Crude awakening: rising resin costs have driven up fiberglass pool prices. What are builders and manufacturers doing to soften the blow?
Less than two years later, those projections are coming true for many fiberglass pool makers. "[Resins] are the most dramatic increases that we've seen over the last 10 years," says Ashley Gill, CEO of Leisure Pools USA in San Antonio, which is headquartered in Australia. "It's been pretty aggressive."
Resin is the single largest material component used in the production of fiberglass pools. It's also becoming one of the most significant cost factors for the composite pool industry. Manufacturers use as much as 5 million pounds each year, so a sudden cost increase can have a substantial impact on profit margins.
Here's a look at some of the leading causes fueling resin inflation and how fiberglass pool companies are dealing with it:
Through the roof
Resin constitutes 50- to 70 percent of the finished shell. You almost wonder why they don't call them "resin pools." Four of the most common grades of resin used in the manufacture of fiberglass pools are DCPD, ortho, iso and vinyl ester resin. Gill says his company received a 12 percent increase in January from its resin supplier and is expecting another 3 percent raise later this year. Overall, he says, "We're up 20 percent over the last two years."
Other manufacturers report similar results. "Last year, we had about a 20- to 24 percent increase on resin," says Roger Erdelac, president of Blue Hawaiian Fiberglass Pools in Largo, Fla. In addition, Kirk Sullivan, president of San Juan Products Inc. in Lakeland, Fla., says vinyl ester-grade resins are going for roughly $2.50 per pound vs. $2 per pound in 2004.
As it is, pool builders are already incurring substantial increases from other material costs, such as concrete, steel and decking products. Soaring fuel prices make shipping large fiberglass vessels even more expensive.
Just ask Jason Stoker, owner of Fiberglass Pools of the Desert Inc. in La Quinta, Calif. He says the average cost of his pools has gone up more than $2,000. Last year, the price of his pool shells alone rose $250 to $1,000, depending on the size of the model. He adds that his vendor raised shell prices an average of 4 to 5 percent per year for the past few seasons to balance its own material costs. Such figures leave some fiberglass dealers saying something's got to give.
Black gold rush
When it comes to resin increases, some manufacturers point to the usual suspect--China. Unprecedented population surges in that country have created a seemingly endless need for raw materials.
The biggest direct influence on fiberglass pools tends to be connected to the price of oil. This precious commodity is needed not just as an energy source, but as the basic raw material for countless plastics and consumer products. And the resin industry is entirely dependent on it.
When crude oil is refined into gasoline, it produces valuable byproducts such as styrene or benzene. These are significant ingredients in processed resins. With fiberglass pools, styrene is an essential component that prevents the resin from hardening before it's ready to be applied during the production process. Styrene also comprises anywhere from 30- to 50 percent of the resin compound, making it a substantial cost factor.
For anyone new to the resin industry, the price of oil can serve as a ballpark indicator of where the market might be headed. In April, for instance, it broke an all-time record, jumping to more than $70 per barrel. Compared with $33 per barrel in January 2004, that's an increase of more than a 100 percent in just 21 months.
But Sullivan warns that oil can be a slightly misleading indicator to gauge resin prices because it's more closely related to the gasoline markets as a refined product. To complicate matters, resin, as a result of its short shelf life, isn't one of those materials that countries such as China can produce overseas and bring to the States inexpensively. Thus, most resin comes from domestic sources.
That said, natural disasters such as Hurricanes Katrina or Ivan have only exacerbated matters closer to home. Beginning with the series of storms that battered Florida in 2004, the availability of these compounds was greatly diminished. For example, one of the three largest domestic resin suppliers, AOC, LLC, was shut down after Hurricane Ivan devastated its Florida plant, says Nick Williams, plant operations manager at Blue Hawaiian. More recently, Katrina put British Petroleum's key refining and production facility in the U.S. Gulf Coast out of commission.
Manufacturers and builders are trying to spare some of the costs to homeowners. But it's becoming increasingly difficult. "We all try not to write those ugly [additional] charges on the bottom line of a contract," says Earl M. Homer III, president/owner of West Coast Fiberglass Pools in Sonoma, Calif. "But you have to put it back into your bid a little."
Many manufacturers are trying to absorb some of the increases, which can be harder on smaller or newer firms. They usually offset the costs by streamlining production. "We didn't pass on the full resin costs this year because we're the new kid on the block," says Leisure Pools' Gill, whose Australian-based company opened its first U.S. production plant about two years ago. He reports that the firm only raised costs 6 percent this year despite 12 percent resin increases.
