The ChemQuest Group, Inc., a business strategy firm in specialty chemicals, has released its 2016 Wells Fargo Industry Analyst report, “Paints, Coatings, and Adhesives”, delivered in a 40-page pdf available at www.chemquest.com. It features an in-depth analysis of three coatings sectors: Architectural Coatings, Industrial OEM Coatings, and Special Purpose Coatings, as well as Adhesives and Sealants, which use the same intermediates. The global macroeconomic backdrop of “steady, slow growth,” is predicated on moderate growth in North America and optimism building in Europe.

CEO Dan Murad provided insight into the $140B coatings industry, including an overview of market conditions, trends, and growth forecasts, at an estimated 5% compound annual growth rate (CAGR) through 2020E. Among the key highlights is the expectation that margins will further strengthen amid a more stable growth environment, supported by recovering end markets and raw material benefits.

Looking across the three major types of coatings, sales growth was highest for both Architectural Coatings and original equipment manufacturers (OEM) in 2015, at 5.0%. In 2016, U.S. sales in the $11.2B architectural coatings segment are forecast to rise 4%, of which 3.5% can be attributed to volume growth. Since 2011, total construction spending has been on the rebound, including YoY growth of 10% in 2014, and 11% in 2015, reaching about $1.10T in total spending. This string of increases follows five years of declines – signaling a further growth potential for architectural coatings as construction, which is still below peak conditions, continues to recover.

Infrastructure spending and auto-related trends are important drivers for both the OEM and Special Purpose coatings segments. For the latter, automotive refinish accounts for more than one-third of sales. Auto and light-truck sales have recovered nicely from a trough of about 9.5MM units in early 2009, having reached a seasonally adjusted rate of about 17.4MM units as of May 2016.  Lower oil prices have put a dent in Oil & Gas activity, leading to Special Purpose coatings volume posting a modest decline in 2015. Auto refinish trends remain positive, with miles driven increased as a result of lower oil prices, leading to higher demand for refinish. Consistent with the 2015 outlook, volume is expected to be down 1-2% in 2016.