Each month, Northcoast Research surveys a large sample of paint retailers throughout the United States to get a sense for current business trends.  Please note that of the three primary architectural coatings channels (paint stores, home centers, and retail distributors), 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 inquiries regarding this report please contact Kevin Hocevar at 216-468-6924 or kevin.hocevar@northcoastresearch.com.

Architectural Coatings Sales — Volumes Up 1.9% in October vs. Last Year
According to industry participants, average sales volumes in October rose 1.9% year-over-year following slightly slower growth of 1.3% in September and momentum picked back up where it left off from the 2.5% in August.  Following a slower September, momentum accelerated back to levels more commonly seen over the past couple of months as precipitation returned to more normal levels.  Overall, 68% of respondents witnessed an increase in volumes vs. only 14% that saw volumes decline, which averaged out to 1.9% volume growth and a net increase of 54%.

Price of Paint from Suppliers — 2013 Paint Prices Up Slightly vs. 2012
57% of contacts noted a year-over-year increase in the cost of a gallon of paint from suppliers in the month of October as our paint price index increased 1.4%.  This compares to a year-over-year increase of 1.4% and 1.0% in September and August, respectively.  Price increases issued by paint manufacturers in 2012 as a result of recovering raw material inflation are starting to anniversary and thus year-over-year price increases are becoming less pronounced – a trend that is likely to continue.  We believe the trend of generally stable pricing will be sustained as 86% of respondents reported that there have been no price increase notifications issued from paint suppliers at this time.

Raw Materials — TiO2 Sees Slight Down-Tick in Pricing
Titanium dioxide (TiO2) prices have been stabilizing recently after witnessing sharp declines earlier in the year; however, our proprietary TiO2 index saw a slight price decrease recently as seasonal demand slows.  Propylene prices were previously climbing, but have declined and stabilized since its peak in September.  TiO2 manufacturers have recently issued price hike announcements although our data suggests these increases are not sticking.  Overall, our research suggests that there is an emerging acceptance in the market for a moderate TiO2 price increase in 2014 but likely not until the end of the first quarter.

Paint Inventory Levels — Inventory Levels Remain In Balance
90% 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.  Only 8% of contacts noted that current paint inventory levels are too low while the remaining 2% of participants revealed that paint inventory levels were too high in October.  Overall, we believe that inventories are well-aligned with current demand levels.

3 Month Outlook — Outlook Positive with Sequential Improvement
Our proprietary Architectural Coatings Outlook Index reached 0.57 for the month of October compared to a level of 0.35 in September.  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 0.57 is a positive translation as it represents an improved outlook from September which was in-line with August’s robust reading of 0.57 and indicates that contacts within the industry maintain a favorable outlook that is growing and are generally in anticipation for business to improve from current levels.