Results of Paint Contractor/U.S. Architectural Coatings Industry Research Report
Which Compared Business Trends in 3Q17 vs. 3Q16
Each quarter, Northcoast Research surveys a large sample of
paint contractors to get a sense for current business trends while
United Mineral & Chemical Corp. (UMC) provides insight into
coatings raw material trends. Please note that of the three primary architectural paint channels (paint stores, home centers,
and independent distributors), the contractor survey results are
largely a proxy for the paint store channel. For inquiries regarding the results of the survey please contact Kevin Hocevar at
216-468-6924 or kevin.hocevar@northcoastresearch.com. For
inquiries regarding raw materials please contact Dave Kotowski
at 216-577-1982 or dkotowski@umccorp.com.
Contractor Sales — MSD Sales Growth Again in 3Q17
The cumulative responses to the question of how contacts’ sales
thus far in 3Q17 compare to the same time last year show that
growth has continued Yo Y and accelerated sequentially according
to our contacts. 75% of contractors experienced a higher level of
sales Yo Y, 9% described their sales as “Flat”, and the remaining 15%
experienced a Yo Y sales decline so far in the period. These metrics
produce a net increase (percent of contacts who experienced higher sales in the period minus the percent of contact who experienced
lower) of 60%. Sales grew an average of 6.4% in 3Q17 through the
time our survey was conducted (first week of September).
Price of Paint from Suppliers — 2017 Price Increases Con-
tinue to Hold but Slightly Moderate in 3Q17
When describing paint purchase prices Yo Y, 60% of respondents
noted pricing as being higher compared to the prior year while 8%
noted prices being lower. The remaining 32% described pricing as
flat from the prior year. The net number of contacts seeing higher
pricing Yo Y first jumped in 4Q16 as the SHW price increase took effect December 2016, however this jumped even more in our 1Q17
results as the remaining manufacturer price increases took effect
and has moderated slightly sequentially each quarter since. On
average, contacts indicate pricing is up 2.3% Yo Y in 3Q17, slightly
lower than our 2Q17 survey which showed average prices up 3.1%.
Raw Materials Pricing and Supply Update
It does not look like we will enter Q4 like a lamb. Hurricane Harvey has created havoc in the Gulf region. Hurricane IRMA has
also stirred the pot a little. Many refineries and chemical plants
are not back up and running. Even after production resumes,
transportation will be slowed, especially materials purchased in
rail. Rail cars do not react well to floods and high water. Everything that is derived from Ethylene and Propylene will be temporarily short. Solvents made from EO, PO and hydrocarbons
from oil will be a challenge. We can expect shortages for HDPE,
which will negatively impact the supply of plastic pails for paint.
Propylene will negatively hit resins and polymers. Harvey was a
very impactful and damaging storm. The good news is these
should all be short term issues to manage through.
For the longer term, prices on Tio2 continue to move higher.
We expect another round of price increase announcements in
the next 30 to 60 days. We may be getting close to the end of
the increases. But, the market conditions that have pushed prices
higher still exist. The big question is will prices fall shortly after they
hit their high? History says they will. I would not take that bet this
time around. Continue to manage your inventory smartly.
Expectations for most other raw materials and packaging for
the coatings industry will follow year end annual norms. There
will probably be single digit price increase announcements on
fillers, tin and steel packaging for paint. Even with some relaxing
of regulations, costs continue to rise. Here’s hoping for all of a
mild winter with an extended painting season.
3-Month Outlook — Contractor Outlooks Moderate due to
Normal Seasonality but Majority Still Positive
At 62%, most contractors believe that business trends are im-proving/will improve over the coming months. Only 28% described their outlook as “Neutral” (business trends will stay
about the same) while 9% responded in the negative territory. In
asking this question, we attempt to gauge actual expectations
for the coming months based on how business has been trending as of late and based on leading indicators such as contractor
backlogs, bidding activity, and any other relevant factors. A net
53% of contacts are feeling good about the upcoming months,
which is below 2Q17 in which a net 75% had a positive outlook,
however this resembles normal seasonality as outlooks tend to
move lower as we enter the fall and winter months. Our contacts
described increased levels of bidding activity and backlogs as
the primary drivers behind their positive outlook for the coming
months. In terms of what’s driving the increased bidding activ-ity/backlogs, many contacts cited renewed consumer/business
confidence which is having a positive impact on spending, exterior paint business booking out further than usual, and general
strength in the economy. Limiting the upside however is a lack of
competent painters which has been a headwind for some time.
