For my first topic, I would like to tackle the issue of raw materials and what is going on with regards to a number of them and how they impact each of us.
No doubt there are a lot of different opinions and comments as to what is going on. Obviously, the biggest news is that oil has dropped precipitously over the last few months, certainly to a level I never thought we would see again. Who in their right minds could have predicted $50 oil given the last 10 years of high prices? Who would have thought fracking could have done what it has to put the U.S. in position to be a net exporter of oil when we have been importers for so long. Think about what fracking has done to change America's future with regards to energy, but also infrastructure growth and manufacturing might. I remember hearing years ago how the U.S. was losing its swagger due to the low costs of energy in Asia and the Middle East. Who would have ever thought America could now compete with other regions of the world and who could have believed that rather than fleeing America, many companies would now be making long-term investments here?
Unfortunately, one of the problems with dropping oil prices is that everyone assumes that because oil has dropped that their prices for their adhesives and coatings should automatically be dropping. In some cases this may be partially true, however, it is very important for everyone to understand that while some prices for certain materials, EVA for instance, have dropped, they have not dropped the levels they were before the increases of the last two years. In other words, people have forgotten that prices for things like EVA have been rising steadily for the last few years. These recent decreases have only brought them closer to where they were before they went up two years ago and beyond. A second thing people don't fully understand is that over the last ten years or so, what has really impacted prices for our raw materials has been the imbalance between supply and demand. Though energy prices are important, they are not as important as they were previously. No doubt they do impact freight costs, which can be huge these days, but they do not impact petrochemical prices as much as supply and demand do. Right now, many of our resins (C-5, Hydrocarbons) are very tight and buyers are on allocation today as a result. So while EVA may have gone down some, resin prices have remained high and climbing at the same time.
No doubt these are difficult times for adhesives and coatings producers and unfortunately, there are a number of competitors out there doing some things that absolutely make no sense whatsoever. They are cutting prices to unheard of levels only to gain a larger share of a market which, unfortunately, is not growing like we would hope. It is my personal feeling that many are hedging the health of their businesses long-term by cutting prices short-term, all in the name of growth and market share. What they don't understand is that all this does is drag the rest of the industry down and it creates severe long-term margin erosion. Our approach will remain as always, to provide our customers with quality products, customer support, and timely deliveries, for a fair and reasonable price. Our commitment is for the long-term, making sure we can remain competitive yet not acting irresponsible by putting our short-term growth ahead of our long-term health and survival. Our customers, vendors and employees need us to remain financially sound so that we can continue to fund our initiatives for growth and product development ten, twenty, even thirty years and beyond. It is a commitment we take seriously and we have no doubts that it is the right approach to take as we endeavor to remain a long-term supplier to our marketplace.