Fitch: Low Raw Material Costs Benefit US Coatings Companies

NEW YORK--(BUSINESS WIRE)-- Expected improvements in architectural coatings volumes and sustained pricing pressure on titanium dioxide (TiO2) and oil-based derivatives should continue to provide a tailwind for U.S. paints and coatings companies, according to Fitch Ratings.

Fitch estimates that approximately 65%-70% of architectural coatings volumes are attributable to the repaint market (residential and commercial) which is projected to have mid-single-digit growth this year. Total housing starts are projected to increase about 14% while nonresidential construction spending is forecast to advance 7% this year. Architectural coatings pricing is projected to be flat to slightly lower for the year due to lower raw material costs.

TiO2 prices are highly volatile and the market has been oversupplied since late 2012. Although key producers such as Tronox Ltd. and Huntsman Corp. have reported that inventories are nearing normal levels, prices for ilmenite and rutile -- the main inputs in TiO2 production -- have stayed depressed through the start of the year. Fitch expects TiO2 prices to remain subdued in the near term.

The drop in oil prices has put downward pressure on hydrocarbon derivatives such as ethylene and propylene. These derivatives, particularly propylene, are used to create epoxies, resins, and latex which are important raw materials for the industry. Fitch expects U.S. paints and coatings companies to realize cost benefits across the board, but the degree will vary by company. For example, PPG Industries, Inc. reports that approximately 20% of its cost of goods sold is oil-based while that number is closer to 40% for The Sherwin-Williams Company. Additionally, Fitch expects a lag in the timing of these price benefits. The oil-based derivatives used by paints and coatings companies are far enough downstream that suppliers are able to better manage pricing reductions (i.e. Fitch understands that propylene accounts for around 10%-15% of latex's total production cost).

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

North America Paints and Coatings Dashboard

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867133

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150610005773/en/

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