Architectural Coatings Sales — Volumes Up 1.4% in 3Q15 vs. 3Q14
According to industry participants, average volumes increased 1.4% in 3Q15 compared to 3Q14. This represents a slight sequential moderation from our 2Q15 results and compares to volume growth of 2.8% in 2Q15, 1.1% in 1Q15, and 1.6% in 4Q14. We had anticipated pent up demand from lost painting days in 1H15 to be made up in 3Q15 causing volumes to accelerate, however this did not happen. With that said, the industry is still experiencing year-over-year growth. We are encouraged with the positive trends that have persisted through 3Q15 as paint volumes continue to grow on a year-over-year basis and we expect 2015 to be a solid year. Overall, 63% of respondents witnessed an increase in paint volumes vs. only 17% that saw volumes decline, averaging out to 1.4% year-over-year volume growth and a net increase of 46%.
Price of Paint from Suppliers — 3Q15 Paint Prices Remain Positively Skewed
40% of contacts noted paint prices were higher in 3Q15 vs. 3Q14 as our paint price index rose 1.0% compared to average increases of 0.5%-1.0% over the past year. Our research suggests that a little bit of price is sticking in the industry but only in the independent dealer channel which is small in size and likely in the low-single digit range. We currently do not believe the store or big-box channels are realizing pricing; however, given the raw material declines, we view the overall price/raws for coatings manufacturers as favorable. We believe that we picked up potential price increases in our 4Q14 survey where a meaningful uptick in contacts were notified of a price increase from manufacturers to take place in 2015. The majority or contacts believed these attempts would be successful and we believe the data we have discovered thus far in 2015 suggests that some degree of pricing did in fact stick in the marketplace. Overall, 40% of respondents witnessed an uptick in pricing vs. only 3% that saw pricing decline, averaging out to a 1.0% increase in year-over-year pricing with afnet increase of 37%.
Raw Materials — Raw Materials Can’t Seem to Find a Bottom
We continue to believe coatings manufacturers are poised to benefit from favorable price/raws in 2015 due to the drop in titanium dioxide (TiO2) and raw materials derived from crude oil. Propylene, of which many coatings based raws are derived, has continued to decline and is averaging about $0.345/lb in 3Q15 which is down ~18% from 2Q15 and ~50% from 3Q14 levels which averaged $0.681/lb. Additionally, TiO2 started to drop in 4Q14 and has seen further declines throughout 2015 and is likely down 15%+ year-over-year. Unfortunately, coatings manufacturers have not seen the level of raw material benefits we were anticipating throughout 2015 as most of the major coatings players have indicated the raw material basket is down only low-single digits in 1H15, however this may improve in 2H15 given the further declines discussed above.
3-Month Outlook — Outlooks Solid as We Enter the Fall Season
Our proprietary Coatings 3-Month Outlook Index reached 0.51 in 3Q15, which is a slight sequential moderation from our 2Q15 survey. Moving backwards, the 0.51 mark in 3Q15 compares to 0.84 in 2Q15 and a reading of 0.57 in 3Q14. 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). We believe this outlook represents healthy growth as our index tends to temper from 2Q into 3Q as we enter the fall but is showing normal seasonality and healthy outlooks.