Coatings World - June 2009

Chart 1

for growth in the number of projects being funded, and this means at this juncture, the stimulus program is not close to being effectively deployed into our economy achieving its ultimate economic benefits. During these initial stages of implementation most argue that it is too early to expect anything else and we concur.

Allowing for inefficiencies in our system, we believe that we will move from the current weekly rate of deployment of funds of 20-21% paid out to approximately 85%, a little less than the entire package. Our estimates take this inefficiency into consideration.

On a macro-basis, in what market segments should we expect a positive impact on the paint and coatings industry as the spending position of the stimulus programs become effectively employed? Of the seven major segments, four represent the most predominant in terms of paints and coatings use impact. They are:

• Transportation, housing and urban development;

• Energy and environment;

• Agriculture and rural development;

• Defense and security.

Chart 2 shows a total of $317.2 billion of which, $187.72 billion ( yellow) to be spent in these four segments. Fifty nine percent (59%) of the total spending is devoted to these four segments.

The maintenance and new construction market for the U.S. was $1.3 billion in 2008 and declining in growth due to the general economic situation.

This segment will benefit directly from stimulus spending initiatives since paints and coatings are required in most all aspects of these segments. Chemark estimates the upside impact on this segment alone could be $255 million in paints and coatings over the next three years.

The Stimulus Package will increase demand for architectural, heavy-duty and OEM paints/coatings, adhesives, sealants, composites, plus their basic raw material ingredients, and other specialty chemicals-based construction products exist in a wide range of end-use areas.

HOME BUILDING PRODUCTS MARKET As mentioned, the stimulus bill was designed in part to have a measurable impact on the home improvement market by encouraging homeowners and communities to take actions that will ultimately result in an increase in home values in order to help stabilize the housing market.

The “First time home buyer’s tax credit” provides an $8,000 tax credit for first-time buyers for home purchases made between January 1 and December 1, 2009. Although they prefer new homes, most first time home buyers purchase existing homes; and,

Chart 2

existing home sales are a critical demand driver for almost all home improvement products from paints, general construction items such as adhesives, sealants, wallpaper and carpeting to even composite-based materials such as certain bath-room/kitchen sinks.

The $2 billion Neighborhood Stabilization Act provides grants to communities to purchase and repair foreclosed properties. Funds can also be used by states and local communities to establish financing methods for the purchase and redevelopment of foreclosed properties. Since these properties have been abandoned, they are usually in need of extensive repair; and, with the guarantee of government funding, increased sales for paint, dry-wall and other home maintenance and construction materials will most certainly materialize.

Energy tax credits and incentives through 2010 allow homeowners to claim a 30% tax credit for purchases of new furnaces, windows and insulation. Installation of these items creates demand for other home improvement items such as paints, wallpaper, siding and other basic home construction materials. Buyers can also capture these through the purchase of homes constructed to meet Energy Star guidelines. Energy tax credits can be taken with first time buyers as well— a “double whammy” that could help the new home construction market also.