Plumbing industry in '06 'a 7 or an 8'

BY WILLIAM ATKINSON SPECIAL TO CONTRACTOR HIGH PRICES FOR metals and other raw materials, continuing consolidation of suppliers and more green building initiatives are some of the trends that will affect the plumbing industry this year. Overall, plumbing contractors and manufacturers are optimistic about 2006, although no one expects this year to be better than 2005. (Other forecast stories appear

BY WILLIAM ATKINSON
SPECIAL TO CONTRACTOR

HIGH PRICES FOR metals and other raw materials, continuing consolidation of suppliers and more green building initiatives are some of the trends that will affect the plumbing industry this year. Overall, plumbing contractors and manufacturers are optimistic about 2006, although no one expects this year to be better than 2005. (Other forecast stories appear on page 7.)

William N. Erickson, CEO of C. J. Erickson Plumbing in Alsip, Ill., and chairman of the Plumbing Contractors of America, said he had asked his company's president and chief estimator what their expectations were for 2006 on a scale of one to 10.

"They both said probably between seven and eight, and I think I'll go with that too," he said. "Activity will depend on the part of the country, though."

For example, Erickson said he has talked with contractors in Syracuse, N.Y., and Cleveland who have nothing going on, but he has also talked with contractors in Kansas City who can't find enough help. Last year turned out to be a good one for his company.

"Business in 2005 exceeded our expectations, partly because of a couple of really large jobs we had in mid-year," Erickson said. "However, I don't know if that was the result of luck or hard work."

Jim Stack, president of Stack Plumbing in Kirkland, Wash., and president of the Plumbing-Heating-Cooling Contractors — National Association, said that 2005 started slowly for him.

"In fact, we had one of the worst first quarters we've ever had in the 23 years we've been in business," he said "We were down about 35%. However, things picked up after that."

Stack is already seeing 2006 shaping up as a strong year. As of mid-December 2005, he was already booked up for remodels, repipes, and additions through February.

"I talked with someone from California who says he's already swamped for 2006," Stack told CONTRACTOR. "We even have some customers telling us to put them on the schedule whenever we can, regardless of the price."

For plumbing manufacturers, the home-building industry once again is expected to lead the way in 2006. Residential construction, however, may not hit the same level as in recent years.

"We see some builders, especially regional ones, who are very optimistic," said David Lingafelter, vice president and general manager for Moen's wholesale division. "Overall, though, most builders are 'cautiously optimistic,' which is the same term we used last year."

Lingafelter said he sees a slowing of new home growth in 2006, especially considering interest rates. In sum, he said that activity would remain at a high level.

"It just won't have the explosive growth we have seen recently," he said.

Moen's wholesale division and the company overall experienced doubledigit growth in 2005, Lingafelter said. Most manufacturers involved in home construction benefited from another strong year, he noted. Moen had expected the market to soften in 2005, so it was a pleasant surprise when it didn't.

"Of course, there wasn't equal growth across the country," he added. "The coastal and warmer states tended to drive the growth, while the central states had to push harder for growth."

The National Association of Home Builders is expecting a "soft landing" in 2006, with about 200,000 fewer new homes than last year, noted Joey Glassco, Noveon's market manager/ residential plumbing. Noveon makes materials used to produce FlowGuard Gold CPVC pipe.

"It should still be a good year for us, though, because there is a new emphasis on more affordable housing," she said, "and plastic plumbing materials are certainly more affordable than copper."

The residential remodeling market could help to pick up any slack in home building, said Vasken Altounian, Delta Faucet's executive vice president/sales and marketing. He said he is very optimistic about 2006.

"We feel that the remodeling market will remain strong," he said. "There is discussion about some weakness in new construction, but we expect housing starts to still be very strong in historical terms."

Even if there is a slowdown, Altounian said, it probably won't be significant enough to have a measurable impact on Delta's business.

"As such, we should have another good year," he added.

He noted that 2005 started a little slow, but after that, it shaped up to be a good year.

"Construction and renovation have both been very healthy," he told CONTRACTOR in December. "We will finish the year strong, both on the retail and trade sides of the business."

Chicago Faucet, a Geberit company, also sees a growing market for renovation as well as a strengthening nonresidential sector. The company saw a slowdown in the residential side of its business in 2005, especially at the OEM level, said Richard O'Reagan, senior vice president/sales and marketing.

"However, we benefited by the pickup in the commercial marketplace, which is the primary driver of our company," he said. "As such, we were well-positioned to take advantage of this uptick."

O'Reagan said he expects to see a continued drop in housing starts in 2006, as well as a lengthening of the buying process on the residential side.

"We still expect to see investment in renovation," he said. "On the commercial side, we expect to see continued, although moderate, increases."

The ongoing consolidation of suppliers and distributors in the plumbing industry is leading to continued price pressure, O'Reagan said. On balance, though, consolidation is good for the industry in that it forces inefficiencies out of the value chain.

"In other words, as the big players get bigger, you see more economies of scale, both at the manufacturing and distribution levels," he explained. "You also see a better array of products and services through a single sourcing point."

The cost of metals and other raw materials will have an impact on pricing too, Delta's Altounian said. He noted that copper prices have increased dramatically, as have prices for brass and some of the polymers that Delta uses.

"While we expect a strong 2006, what might hurt us are commodity costs," he said. "It is not as easy as it once was to pass price increases along."

Contractor Bill Erickson said he sees the green building concept as an emerging trend that other contractors should not ignore.

"I think this will become hotter and hotter as we move forward, in terms of water conservation issues and in terms of building sustainable structures," he said. "In addition, the Energy Act of 2005, which offers tax advantages for increasing water heating and water usage efficiencies, will become an interesting market to pursue."

2006 housing outlook
(Percent change from previous year)

 

2004

2005

2006

2007

Residential construction

10.3%

7.4%

-0.6%

0%

Housing starts

5.2

5.8

-7

3.4

Existing home sales

9.7

4.7

-3.7

1.5

New single-family sales

10.8

7

-4.8

1.1

Single-family unit sales

6.6

6.6

-8

0.4

Multifamily unit sales

-0.9

2.2

-2.1

16.7

Sources: National Association of Realtors, CONTRACTOR magazine

TAGS: Remodeling