all manufacturers of WPC and cellular PVC decking.

He also said that the industry needs to come together as a group to better promote the category of alternate decking.

“One risk to the industry is rising raw materials prices” as that could trigger “increases in pricing of finished goods products,” said Ross.

And he’s not convinced tightening production costs can be the answer all on its own to those higher material costs.

“I don’t think efficiencies in manufacturing will get you very much,” said Ross. “Companies have to develop new sources of raw materials, and achieve reductions in weight” without sacrificing strength or quality.

Of equal concern are the new lower levels of decking inventory at both dealers and distributors the last six months.

“The market took a dive in May at the dealer level, and in July at the distributor level” because of skittishness about the economy that has both of those channels reluctant to tie up cash in inventories, Ross said.

“The average dealer would like to special order everything because there is only so much money available,” said Ross. But he said that adds roughly 30 percent to the cost of decking materials, which Ross said is a greater price increase than the combined price increases since alternative decking first hit the market 20 years ago.

“I’m concerned that the desire to not stock product will drive costs up to a level that makes it less affordable and preclude a large number of people from buying the product,” he said. “That’s as much an increase in price as the industry has seen [combined] since its inception.”

“That is a risk,” Ross said. “We have to educate them and provide them with incentives to carry more inventories. We have to get them to understand the important of maintaining inventories at the dealer location so the deck builder has access to it and the price is not inflated.”

That low-inventory strategy could also backfire when the economy turns around, he said. “I’m concerned that dealers will be slow to add inventory and not have enough product as the economy recovers.”

Ross didn’t say how much decking sales at Fiberon have grown in 2011. But he said Fiberon’s sales are “up and remain ahead of last year’s sales” — which he said “grew at double-digits.

“Our capacity was sold out through the end of last year, and distributor sales are way up over last year,” said Ross.

But, regardless, Ross said that he believes that the industry is not capitalizing on the opportunity to make market penetration because it’s working together to boost the overall category.

“The missed opportunity for the industry is that it has not come together as a unified front to promote the category,” said Ross.

“If the various associations that represent the industry were to come together and focus their resources on growing the category, it is a way for all of us to grow,” said Ross. “I think there is a desire for it to happen,” but it hasn’t materialized yet.

“The economy has caused the decking industry to contract,” added Ross at the Principia conference. “Fewer decks are being built and those decks that are being built are smaller. The disenchantment of the past [products that failed to meet consumer expectations] have slowed momentum in the category.”

“The big question is will this industry reach its potential and reach the level of flipping people from wood that it can,” Ross said. “To do that, we have to make products that meet the aesthetics and expectations of consumers. I think that the ability to provide a high-performing, but lower-priced product will invite people to enter the category, or stay if they are looking elsewhere.”

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  1. […] Fiberon looks closely at raw material costs (compositology.com) 12/02/2011 […]

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