Barclays on U.S. Chemicals: Paints: Petrochemical Cost Easing
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Rating Trend:
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Barclays on U.S. Chemicals: Paints: Petrochemical Cost Easing
Barclays analyst, Christopher J. Nocella, says, "What's changed recently: Petrochemical-based raw materials, such as resins, have begun to decline along with crude oil. We expect propylene to take a meaningful hit in October, with prices potentially dropping below 65 c/lb in Q4 versus our previous estimate of ~80 c/lb. This is down from 87.5 c/lb in Q2'11, and is potentially the beginning of a long-waited reprieve for coatings producers, who have seen consistent upward pressure for the past 18 months. Propylene and its derivatives make up nearly 50% of the raw materials for paints, and raw materials account for 80% of the COGS for a paints company, so any changes in cost are meaningful to the bottom-line."
"Sherwin-Williams (NYSE: SHW) and Valspar (NYSE: VAL) currently expect the broad basket of coatings raw materials for the industry to be up in the high teens to low 20% range in 2011. Given the inherent flow through lag of raw materials, we believe it is unlikely the recent decline in propylene and derivative prices will benefit the paint producers in 2011. However, it could be a nice benefit starting in early 2012, and in the event of an economic slowdown, raw material costs would most likely decline further, additionally benefitting margins while also offsetting any potential volume weakness."
Barclays analyst, Christopher J. Nocella, says, "What's changed recently: Petrochemical-based raw materials, such as resins, have begun to decline along with crude oil. We expect propylene to take a meaningful hit in October, with prices potentially dropping below 65 c/lb in Q4 versus our previous estimate of ~80 c/lb. This is down from 87.5 c/lb in Q2'11, and is potentially the beginning of a long-waited reprieve for coatings producers, who have seen consistent upward pressure for the past 18 months. Propylene and its derivatives make up nearly 50% of the raw materials for paints, and raw materials account for 80% of the COGS for a paints company, so any changes in cost are meaningful to the bottom-line."
"Sherwin-Williams (NYSE: SHW) and Valspar (NYSE: VAL) currently expect the broad basket of coatings raw materials for the industry to be up in the high teens to low 20% range in 2011. Given the inherent flow through lag of raw materials, we believe it is unlikely the recent decline in propylene and derivative prices will benefit the paint producers in 2011. However, it could be a nice benefit starting in early 2012, and in the event of an economic slowdown, raw material costs would most likely decline further, additionally benefitting margins while also offsetting any potential volume weakness."
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