"It's difficult when you're trying to be aggressive about attracting and retaining dealers to just pass the costs along," Gill adds. "That affects our margins and profitability, but we just didn't think it was right."
Even for large fiberglass pool manufacturers, there's no easy solution due to unique challenges associated with resins, such as storage limitations. Most resins have a shelf life of only three months or so, according to the recommendations of suppliers. Those expiration dates tend to level the playing field and prevent composite pool companies from gaining a market edge by purchasing massive, discounted quantities at any one time. Production volumes for fiberglass pools simply won't support such strategies.
Instead, the onus often is on pool manufacturers to negotiate their best short-term contracts based on annual projections. This avoids dramatic increases from unforeseeable raw material spikes. Of course, at the end of the year, adjustments made to balance increases incurred over the life of a contract can cause one-time price leaps when it comes time to renegotiate those terms. In that regard, resin operates like the futures market, Sullivan says.
Despite fears of inflation due to skyrocketing oil prices, pool manufacturers are exploring ways to keep resin prices competitive. For example, some participate in buying groups with companies from other industries that use the same types of resin. This model has proven effective in other countries, Gill says. Case in point: Australia, where fiberglass pools constitute nearly 50 percent of the market, according to some reports. There, the boating and pool industries collaborate closely to achieve similar goals in procuring resin. Gill says he'd like to see more of that kind of cooperation between industries here in the States.
Builders also have gotten creative in other ways. For Stoker and others, the problem occurs when they bid a pool two or three months out, only to receive an increase they didn't expect after the deal is signed. In that case, Stoker says he ends up assimilating those costs.
To solve the issue, Homer's approach has been to lease stockyards for storing equipment and materials. That way, when he gets a contract, he can order the fiberglass pool immediately and store it until installation time. "My yards have almost no overhead. I only spend a couple of hundred dollars a month [on rent] for two yards," he says. "That's how we cut the cost and give the other guys a run for their money."
Some fiberglass builders don't think such measures are necessary. In fact, Horner says that fiberglass pools may have an edge over their gunite counterparts, considering the rates of inflation on concrete. Traditionally, fiberglass vessels have been priced pretty closely to gunite pools, sometimes higher, he says. However, as concrete costs continue to soar, this might change.
"We picked up some space in our bids between the gunite guys. In that way, these increases might actually be a good thing," Horner says. "The cost of concrete is making fiberglass pools look more attractive to the consumer."
RELATED ARTICLE: Made in China.
Until recently, most fiberglass used in pools was manufactured here in the United States. This all changed a few years ago when China began offering inexpensive fiberglass to the U.S. market.
In the 1990s, most American fiberglass manufacturers stopped building new plants in the States. Instead, they decided to open additional factories overseas. "They thought they were going to reduce cost and produce products without as many environmental regulations," says Kirk Sullivan, president of San Juan Products Inc. in Lakeland, Fla.
Unfortunately, the plan appeared to backfire after the Americans started selling some equipment to the Chinese government, which built fiberglass factories of its own. Originally, the factories were inferior, but after extensive modernizing, China was able to improve the quality of its fiberglass--and at considerably reduced prices.
At that point, China began to capture most of the chop market. "Chop" is a form of fiberglass that is shot out of a pneumatic gun onto molds, as opposed to the woven kind that is laid in sheets. Aside from low labor costs, Sullivan points out that the Chinese plants could operate with one additional advantage over U.S. factories: government subsidies for natural gas.
With the Chinese government picking up the energy tab, U.S. companies felt they couldn't compete. The cost savings and improved quality made Chinese glass more attractive to a lot of pool manufacturers. Instead, the U.S. fiberglass producers allowed the Chinese to take over the chop business and decided to focus their efforts on the high-end woven market.
Woven fiberglass is a more expensive form because of the additional processing required to make it. The Chinese have tried their hand at weaving fiberglass, but with little success, according to Sullivan. After learning the lesson from their first encounter with the Chinese, U.S. manufacturers haven't been willing to sell them the additional processing equipment.
However, some domestic fiberglass plants now are weaving raw Chinese glass and placing their stamp on the final product, Sullivan says. In other words, fiberglass that some builders believe to be made in the United States may not be entirely domestic.
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|Publication:||Pool & Spa News|
|Date:||Jun 19, 2006|
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