Roundtable of comPosite manufacturers discusses the future of decking

IX JOOD-PLASTIC composites

Y Y signify one of the most fastchanging sectors of the decking industry. The Merchanr asked nine of the top composite decking and railing firms to size up where we're at and, more importantly, where we're headed.

I As far as demnnd and production L of composite decking and railing, did 2004 meet the ambitious proiec' tions for the industry in general and at your company in particular?

Martin Grohman (Correct Building Products, LLC)

2004 was a good year. We saw the trend toward matching railings and hidden fasteners increase strongly, representing a greater portion of our business. We also saw a trend toward darker colors. Hidden fasteners, matching railings, and darker colors are areas where we have strong product offerings so that helped us.

John Pruett (CertainTeed Boardwalk)

Yes and no. Due to the raPidlY increasing costs for raw materials such as PE, PP and PVC resin, pricing of composite decking has gone up... and growth has been somewhat "stunted" overall.

For CertainTeed Boardwalk in Particular, sales of our new decking products-launched in the sPring of Z0f,4-have skyrocketed. These new textured products have become an important part of our product line in a very short period of time. For example, sales of Woodgrain/Smooth Reversible 5/4x6 now represent 20Vo of our decking business while sales of our new proprietary Boardwalk "HFS" (Hidden Fastener System) already represent 107o. This represents a significant trend toward premium products.

Also worth mentioning is the addition of two fascia boards to the robust Boardwalk product line. Sales of \2"and lO"-wide fascia reflect the fact that accessory sales are driven by the growth of our new decking planks.

Steve Weinstein (LP WeatherBest)

Yes, demand for decking and railing met and exceeded our expectations in2004. The total market for composite decking and railing is growing at a compounded annual growth rate of about lTVo for the next four years.

Roger Gilley (Weyerhaeuser ChoiceDek)

2004 provided sales opportunities far beyond our (ambitious) expectations. That would aPPear to be the case for most of the major manufacturers.

John Long (Kadant Composites-GeoDeck)

Yes, 2004 did meet the ambitious projections of the industry. GeoDeck, for example, experienced over 4OVo sales growth in 2004. As a result, in 2004 we also increased our wholesale distribution by 20Va.

Mick Whelan (Epoch Composite Products)

We saw an incredible demand for our compression molded comPosite decking product in2004. We definitely are seeing the trend of more and more homeowners wanting beautiful, low maintenance decking material like EverGrain.

Kevin Brennan (TimberTech) al What do you foresee for 2005 and 2 beyond? Are there any "wild cards" that might greatly stimulate or slow the growth of composite decking products?

Demand for composite decking remained strong in 2004. I can onlY speak for TimberTech when I say we didn't have any capacity issues. We continue to invest in expanding our production as your production capacity has to stay ahead of demand' TimberTech continues to exceed industry growth expectations.

John Hess (Universal Forest Products Inc.)

We believe that 2004 was a great year and certainly met our growth expectations.

Whelan (Epoch)

Because of growing consumer awareness about the benefits of composite decking, we see the demand for composites remaining strong for the next three to five years.

Brennan (TimberTech)

Most market studies expect composite decking to grow 25Vo to 35Vo per year up to 2010. I see no reason why this wouldn't be the case. In today's low maintenance society. composite decking fits with what consumers want in a product. Composite decking is still in the early stages of the product growth curve, and there is explosive growth ahead.

All of us in the composite business use some type of resin in our product. As oil prices have continued to rise, resin has followed the same trend. If resin prices continue to rise, it will force composite deck manufacturers to raise prices. This could possibly slow growth if prices get too high. TimberTech has done an excellent job ofincreasing plant efficiencies to help reduce the impact of the resin cost increases.

Weinstein (LP WeatherBest)

The conversion from pressure treated materials is a key factor as to how fast the market will grow for composites. There are some estimates that within the next 10 years, up to TOVo of the total decking marker will be for composites. A wild card is what will happen with petroleum byproduct pricing which is a key ingredient in composire decking. If rhe price of oil rises significantly, then pricing on decking will have to rise also and then the "value proposition" comes into play and could slow the growth of decking.

Grohman (CorrectDeck)

We see great opportunity for our CorrectDeck DCL (Dimensional Composite Lumber-we classify any use of our non-decking use of CorrectDeck as DCL). If you build a doghouse out back, that's DCL. A gazebo, a trellis, an outdoor shower, that's DCL. As the CorrectDeck DCL product line fills out, representing more and more commonly used lumber.sizes, we anticipate this usage rncreasrng.

Gilley (Weyerhaeuser

ChoiceDek)

I absolutely believe that WPC (wood-plastic composite) decking will continue to capture share from both treated lumber and vinyl. WpC decking should grow its share of the total decking market in double digits as predicted. What will really give composites a boost going forward is the growth of the deck (and dock) remodeling market.

