Rising feedstock costs to hound US Sherwin-Williams through 2011

25 January 2011 23:02  [Source: ICIS news]

HOUSTON (ICIS)--Sherwin-Williams will see single-digit sales growth in 2011 but rising raw material costs will hound margins, the top executive for the US paint giant said on Tuesday.

Sherwin-Williams chief executive Christopher Conner said he expected the combined costs of feedstocks such as titanium dioxide (TiO2) and propylene to rise in the “low double digits” percentage-wise this year.

Raw material costs for the whole of 2010 rose in the single-digits, Conner said, but added that those costs rose most sharply in the fourth quarter.

Propylene prices have rose sharply in the last month, he noted during the company’s fourth-quarter earnings conference call.

US polymer-grade propylene (PGP) contracts for January surged by 28% after a drawn-out settlement process split the market on the chemical-grade (CGP) side and widened the spread between the two grades to an unprecedented level.

US TiO2 producers had also sought substantial price hikes for January.

If successful, the TiO2 increases would be implemented on 1 March or 1 April, depending upon price-protection agreements between buyers and sellers, according to ICIS.

The raw materials that go into a gallon of architectural paint equate to half the price of the gallon, Conner said.

Price increases announced in the fourth-quarter by Sherwin-Williams were “intended to carry us into the new year”, Conner said, and the company had no current plans to seek further price hikes.

Conner said the outlook for many of the paint producer’s markets in 2011 was “stable-to-improving”, but “counteracting raw materials is likely to be a challenge”.

Also, Walmart’s selection of paint maker Akzo Nobel over Sherwin-Williams as the chain store’s primary supplier of house paints would result in less than $100m (€73m) in unrealised sales for Sherwin-Williams, Conner said.

Despite the Walmart decision, Conner said he expected sales would increase this year in the high-single digits, percentage-wise.

Sales of industrial coatings would grow in line with a recovery in construction, he said. Housing starts in the US were likely to rise slightly while home ownership turnover, another source of paint sales, was likely to be flat.

Sales in the “do it yourself” paint market were strong in the third and fourth quarters and consumer confidence was rebounding, Conner said, despite a “choppy economic recovery".

He said the company’s paint store business was focused on gaining shares in all markets and product lines, noting a net gain of 36 stores in the North America region with 3,390 stores in operation by the end of 2010. The company could add 50-60 new stores this year, with a focus on the US northwest and Canada, he said.

Shares of Sherwin-Williams rose $2.79, or 3.4%, on the New York Stock Exchange to close at $86.09.

Additional reporting by William Lemos and Larry Terry

($1 = €0.73)

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By: Brian Ford
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