By , The ChemQuest Group, Inc.
It is not likely that the U.S. paint and coatings industry in 2023-2024 will be recalled, in decades hence, with any particular fondness—but neither will it be recalled with horror, unlike The Great Recession of 2007-2009, from which it took the industry more than a half-decade to recover.
Despite sound underlying fundamentals in the U.S. economy, they are failing to exhibit their full potential for salubrious effect on the paint and coatings industry due to ongoing fears that interest rates will once again rise, and regulatory anxiety, especially related to the unfolding PFAS threat, is taking its toll. Nor is the U.S. immune to the chaos in the world around us—whether the war in Ukraine, the conflict in Gaza, the Houthi attacks on transport vessels in the Red Sea, or economic doldrums in the EU and China—everything going on around us affects the confidence of U.S. consumers.
Coatings volume from 2022 to 2023 was down 1.8%, while value was up slightly by 1.4%; volume and value from 2023-2024 estimated (2024e) are expected to be +2.6% and +5.3%, respectively. Looking ahead to 2025 forecast (2025f), we should expect to see +2.3% growth in volume and no more than +5.3% in value. Not exactly fireworks and roses this year and next, but no cause for hanging one’s head in shame, either, given that we still have some remnants from the global supply chain crisis with us, especially with regard to certain pigments and additives and some degree of ongoing difficulty obtaining raw materials from Europe. The price of crude oil, while below its historical highs, is nevertheless sufficiently high enough that no one in the specialty raw materials industry is serving champagne or setting off Roman candles.
Over the past three years, galloping inflation was met by the Federal Reserve with galloping rate hikes, which finally began to ease in 2023. On June 12, 2024, the U.S. Federal Reserve decided to keep interest rates unchanged and indicated that only one rate cut is likely before the end of the year. The federal funds rate remains within the range of 5.25–5.50%. What the traders looked at was the dot-plot to figure out if—and when—a cut would occur. Nonetheless, while Fed chair Jerome Powell is anticipating only a single rate drop during the remainder of 2024, various members of the Federal Open Market Committee (FOMC) have signaled several different views on this front.1 Four members anticipate no cuts, seven foresee one quarter-point cut, and eight support two cuts. The median projection for the benchmark federal funds rate is 5.1% by the end of 2024, implying just over one quarter-point cut. Through 2025, the FOMC now expects five total cuts, down from six in March, which would leave the federal funds rate at 4.1% by the end of next year.
While not all aspects of the Supply Chain Crisis of 2021-2023 have been completely sorted out, at least as of mid-2024, the majority of raw material suppliers and coatings producers are able to produce sufficient material to fill their orders with lead times, in the majority of cases, roughly the same as five years ago (i.e., prior to COVID-19). They aren’t necessarily conducting their businesses in the same way, however, because many firms have learned important lessons from the past four years and have changed multiple aspects of their approach to business in all areas—sales, technology, production, marketing, supply chain, etc. These changes have been more difficult for some than for others, but they have been necessary changes and have helped the producers that have implemented them. The hard truth, however, is that such change is going to be necessary going forward for all paint and coatings producers, because the supply chains throughout the global economy are increasingly vulnerable and subject to disruption more readily than at any time prior to 2020. The Russo-Ukrainian War (including the potential for NATO to intervene at some point), a slowdown in the Chinese economy,2 political tensions between the West and Russia/China, issues involving Türkiye’s relationships with both the EU and NATO, and the actions with respect to the widely misunderstood topic of PFAS that will be taken by various countries all have the potential to disrupt the supply chains to one degree or another. Moreover, any number of other factors in a globe fraught with distrust, contention, constant concerns about the price and availability of oil and natural gas, and an increasingly vocal consumer involvement with everything from global climate change and “sustainability” to microplastics in the environment will also have a destabilizing effect on global industry and its supply chains.
Continue reading in the September-October digital issue of CoatingsTech