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US paint companies expect more inflation in Q2

Posted on May 18th, 2017 by in Chemicals Industry News and Analysis


US-based paints and coatings producer Sherwin-Williams recently provided markets with a sneak preview of what to expect in the earnings season when it warned that it will continue to feel pressure from rising feedstock costs in the second quarter of 2017.

Sherwin-Williams and fellow paints producer PPG Industries are among the first chemical companies to release their earnings statements. Paints are major end markets for several chemicals, such as titanium dioxide (TiO2), vinyl acetate monomer (VAM), methyl methacrylate (MMA), latex and many solvents.

During its earnings conference call, Sherwin-Williams increased its inflation forecast. It now expects raw material prices to rise by mid-single digit percentages, versus an earlier forecast of the low-single digits. Sherwin-Williams singled out VAM as well as propylene, MMA, TiO2 and a monomer used to make latex.

Sherwin-Williams did not specify that monomer, but butadiene (BD) prices have increased sharply through the year, and it is one of the main feedstocks for styrene butadiene rubber (SBR) and other elastomers. While US BD prices have recently slipped, they are still up from levels at the start of the year.

ICIS has been following the rise in prices for BD as well as the other chemicals mentioned by Sherwin-Williams. The charts below shows US olefin prices as well as those for VAM and MMA.

Index image 1


Index image 2

All except ethylene have risen since the winter. If one also excludes VAM, the rest have risen in the past 12 months.

A lot of the increase can be attributed to outages. Earlier this year, Celanese started an extensive shutdown at its acetyls units in Clear Lake, Texas, that should last at least four weeks. Dow Chemical had conducted a maintenance turnaround at its VAM unit in Texas City, Texas. Although Dow has restarted its plant, it has maintained a 100% order control.

VAM markets have focused mostly on shutdowns, although upstream prices for methanol have also increased. For MMA, some market players estimate that more than 25% of global production has been offline at points this year. Even without the production issues, MMA would have still felt pressure from upstream propylene.

Throughout the quarter, the US propylene market has contended with planned and unplanned cracker outages as well as turnarounds at refineries. Refiners typically conduct maintenance during the first quarter because fuel demand falls during the winter months.

Refineries are important sources of propylene because they produce the monomer in fluid catalytic crackers (FCCs).

Availability of propylene had been limited by recent cracker turnarounds and production issues.

Given the rise in propylene and other feedstock, Sherwin-Williams had proposed price increases of 3-5% in December, and so far, traction has been better than expected, said Allen Mistysyn, chief financial officer.

Axalta Coating Systems expects to pass through higher raw-material prices to its customers.

Likewise, PPG had implemented price increases in the first quarter and announced additional hikes in the second to address rising raw-material costs.

Both PPG and Sherwin-Williams expect the second quarter will be the peak for raw materials.

In fact, pressure is already coming off of propylene prices. US April contracts fell by 6 cents/lb ($132/tonne).

The decline was followed by a 6 cent/lb drop in US polypropylene (PP).

Later this quarter, the US should get an influx of supply when Enterprise Products starts up its 750,000 tonne/year on-purpose propylene plant. Start-up for this propane dehydrogenation (PDH) unit will take place much later than expected.

Mexican PP producer Alpek said propylene prices could fall into the low 40 cents/lb.

So far, PP prices have kept up with the increases in propylene. If monomer prices fall, Alpek said it could increase margins.

Additional reporting by Stefan Baumgarten, Tracy Dang, Lane Kelley, Tarun Raizada, Katherine Sale and Jessie Waldheim

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All opinions shared in this post are the author’s own.

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