Coatings World - July 2009

Opp
Stimulus Spending: Where’s the
ortunity for Paints & Coatings? Part 2

BY PATRICK JONES, LYNDA GORDON, LINDA MARQUEZ & PHIL PHILLIPS CHEMARK CONSULTING’S “FAST TRACK SOLUTIONS TEAM”

In the first quarters of 2009, major paint and chemical companies reported significant declines in both revenues and profits due to the global economic downturn. U.S. Federal Stimulus spending will offset these general losses in demand in the U.S., however, the Federal bill is complex so it is not easy to distill specific business opportunities.

Last month Chemark Consulting’s “Fast Track Solutions Team” analyzed the American Recovery and Reinvestment Act and provided an industry overview of the relevant business opportunities. The result of this Federal Stimulus Spending Bill will be increased demand for archi-tectural/high performance and OEM paints/coatings, adhesives, sealants, composites and their raw material ingredients.

In fact, Goldman Sachs has now raised the specialty chemicals sector from neutral to attractive, projecting that the industry hit its low in March 2009. Key chemical and paint companies that will benefit from increased stimulus spending have now been added to their buy list.

Last month we discussed the deployment, through April 24th, of funds under the stimulus plan. At that time we observed that we were only 21.3% efficient since we paid out only $15.4B out of an available $72.2B. We are improving, however.

In Chart 1 we can see an actual paid out improvement of 11.9% points from 21.3% to 33.2% in June. As a percentage of the percentage

change, it looks even more dramatic at 55.9% ( 11.9%/21.3%).

Another important observation is the government in about a month and a half has doubled the stimulus monies available from $72.2B to $147.2B. Out of the total monies approved under the plan ($787B) 9.2% was available on April 24th while on June 12th, it was 18.7%.

RIPPLE EFFECT

Within the Stimulus Plan exists opportunities and these opportunities exist along the various value supply chain continuums across many market segments and applications. Chart 2 shows an example of just one of 190 segments in the paint and coatings industry here in the U.S.

Chart 1

This metal coil coating example exhibits the costs and profits taken along the ‘chain’ based on a single gallon of siliconized polyester paint. These raw material costs of $13.34/gallon is converted through the formulator, coil coater, OEM fabricator to the dealers in final use to $171.55/gallon at the dealer level. Each step has a ‘ripple effect’ impact as the product is enhanced (value-added) along the ‘chain.’

As the stimulus plan opens construction (infrastructure, housing, appliances, etc.) starts, it pulls our chemicals through similar ‘chains,’ potentially benefiting the entire supply line in the process.