The Slowdown is Gaining MomentumThe first quarter of 2007 shows a significant decline from the 2006 first quarter. The report for the fourth quarter 2006 indicated a slowdown may be developing. However, the fourth and first quarters are always the smaller quarters in the year. The extent of the slowdown will become more apparent with the next quarterly results.
The total coatings industry declined 11.3% in volume shipped compared to the 2006 first quarter. Shipment value also declined 3.3%. The slower decline in shipment value indicates that the price of coatings shipped was higher in 2007.
The Architectural Coatings segment declined 14.4% in volume shipped and declined 3.0% in shipment value for the quarter. The downturn in housing starts and resales is having the expected softening of the Architectural segment. Although, by historical standards, the housing market is still operating at a fairly high level, the fact that a downturn has begun should be an early warning sign for the segment.
The Product OEM Coatings segment also showed a sharp decline from the previous year. Shipment volume declined 16.0% and value declined 8.4%. Although this segment is not directly tied to the housing market, it does have ties with the appliance and siding markets where products are precoated for use in and on houses. The slowdown in the automotive industry also impacts the segment directly. With the high cost of fuel, the change in demand for automobiles has caused a sizeable decline in U.S.-manufactured vehicles. The downturn in this segment could be longer lasting than in the Architectural segment.
The Special Purpose Coatings segment is the one positive segment in the industry for the first quarter. Shipment volume increased 32.9% in the quarter while shipment value increased 5.7%. Although this segment is harder to understand than other segments, the results are encouraging (Note: the results for the segment are usually changed when the annual report is published later in the year.) Several factors could account for the increase in this segment’s results; the increase in building repair and maintenance spending, the increase in auto refinish due to the higher number of vehicles on the road and the longer lifespan of cars, plus the increase in highway construction spending. Let’s hope the increase for the first quarter is not reduced in the annual report.
Coatings exports remained at 8.7% of the shipment value, the same as the first quarter in 2006. Imports were considerably lower at 2.2% of shipment value compared to 4.6% last year, a significant reduction in reported imports.