THURSDAY, SEPTEMBER 30, 2021
Due to a variety of factors, aside from the ongoing COVID-19 pandemic, the industry is witnessing a shortage and price surge in, you guessed it: paint.
From the surge of demand by do-it-yourselfers stuck at home, to the strange freeze that took over Texas earlier this year and worsening supply chain issues, the coatings industry has been backed into a corner with no signs of when the market will improve, some experts say.
What’s Happening
According to the Federal Reserve, the higher inflation is only “transitory” or temporary and appears to be showing signs of abating. The central bank’s report is backed by White House officials, who also state that while they’re sensitive to the rising prices, they foresee that supply chain issues will soon subside, having observed the slight downward trend in hardware, lumber and other building materials.
Wall Street economists are also reported to side with the transitory position.
However, despite the opinions of some of the nation’s leading economists and financial advisors, many believe that the current situation could persist well into 2022, further burdening many of the small businesses that are already struggling to make ends meet.
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| Tgordievskaya / Getty Images |
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Due to a variety of factors, aside from the ongoing COVID-19 pandemic, the industry is witnessing a shortage and price surge in, you guessed it: paint. |
Equity analyst firm, Morgan Stanley, reports that the inflation will continue through the first half of next year then veer into deflation for the second half. In specifically refencing the coatings industry, the firm said this represents “the peak of raw material availability issues/cost inflation, but just the early stages of price achievement against it.”
The major factors that will determine how persistent the inflation is in the industry, however, are how the nation will bounce back from Hurricane Ida and the functionality of global supply chains for the chemical industry. As mentioned, the Texas freeze earlier this year also affected the chemical industry, in that much of its petroleum production—a critical ingredient in paint—was slowed.
These shortages, seen mostly in epoxies and acrylics, as well as several types of solvents and additives, are the main issues the industry is facing now, according to the firm.
“These production disruptions, coupled with surging architectural and industrial demand, have pressured raw material supply and rapidly driven prices upward,” Julie Young, Vice President of Global Corporate Communications for Sherwin-Williams, said in a statement to CNBC.
“The pace at which capacity comes back online and supply becomes more robust remains uncertain. We have been highly proactive in managing the supply chain disruptions to minimize the impact on our customers.”
However, despite these efforts by Sherwin and other global coatings companies, prices have continued to rise and supplies are still hard to come by, especially for small businesses.
“We’ve had multiple price increases across the board from every manufacturer we deal with,” said Randy Moser, owner of Buss Paints, a specialty store in Emmaus, Pennsylvania. “It’s been this way for a while now, and it seems like it’s not going to get any better over the next three to six months, either.”
Additional research conducted by the Federal Reserve on the matter found that producer prices for painting and coating manufacturing rose 10.6% in August compared to last year. The jump is the largest the market has seen since January 2009. At the same time, sales totals also witnessed a rise, climbing 7.8% annually in June to $1.34 billion.
Moser went on to comment that the market increases have impacted his business, forcing the store to switch products simply because they can no longer get the brands they had been carrying before.
“Since the pandemic started, so many people have been painting and doing home construction along with all the other construction going on. Things were just where you couldn’t handle the amount of inventory that was being pulled out.”
In a recent story by Bloomberg, AkzoNobel CEO Thierry Vanlancker advised those looking to perform coatings work around the house to get in their cars and “buy paint now.” In its latest investor update, the Netherlands-based global paint manufacturer said pricing is set to increase significantly in the second half of 2021.
As witnessed in several second-quarter financial earning reports, many coatings companies were reported to have increased its selling prices. Some of those companies included Sherwin-Williams, PPG and RPM International Inc., the parent company of specialty coatings and sealants brands including Carboline and Tremco.
Previous Material Cost Data Reports
Earlier this year, in June, the Associated Builders and Contractors released both an analysis of the U.S. Bureau of Labor Statistics Producer Price Index data and reports from its Construction Backlog Indicator for the month of May.
Construction input prices increased 4.6% in May compared to the previous month. Construction input prices are 24.3% higher than a year ago, while nonresidential construction input prices increased 23.9% over that span.
To quantify further, all three energy subcategories registered significant year-over-year price increases. Crude petroleum has risen 187%, while the prices of unprocessed energy materials and natural gas have increased 100% and 90%, respectively. The price of softwood lumber has expanded 154% over the past year.
A breakdown of product price increases, month to month, includes:
More recently, this month, ABC released its August Construction Backlog Indicator numbers, reporting that the backlog plummeted to 7.7 in August from the 8.5 that was recorded in July. The ABC member survey was conducted from Aug. 19 to Sept. 1. The reading is down 0.8 months from July 2021 and down 0.3 months from August 2020.
Falling in most categories over the past month, the backlog revealed:
However, the backlog did gain in a few sectors, including the Middle States region (from 7.1 to 7.4) and in companies at $50–100 million (from 10.0 to 10.9).
Despite the slip in backlog, contractor confidence readings for sales, profit margins and staffing levels all remained above the threshold of 50, indicating expectations of growth over the next six months.
Tagged categories: Business conditions; Business management; Business operations; Coating Materials; Coating Materials - Commercial; Coatings; COVID-19; Economy; Good Technical Practice; Market; Market data; Market forecasts; Market research; Market trends; Supply and demand
