By: AccuVal Associates, Inc.
In 2009 the US government launched a variety of "Green Initiatives" in an effort to increase manufacturing and utilization of cleaner, more environmentally friendly products. These initiatives included various tax, loan and other incentives to entice manufacturers and consumers. One of the products thought to benefit the most from these new policies was cellulose fiber insulation.
Cellulose fiber insulation is a product developed to replace fiberglass and other styles of insulation. Manufacturers claim that one 40 square foot bag of cellulose fiber insulation can contain as much as 40 newspapers worth of waste paper. It is touted for its use of recyclable materials, resistance to moisture, high R-value and high level resistance to fire. So, did it catch on?
Cellulose insulation's primary components are newspaper and kraft paper. Most products will contain up to 85 percent recycled content according to the Cellulose Insulation Manufacturers Association (CIMA). While this speaks highly as to the environmentally friendly nature of the product, pricing for these materials continues to increase, reducing already slim margins.
The most recent reports show this trend continuing into the foreseeable future. Higher international demand, particularly from China, is driving prices up. In China, this type of paper and other recyclable materials are predominantly reconstituted into packaging for a wide array of electronic and other consumables.
Since cellulose fiber insulation is primarily manufactured from waste products, it is important to consider the source of the scrap material. Continued movement among businesses towards more paperless operations has reduced the amount of "office" paper used by 28 percent, from 2000 to 2009, according to the Environmental Protection Agency. A shift to electronic media reduced the supply of old newspapers 48 percent during the same timeframe.
However, quantities of "OCC" or old cardboard containers have increased. Supply from this source is expected to continue to be strong as long as the general economy remains stable and domestic consumption does not decline.
Another factor for this and similar recycled material products is the relative high cost of these programs. Often times, regulations require major investment by businesses in equipment and technology that may outweigh the potential return the companies will get on these investments. For cellulose fiber insulation manufacturers, this means fiberizers, bagging machines, hammer mills, shredders, fiber bins, separators and more. All have tens of thousands of dollars in initial costs and associated installation.
This creates a negative incentive for many businesses to continue to develop these products as consumer demand needs to be quite strong to justify the high initial costs. And that demand is often lacking with newer, lesser known products.
Recent declines in sales of cellulose fiber are attributed primarily to increased consumer pricing. Cost conscious consumers are attracted to fiberglass' current price advantage. This is compounded by the disparity in advertising for fiberglass versus cellulose insulation. Major manufacturers of fiberglass such as Owens-Corning continue to have an advertising budget advantage, sustaining the disparity of product and brand recognition between the two products.
Slow recovery in the homebuilding industry has continued to depress demand for cellulose fiber products. Fewer new homes are being built; as a result, fewer contractors need insulation for floors, walls and ceilings. The annualized rate of new, privately owned housing building permits fell from 1.8 million in 2006 to 604,000 in 2010.
As previously mentioned, in 2009 efforts were launched as part of the government's "Green Initiatives" program to provide various tax and other benefits for homes and businesses to upgrade insulation. This included a 10 percent federal tax credit of up to $500 of material cost for cellulose fiber insulation. Qualified energy efficient products needed to be purchased and installed between January 1 and December 31, 2011.
However, these efforts have fallen short of their initial goals. Discussions with market participants have indicated that while there may have been some boost in demand as a result of these programs, they have not met their targets and have not been enough of an incentive to boost the fiber insulation market in particular.
Manufacturers and dealers have reported that nearly 80 percent of inquiries and sales for the machinery needed to manufacture fiber insulation have been to Canada, South America and various European countries. These countries have made energy efficiency and "green" construction a top priority, stimulating demand for the associated production machinery. The general feeling is that the incentives provided by the US government fall considerably short of what other countries' governments are providing.
Despite the above issues, Fredonia, an industry research publisher, projects overall demand for insulation materials will rise roughly 6.3 to 7.4 percent annually through 2014, with cellulose posting the greatest growth. But fiberglass will continue to dominate the market with an estimated 85-95 percent share.
Rising energy costs, specifically for oil heated homes, should spur demand for higher efficiency insulators such as cellulose fiber. This trend is currently visible through sales figures in the northeastern US for cellulose insulation. While demand in many parts of the country has become stagnant or declined, demand in the northeast has been steady due to the widespread residential usage of oil heating and its price.
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