Pruett

(CertainTeed Boardwalk)

"Wild cards" which would slow the growth of composite decking include rising raw material costs-for every type of polymer and some additive-on top of rising energy costs and transportation costs. On a macroeconomic level, the repair, replace and remodel market is still very strong so therefore old wood decks will continue to be replaced and added.

With opportunities in both new construction and remodeling/repair markets, Boardwalk will continue its growth trajectory especially supported by a bundled product offering in CertainTeed roofing, siding, windows, patio doors, insulation, pipe, fence and foundation products.

Hess (Universal)

We do not foresee a change in the near future to the growth of composite decking. As the wood altematives to composite decking get more expensive and consumers continue to tire of the maintenance of those products, composite decking continues to grow.

Long (GeoDeck)

I expect GeoDeck to experience continued double-digit growth for 2005.

Teresa M. Domingues (Nexwood Industries Ltd.)

In 2005 and in the coming years, the applications for composites will widen with more cornmercial projects taking on a greater importance. And as federal and state legislature changes, regarding the use of pressure treated lumber, composites will continue to grow in the residential market. Consumer awareness for composites has grown drastically with the increase in consumer and trade adver- tising by all manufacturers.

"Wild cards" may come from larger corporations becoming stronger players in this market. The strength of manufacturers will be tested; as manufacturing costs increase and prices to consumers increase, the forecasted demand for composites may be in question.

? Wt hau.e seen the beginning of J general acceptance of comPosite decking in the late 1990s, quickly fol' lowed by a meteoric rise in the number ofmanufacturers of such products. In similar industries, the next phase is often consolidation. How might consolidation affect the composite decking industry (supply, demand, Price, etc.)?

Pruett (CertainTeed Boardwalk)

Consolidation is only just beginning in the composite decking industry. In the past couple of years, we've seen even more new entrants in composite decking and railing, from large established building products players such as Alcoa with Oasis and forestry products giants such as G-P with LakeShore and UFPI with Latitudes.

On the other hand, there continue to be a few small, entrePreneurial players who are in the process of bringing products to market with fascinating materials and technologies. Examples include Starboard decking and railing by Shoreline Industries and other small, emerging West Coast stafi-ups including JERTech Decking, Yakima and Epic Plastics.

Minor manufacturers who have recently exited the composite decking industry include U.S. Plastic Lumber Corp (Carefree), MikronWood, GSW Thermoplastics (Yardcrafters) and Imperial Building Products (TimberPlus). Meanwhile, Kadant ComPosites (GeoDeck) reportedly has been put up for sale, so it's only a matter of time before this manufacturer is acquired. The "shake-out" or consolidation phase has only just begun.

The top major players in composite decking and railing remain the once and future market leaders: Trex, TimberTech, LP WeatherBest, Tamko/ Evergrain, CertainTeed, Elk and Alcoa. The other brands with "presence"-particularly in the retail distribution channel-are Weyerhaeuser ChoiceDek, Fiberon and Veranda.

Gitley (Weyerhaeuser ChoiceDek)

The barrier to entry for a small manufacturer of composites is rela- tively low, and that should keeP the number of regional and niche players relatively high. The lion's share ofthe business will belong to the manufacturers with the resources to expand to keep up with growing demand, all the while developing new products.

Grohman (CorrectDeck)

I was thinking that meteors go down, not up. But consolidation increases as brands lose significance. Do you choose a particular brand of 2" PVC pipe? No, probably not. A wooden dowel? Whatever's in the rack. What about tires and trash bags? You probably have your favorites. Those smaller producers with specific advantages or niches seem to hang on. We want to be your favorite kind of decking, and we give you strong reasons-strength, aesthetics and innovation.

The real news in consolidation, for those of us with a strongly held commitment to two-step specialty lumber distribution, is consolidation in distribution. That is a stronger driver and potentially more important trend than the number of competitors in decking.

Long (GeoDeck)

I haven't seen any consolidation yet. Other than the composite decking brands that are part of Strandex, most brands are so different that I don't see the value in consolidation. However, I do expect that something will happen with the amount of manufacturers that exist today.

Whelan (Epoch)

The composite decking manufacturers that listen to consumers' needs and best satisfy their expectations will be the companies that will do well in the future.

Domingues (Nexwood)

Consolidation will be easier for manufacturers with similar profiles, product lines and customer bases. Smaller and privately owned companies may be easier to consolidate into larger companies ready to enter the composite market with minimal research and development required. Pricing for composites is dependent on the cost of raw materials. As the supply and demand for Plastic and fiber changes, so shall the costs to the consumers. Through consolidation, larger corporations may have greater resources available to affect the supply and costs of raw materials. Consolidation will also affect distribution, as larger corporations will have greater resources to assist with the distribution of composites nationwide.

