About Our Upcoming Price Increase:

You all read the papers; listen to the news. You know that after oil reached $100 a barrel in late February, it continued to rise steadily to hit a $139 per barrel all-time high on June 6th. Many economists expect it to reach $150 per barrel at some point this year. Consider now that the price of oil as recently as 2002 was below $20. That’s a 750% increase!.

Energy: natural gas and electricity, components supporting our manufacturing operations, are also in a trend of price escalation, having experienced price increases throughout the year due to commodity and regulatory aspects of supply. As well, some recent contributing factors to these increases are 10% more heating degree days than expected in the second quarter, and continued price increases in crude oil which serves to stimulate the overall energy market environment. We are all impacted by these increases, and while we may see some downward pressure on energy prices in the third quarter, hotter than expected temperatures this summer, hurricanes or continued strength in the crude oil market may contribute to sustaining prices at their current levels.

Closer to home for us, PVC and the other micro ingredients (many of them petroleum-based) that comprise the raw materials for vinyl and polymer siding and PVC cellular trim products have been buffeted by their own cost increases in raw materials and transportation. As a result, our suppliers have passed along multiple price increases and fuel surcharges amounting to 15 to 20 percent and up in the last year. PVC pricing has increased 20% in the last year, and tin stabilizer has increased nearly 70% and is projected to go even higher by year’s end. What’s more, suppliers are laying the groundwork for continuing increases in the coming months.

** ASA – Weatherable capstock material used in place of PVC

Impact Modifiers – provides impact resistance and process aids

PP Compound – Cedar Impressions compound

TI02 - Combats UV degradation, provides opacity and color

While some may blame oil speculators, most economists believe that the price surges are a result of global demand for oil growing faster than supply, spurred by the huge escalation in demand by China and India. Too, the oil-exporting countries themselves are consuming far more oil than ever before. High oil prices serve to boost incomes in those countries which, combined with rising populations, increases demand for homes, motor vehicles, and other oil-consuming products.

Meanwhile, measures designed to place downward pressure on oil prices are being implemented, but no one alone can remedy the situation.

• The Senate passage of the bill to halt the filling of the Strategic Petroleum Reserve when oil prices reach $75 a barrel will help some, but not a lot.

• Drilling in areas that are currently off-limits would boost supply, but not for several years.

• Alternative sources of energy promise some relief but again, not in the immediate future.

• Conservation offers the most immediate result but still, since the oil demand is global, the energy that the U.S. is realistically able to conserve in the near term will not have a major impact on worldwide supply.

The bottom line is that the price of oil (and of the universe of products and services that derive from oil) will remain high until conservation becomes a way of life, alternative fuels become available, off-limit oil supplies become accessible, and other energy-generating and conservation measures are implemented. Meanwhile, even as CertainTeed is working tirelessly to offset our higher costs through efficiencies and cost controls in every aspect of our business, we all (CertainTeed, our distributors and your customers) need to recognize that fuel and raw material increases are likely to continue, and plan our businesses accordingly.