06.22.15
Expected improvements in architectural coatings volumes and sustained pricing pressure on titanium dioxide (TiO2) and oil-based derivatives should continue to provide a tailwind for U.S. paints and coatings companies, according to Fitch Ratings.
Fitch estimates that approximately 65-70 percent of architectural coatings volumes are attributable to the repaint market (residential and commercial) which is projected to have mid-single-digit growth this year. Total housing starts are projected to increase about 14 percent while nonresidential construction spending is forecast to advance seven percent this year. Architectural coatings pricing is projected to be flat to slightly lower for the year due to lower raw material costs.
TiO2 prices are highly volatile and the market has been oversupplied since late 2012. Although key producers such as Tronox Ltd. and Huntsman Corp. have reported that inventories are nearing normal levels, prices for ilmenite and rutile -- the main inputs in TiO2 production -- have stayed depressed through the start of the year. Fitch expects TiO2 prices to remain subdued in the near term.
The drop in oil prices has put downward pressure on hydrocarbon derivatives such as ethylene and propylene. These derivatives, particularly propylene, are used to create epoxies, resins, and latex which are important raw materials for the industry. Fitch expects U.S. paints and coatings companies to realize cost benefits across the board, but the degree will vary by company. For example, PPG Industries, Inc. reports that approximately 20 percent of its cost of goods sold is oil-based while that number is closer to 40 percent for The Sherwin-Williams Company. Additionally, Fitch expects a lag in the timing of these price benefits. The oil-based derivatives used by paints and coatings companies are far enough downstream that suppliers are able to better manage pricing reductions (i.e. Fitch understands that propylene accounts for around 10-15 percent of latex's total production cost).
Fitch estimates that approximately 65-70 percent of architectural coatings volumes are attributable to the repaint market (residential and commercial) which is projected to have mid-single-digit growth this year. Total housing starts are projected to increase about 14 percent while nonresidential construction spending is forecast to advance seven percent this year. Architectural coatings pricing is projected to be flat to slightly lower for the year due to lower raw material costs.
TiO2 prices are highly volatile and the market has been oversupplied since late 2012. Although key producers such as Tronox Ltd. and Huntsman Corp. have reported that inventories are nearing normal levels, prices for ilmenite and rutile -- the main inputs in TiO2 production -- have stayed depressed through the start of the year. Fitch expects TiO2 prices to remain subdued in the near term.
The drop in oil prices has put downward pressure on hydrocarbon derivatives such as ethylene and propylene. These derivatives, particularly propylene, are used to create epoxies, resins, and latex which are important raw materials for the industry. Fitch expects U.S. paints and coatings companies to realize cost benefits across the board, but the degree will vary by company. For example, PPG Industries, Inc. reports that approximately 20 percent of its cost of goods sold is oil-based while that number is closer to 40 percent for The Sherwin-Williams Company. Additionally, Fitch expects a lag in the timing of these price benefits. The oil-based derivatives used by paints and coatings companies are far enough downstream that suppliers are able to better manage pricing reductions (i.e. Fitch understands that propylene accounts for around 10-15 percent of latex's total production cost).
