Coatings World - October 2013

Results of U.S. Architectural Coatings Industry Research Report Which Compared Business
Trends in August 2013 vs. August 2012

Each month, Northcoast Research surveys a large sample of paint retailers throughout the U.S. 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 2.5% in August vs. Last Year According to industry participants, average sales volumes in August rose 2.5% year-over-year following a slight slowdown in growth of 0.8% in July, and momentum picked back up where it left off from the 2.3% growth seen in June. Coatings volumes improved in August as a result of underlying strength in the U.S. housing market coupled with more normalized weather conditions compared to challenging weather patterns seen throughout most of 2013. Overall, 68% of respondents witnessed an increase in volumes vs. only 18% that saw volumes decline, which averaged out to 2.5% volume growth and a net increase of 50%.

Price of Paint from Suppliers —
Paint Prices Up vs. Last Year but Growth Slows

57% of contacts noted a year-over-year increase in the cost of a gallon of paint from suppliers in the month of August as our paint price index increased 1.0%. This compares to a year-over-year increase of 1.5% and 2.1% in July and June, 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 flat 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 Prices appear to be Bottoming Out Throughout 2013, titanium dioxide (TiO2) has been on a downward trend but our research suggests a floor is being reached. Propylene prices have been rebounding since April; however, they are still below highs seen in February. TiO2 manufacturers have recently issued price hike announcements although our data suggests these increases are not sticking. With that said, TiO2 inventories are beginning to become more balanced and as utilization rates increase, we would not be surprised to see successful price increases by the end of 2013.

Paint Inventory Levels — Inventories Remain Fairly Balanced 81% 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 activity. Only 7% of contacts noted that current paint inventory levels are too high while the remaining 13% of participants revealed that paint inventory levels were too low in August. Overall, we believe that inventories are well aligned with current demand levels.

3 Month Outlook —
Outlook Strong with Improvement from July

Our proprietary Architectural Coatings Outlook Index reached a 0.57 for the month of August compared to a level of 0.30 in July. 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 July and indicates that contacts within the industry maintain a favorable outlook and are anticipating business to improve from current levels.