Thermoplastic

Ennis Paint is a traffic solution supplier based out of Ennis Texas. They supply various types of traffic markers, paint, and thermoplastic for traffic delineation to contractors all over the states. There are many of other companies that offer similar products, however they are a sole supplier in the Thermoplastic market. Prior to Ennis becoming a sole supplier of Thermoplastic materials they had a competitor known as Pervo Paint. A private equity firm acquired both companies and merged Pervo into Ennis approximately 1 year ago, since then the thermoplastic supply has been decreasing month by month and prices are on the rise. To date we have purchased approximately 1.5 million pounds of combined yellow and white Thermoplastic and we project to double that number in 2011.

We are awaiting for orders to be filled dating back to 7-2-10. The lag time seems to be increasing, we are now looking at a 16-20 week lead time plus an additional 2-3 weeks for Cal Trans Certified material results. Once we have received the results from the Cal Trans lab we can then assign the material to the appropriate job based on the results. However the ongoing problem still exist on materials requiring CA Caltrans spec, if the materials do not meet the specs for which they were intended for we simply can't perform the job and must wait until replacement material arrives meeting the CA Caltrans spec. At this time there has been a 50/50 chance on the materials passing the CA Caltrans test, with no timeline's for replacement material for failed product.

The shortage is based on the lack of Raw Materials from Dow Chemical the sole supplier of Resin to produce Thermoplastic. The lack of Thermo has greatly impacted the industry and our ability to perform work in a timely manner in accordance to our contracts. The lead times keep increasing and Ennis Paint can't provide any resolution as their production is dependent on Dow Chemical's ability to provide them with the raw materials.

The shortage has created many problems for my company and has handicapped us in our abilities to generate revenues and complete contracts. Some of our customers could potentially seek out Liquidated Damages should we not be able to perform the scope of work outlined in our contracts. If the problem continues to escalate it will greatly impact the business and could potentially shut down any small businesses, turning the already competitive market into a liability.

Ennis has put all of their customers on an allocation list. The criteria for where a customer stands on the list has been based on the customers ability to pay, and previous tract records in regards to quantities used. The larger consumers are at the top and the smaller ones at the bottom, with this in mind Caltrans is their number one customer consuming fifty plus percent of any available CA Caltrans spec material.

Ennis has advised us that this problem will not subside in 2011 and has no forecast as to when the supply will resume to a normal level, however they have communicated to us to expect a 20% price increase in 2011. The industry can't sustain the amount of competitors that are out there with such a short supply. Contractors will continue to get backed up on work with no way to perform their obligations. Revenues will not be able to be generated and companies will fold as a result.

The industry is in desperate need of relief from the situation and we could use all the help we can get. Is there any opportunities for a small company to partner up with someone on being a producer in the paint and thermoplastic industry?

Thank You,

Craig K. Martin