Brennan (TimberTech)

Consolidation will onlY helP the industry. With so many choices, there is a lot of confusion in the market, and consolidation will lessen the confusion at all levels in the building materials market. I don't see consolidation having an affect on suPPlY, demand or price. From a pricing standpoint, you have to stay competitive with the market, driving the price too high will force consumers to look at other decking alternatives.

Supply has to staY ahead of demand, and companies that continue to invest in expanding production will be the suppliers in the best position to meet the expected demand.

Weinstein

(LP WeatherBest)

Today, there are about 40 manufacturers of composite decking with only a handful of national large manufacturers like Louisiana-Pacific, Alcoa, CertainTeed. We do see consolidation in the future and we are already seeing some of it start today such as USPL exiting the business. Quality, service and marketing will be primary factors determining whether a manufacturer can stay in the business for the long run. Those companies whose qualitY is compromised and cannot deliver products on a timely basis will not be

I able to compete against the stronger brands.

DECK BOARDS with different surface textures on opposite sides, such as CertainTeed's Woodgrain/Smooth Reversible Plank, are a common new addition to composite lines.

Hess (Universal)

We feel fortunate that Universal Forest Products has the resources to compete in this business in the long term as this is a very capital intensive business. This will be a bigger factor in the near future.

A Anything new in regards to coma posite products being introduced by your company in 2005?

Weinstein (LP

WeatherBest)

In 2005, Lousiana-Pacific is broadening its Premium product line by introducing a fourth color (Tuscan Walnut) as well as introducing a new product line called LP WeatherBest Deep Grain, which will appeal to the mid-priced segment of the market which is 50Vo of the composite decking products. In this way, LP will have a "better" and a "best" product to be followed in the future with a "good," which will appeal to the new construction segment.

Grohman (CorrectDeck)

CorrectDeck Cordova lx4 com- bines our Signature Fastening System (SFS) with tropical appeal. It's not just a composite decking, it's a true hardwood substitute. Do you need to wax the ends? No. Do you need to stain annually with turpentine and shellac? No. Is it the same as the neighbor's deck? No. Is it a plastic deck? No. But, is it environmentally sustainable? Yes.

Gilley

(Weyerhaeuser ChoiceDek)

ln 2ffi4, Weyerhaeuser experienced great success in introducing the new generation of ChoiceDek decking and railing in all Lowe's stores, featuring four new color woodgrained deck planks and an entirely new matching railing system. We are looking forward to another record sales year for ChoiceDek in 2005.

Also in 2005, Weyerhaeuser will begin distributing Oasis Deck and Railing by Alcoa in our Customer Service Centers across the U.S. and Canada. This complete system features Oasis composite decking and railing in four designer-inspired colors, and a complete pvc decking and railing system as well to meet the needs of our customers everywhere.

Brennan (TimberTech)

TimberTech is introducing a new VertiGrain surface (wood grain pattern) to the Floorizon tongue-andgroove product line. The VertiGrain surface texture provides the look of top-quality vertical grain lumber. We will offer both the traditional brushed look and the Vertigrain surface.

We also are introducing a turned spindle to our omamental railing. The new Ornamental Spindle features a colonial design and is available in cedar, grey, redwood and whitesand.

Hess (Universal)

We are excited to introduce a reversible pattern launched under a new brand name of Latitudes. The reversible product is great, woodgrain on one side and a natural brushed finish on the other. The contractor and homeowner can decide at the jobsite which finish will look the best on their deck! We feel that the Latitudes brand name correctly reflects the high quality, easy living, low maintenance life style our customers are seeking.

Whelan (Epoch)

We just introduced a new EverGrain color, Weathered Wood, and will introduce a new railing system in 2005. Since we are constantly working to provide our customers with more options, we'll also introduce our new extruded product, Elements Decking, in the next few months.

Pruett (CertainTeed Boardwalk)

For 2005, we expect continued growth of new patent-pending products such as Boardwalk HFS, which is our proprietary "Hidden Fastener System" plus our popular Woodgrain/ Smooth Reversible 5/4x6 plank (a.k.a. the "flip side" of Boardwalk).

Domingues (Nexwood)

In 2005 Nexwood is introducing Imprints, a 5/4 Radius Edge deck board with the original finish on one side and a special woodgrain embossing on the other.

Long

(GeoDeck)

After introducing several products to the GeoDeck line over the last two years, in 2005 we will focus on supporting our continued increased sales growth with our current offering. To this end, we are introducing new improved marketing tools, that don't currently exist in this industry, to support our wholesale and dealer network.