For Immediate Release
April 29, 2011

Pipeline Costs on the Rise

Force Majeure Causes Plastic Pipe Prices to Escalate

Kana Pipeline received notices from several plastic pipe suppliers such as Vinyltech and Diamond Plastics Corporation, indicating that a major resin supplier to the polyvinyl chloride (PVC) and plastic pipe industry had declared "force majeure ...effective April 14, 2011" due to the highly volatile situation in the resin market. The impacts result in significant price increases by as much as 30-50% in plastic PVC pipelines. This also means that Kana Pipeline and other contractors alike will need to work harder to preserve and lock-in prices as soon as possible.

This adds to the already difficult situation in acquiring this resin locally. Neal Gordon, Vice President of Marketing for JM Eagle, another plastic pipe supplier, added that "the gap between natural gas and oil prices has resulted in resin manufacturers' exporting raw materials at increasingly high levels, further keeping domestic inventories very low." It's been reported that worldwide resin manufacturers are already operating at more than 90 percent capacity.

In addition to the disaster in Japan, "the volatility in the Middle East, coupled with operational issues at several of the U.S. Gulf Coast ethylene producers has resulted in significant increases in the cost of crude oil and other oil/natural gas derivatives used to produce resin," said Frank Seymour, Vice President of Sales for Advanced Drainage Systems (ADS). Global demand has exceeded that of domestic demand, making it much more profitable for manufacturers to export this product than sell it locally.

John Orkish, Sales Representative for JM Eagle, visited Kana Pipeline's office yesterday to speak on the matter indicating that U.S. manufacturing companies use natural gas, a more cost-effective material than petroleum, to make this resin. He clarified further by stating that the rest of the world uses a petroleum-based resin, which gets more expensive, as the price per barrel increases, and this is why it is cheaper to buy it domestically and export.

Plastic pipe increases are not as drastic for high density polyethylene (HDPE) as they are for PVC pipe manufacturers. This was noted by Danny Finnerty, Vice President, S&J Supply, who explained this is due to less amounts of resin typically used in HDPE pipe than in PVC pipe. Nevertheless, both PVC and HDPE pipe suppliers are working to take control of this situation and have explained how they will handle both short term and long term plastic pipe orders.

For example, ADS, who manufactures HDPE pipe as well as other storm drainage systems, indicated they will be increasing their price of pipe and fittings, "effective immediately ... by approximately 7%" and confirmed they would honor existing quotes for the customary 30 day period. Vinyltech indicated they would honor all existing valid purchase orders placed on or before April 14th, delivering "existing orders in full in April and May." Any outstanding quotes would be addressed on a case-by-case basis and would constitute a "bid only" quotation, with "no obligation to sell." Although they are continuing to produce pipe, accept orders and ship material, due to the limited production of resin and rising fuel costs, both circumstances combine to create "significant price increases."

Hurricane Katrina's disaster also caused similar price increases, but "didn't affect the supply as much as the supply chain" added Finnerty. PVC prices were able to drop back down, "but not as quick as they went up" said Glen Mulock, Sales Representative for another pipe supplier, HD Supply. Both representatives are certain that prices will eventually come back down, but not for at least several months, according to resin manufacturer indications.

Finnerty added, "It's like selling a one million dollar home in a $200K neighborhood." While all fittings are nearly the same for both plastic and metal pipe, one can pay as much or even more for plastic PVC pipe than the same pipe diameter size in ductile iron. In this case, it has been generally observed that larger the PVC pipe diameter, the significantly more expensive and competitive it is to metal pipe prices, specifically ductile iron pipe.

"It's getting to that point where 8" PVC pipe is approaching the same price as 8" ductile iron pipe," said Mulock, "and that's a really good price on your ductile iron pipe." Ductile iron, like PVC pipe, can also be used in water and other pressurized pipe applications. This may be something owners, agencies, design and engineering firms may want to consider at this time.

Pipe manufacturers have suggested that this increasing pipeline pricing will be in effect for several months and will keep everyone informed further as events unfold. ADS indicated that while they do not know the impact of resin availability, as the height of the construction season approaches, they are encouraging companies to "immediately place pipe orders."

About Kana Pipeline, Inc.:
Kana Pipeline is a leading underground wet utility pipeline construction company that installs sewer, water pipeline, fireline and storm drainage systems for public and private residential, commercial, industrial and institutional projects throughout Southern California. Kana Pipeline also specializes in Subsurface Utility Engineering (SUE), specifically; vacuum utility potholing and private utility locating services.

Media Relations:
Eleni Christianson
Kana Pipeline, Inc.
[email protected]


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