rent business trends. Please note that of the three primary architectural coatings channels (store, home center and distributor), this survey is primarily reflective of the distributor channel which tends to see volume growth less than the industry; therefore, we view the results as a directional indicator more so than absolute industry volumes. For more information please go to www.northcoastresearch.com.
Architectural Coatings Sales — Volumes Up 0.8% in July vs. Last Year
According to industry participants, average sales volumes in July rose 0.8% year-over-year and momentum slightly contracted from the 2.3% growth seen in June. With weather playing a large factor on volumes in 2013, we remain encouraged that volumes are continuing to improve as underlying fundamentals in the coatings industry remain strong due to positive trends in new housing and existing home sales. Overall, 49% of respondents witnessed an increase in volumes vs. only 22% that saw volumes decline, which averaged out to 0.8% volume growth and a net increase of 27%. However, this compares to a net increase of 45% in June (61% increased vs. 16% decreased), so again it appears year-over-year trends decelerated in July.
Price of Paint from Suppliers — Paint Pricing Remains Static
67% of contacts noted a year-over-year increase in the cost of a gallon of paint from suppliers in the month of July as our paint price index increased 1.5%. This compares to a year-over-year increase of 2.1% and 2.0% in June and May, respectively. We ultimately believe that the primary driver to the year-over-year increase in the cost of paint can be attributable to paint suppliers recovering price in comparison to raw material inflation seen in 2012 – hence why the year-over-year increases over the last 3 months have been static in nature.
Pricing stability is expected to continue as 83% of respondents reported that there have been no price increase notifications issued from paint suppliers at this time. Overall, we believe pricing will remain stable as raw material costs have been relatively flat.
Raw Materials — TiO2 is Stable but Polypropylene is Rising
Throughout 2013, titanium dioxide (TiO2) and polypropylene prices have been on a combined downward trend; however, polypropylene has recently traveled upwards. Additionally, TiO2 manufacturers have recently issued price hike announcements although we do not expect them to stick. With that said, TiO2 inventories are beginning to become more balanced which could lead to price increases by the end of 2013.
Paint Inventory Levels — Inventories Becoming More Balanced
83% of respondents stated that current paint inventory levels at their location are in-line with current business conditions and they are maintaining current levels of purchasing activity. Only 6% of contacts noted that current paint inventory levels are too high while the remaining 10% of participants revealed that paint inventory levels were too low in July, which is a step in the right direction as 15% indicated inventories were too low in June.
3 Month Outlook — Outlook Lowered but Still Positive
Our proprietary Architectural Coatings Outlook Index reached a 0.30 for the month of July compared to a level of 0.70 in June. Please note that the highest possible reading is +2 (indicating all contacts have a “very positive” outlook) and the lowest possible reading is -2 (indicating all contacts have a “very negative” outlook. A reading of 0.30 is a positive translation (albeit at a lesser rate than June) as it indicates that contacts within the industry maintain a favorable outlook, although business is expected to slow over the near term as the summer months come to an end.