Drywall market mired in the mud (UPDATE)

Jerman Ruiz, owner of Smart Drywall LLC, patches a section of drywall while working at a residence in Wauwatosa on Friday. (Staff photo by Kevin Harnack)

By Joe Lanane

Drywall manufacturers, caught between rock-bottom prices and dwindling demand, are warning the industry that costs will go up by 25 percent in early December.

“If you were talking to a builder right now, he’d tell you, ‘It’s crazy for gypsum companies or anyone else to raise the prices in a market like this,'” said Craig Weisbruch, senior vice president of sales and marketing for National Gypsum Co., Charlotte, N.C., referring to gypsum, the primary material in drywall. “But there won’t be a gypsum industry if we don’t get the prices up.”

That might be true, said Bernard Markstein, vice president and senior economist for the National Association of Home Builders, but he said he does not understand how drywall manufacturers can justify increasing material costs without a corresponding increase in demand.

“We’ll see what happens this time, but until housing is on a firmer footing, I don’t see how anyone can afford higher prices,” he said. “Contractors have to absorb that cost, and they are already operating on such thin margins.

“So some of these guys will be pushed from a small profit to breaking even, or even a small loss.”

Drywall shipments are down more than 50 percent since the industry peaked in 2006, said Michael Gardner, executive director of the Gypsum Association, so something had to give.

As a result, five of the largest gypsum producers this month announced the increase in the drywall costs to go into effect Dec. 5 and 6. Like every other business reliant on homebuilding, Gardner said, the gypsum industry is struggling to survive.

Pat Lynch, center manager for Milwaukee-based Wisconsin Drywall Distributors, said distributors are suffering from the 80 percent reduction in building permits pulled since the housing crisis began. As a result, he said, his company has posted losses each of the past seven quarters.

“The recession we had was in the economy,” Lynch said, “but, in the building industry, it was a depression.”

The companies that plan to increase drywall prices are Chicago-based USG Corp.; National Gypsum Co., Charlotte, N.C.; Paris-based Lafarge Group; CertainTeed Corp., Valley Forge, Pa.; and Austin, Texas-based Temple-Inland Inc.

Phil Sternig, sales representative for Appleton-based Builders Supply Corp., which markets products for USG’s national distributor, said it is standard for material companies to warn the industry before increasing prices.

“I’ve been making sure our customers are aware of the potential increase so they can take that into consideration on any projects that are being bid out,” he said. “Obviously, a 25 percent increase on any item is a burden that no one plans.”

The burden is shared by companies such as Weisbruch’s National Gypsum. He said the manufacturer has reduced drywall prices by 40 percent from four years ago, and National Gypsum and its competitors have been losing money the past three years.

Price increases, he said, are the only to turn a profit.

“From the time the industry was at its height, the demand levels have dropped over 60 percent,” Weisbruch said, noting past recessions typically caused only a 5 to 10 percent sales decrease. “It’s completely unprecedented. We’ve never seen anything of this scale.”

Ken Joosten, president of Kenmark Construction Inc., Appleton, said he got that message when he recently read the letter informing him about the drywall price increase.

“It was almost as if it was an apology,” he said, “about them trying to recoup their costs.”