Coatings World - January 2014

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MARKET
Continued Growth Seen for the
US Coatings Market
US PAINT AND COATINGS INDUSTRY EXPECTED TO APPROACH 26 BILLION BY 2017

H The $20.3 billion (2012) U. S. paint and coatings industry is both large and mature. The recently-released “ Updated Executive Summary (2012-2017)” to the American Coatings Association’s (ACA) U.S. Paint & Coatings Industry Market Analysis (2010-2015), prepared by The ChemQuest Group, predicts that the U.S. paint and coatings industry will slightly exceed $26 billion in 2017.

This growth will be driven both by increasing domestic demand as the U.S. economy continues to expand from re-cessionary lows and a favorable export climate, as Europe and China emerge from their current financial doldrums.

The year 2012 began to show positive signs for several parts of the paint and coatings industry, especially the architectural segment, which experienced a net decline of 7. 3 percent in volume bet ween 2008 and 2012, (although the value of shipments increased 9. 7 percent).

CURRENT MARKET CONDITIONS

Looking forward, all sectors – Architectural, OEM and Special Purpose – are expected to post respectable increases in volume and value, as economic conditions in the U.S. continue to improve slowly in the post-recessionary period:

Forecast CAGRs, 2012-2017:
• Architectural Volume & Value: 4. 5 per-
cent and 6. 7 percent, respectively
• OEM Volume & Value: 2.6 percent and

4. 3 percent, respectively
• Special Purpose Volume & Value: 1.9
percent and 3. 3 percent, respectively
Architectural, especially, will flour-
ish as a result of he uptick in housing
starts, new home sales, sales of exist-
ing homes, and increased activity in
home remodeling/home improvements.

MARKET ANALYSIS
Figure 1 shows the volume of the U.S.
coatings market divided into its three
principal segments: Architectural, OEM,
and Special Purpose coatings.

The volume history clearly shows a decline in all three segments over the period of 2003-2012. Since the end of the Great Recession in June/July of 2009, however, both the Architectural and OEM segments have grown gradually, while the Special Purpose segment declined slightly, driven largely by the re-statement of the volume of Automotive Refinish coatings, which dominates the segment.

The picture is somewhat different, how-
ever, when one looks at the value of the
U.S. coatings business by segment, for
the same period, illustrated in Figure 2.

Beginning with the end of the Great Recession in mid-2009, each of the paint and coatings industry’s three major segments steadily gained in value, a trend expected to continue through 2017 and very likely beyond.

The volume of architectural coatings has steadily increased since 2009, but by 2012, had still failed to approach the peak value for the 10-year period. While the volume of architectural coatings declined over the past decade, segment value, however, grew significantly over the past four years, reaching a 10-year high in 2012.

OEM Coatings experienced a general decline in volume over the covered period (down slightly < 15 percent), with a substantial dip during the recession. While volume has recovered since 2009, it remains far below full recovery. Although the decline in value in this segment was notable, it recovered starting in 2009 resulting in 2012 having the highest value of the 10-year period under study.

While Special Purpose coatings is the
smallest of the three major segments, it
is nonetheless important, and has dem-
onstrated greater resilience than either
OEM or Architectural over 2003-2012.

MARKET TRENDS

The U.S. coatings industry is well-established and mature, but still relatively progressive, even though many of the advances that it has made over the past 15-20 years have been forced on it by regulators. For many years, it roughly kept pace with GDP, and will likely continue to do so as the U.S. recovers from the effects of the Great Recession. The coatings industry continues to develop new products and technologies that offer improved protection and enhanced aesthetics on a wide range of substrates, while often improving end-cus-tomers’ overall cost per unit as a result of improved application characteristics.

Certain trends and market forces will continue to challenge both coatings formulators and their raw material suppliers over the period covered by ACA’s “Updated Executive Summary (2012-

2017)” and probably well beyond:
• Slow Growth After 2017: While growth
rates projected through 2017 are sig-
nificantly in excess of those exhib-
ited during the period 2003-2012, it is
likely that – once the pent-up demand
caused by the Great Recession has
been met – industry growth will return
to historical norms.

•Increased Competitive Pressures: Coatings companies are attempting to combat this issue by differentiating themselves from competitors through product innovations; providing more effective customer service; employing price discounting tactics; or arranging strategic acquisitions.

• Margin Pressures: More stringent
quality requirements, environmental
standards, and raw material cost ac-
celeration, combined with consoli-
dating customers demanding lower
prices and greater service levels have
increased the cost of operation for
most paint companies. The resulting
profit-margin squeeze at the gross
profit level, has been addressed with
varying degrees of success both by
passing along all or part of the in-
creased raw material costs to custom-
ers, and by improving operating costs.

• Consolidation: The number of paint companies in the country has steadily declined. In the early 1970s, approximately 2,000 paint companies operated in the U.S.. Today, the number is likely to be less than 1,000, and perhaps as low as 750 – or even lower. Maturing market suggests that this trend will continue.

• Government Regulations: Over the past three decades, federal, state and local governmental regulations directed at protecting the environment and the health and safety of workers have increased. Such regulatory activity, while slowing in pace, is not likely to stop, and is a “cost of doing business” to the U.S. paint and coatings industry.

• Globalization: As major coatings customers expand operations around the globe and attempt to reduce their total number of suppliers, coatings companies have had to expand operations to serve their customers or lose them, in part or whole, in the process. The top 10 coatings companies in the world now provide over 50 percent of all products to the global market.

LEARN MORE

ACA’s U.S. Paint & Coatings Industry Market Analysis, with its “Updated Executive Summary (2012-2017),” is available through an online subscription via www.paint.org/market.