Jan 2018

Riding Construction

Prepainted metals saw modest growth in 2017, but positive outlooks in a few key end markets have coil coaters cautiously optimistic about the year ahead.

By Jonathan Samples, Associate Editor

It was a good, not great, year for prepainted metals. Residential construction, a main driver of the prepaint market, finished 2017 with high single-digit growth, while smaller subsectors such as appliances made similar strides. Overall, the prepaint market only saw moderate gains last year, but coil coaters of all types are holding on to high expectations in 2018.

“The prepainted market has performed as expected,” Laura Lanza, president of the National Coil Coaters Association, says of the market in 2017. “As long as the trend is toward single-family homes and commercial buildings continue to rise, then the outlook for prepainted aluminum and steel will continue to rise.”

According to the NCCA, the prepaint market grew approximately 3 percent in 2017. That growth was primarily due to the rising popularity of metal roofing and ongoing recovery in the building and construction sector, which alone accounts for roughly three-quarters of all prepainted steel and half of all prepainted aluminum. However, increased competition, market saturation and a struggling transportation industry have kept the prepaint market from achieving larger gains. Despite these challenges, coil coaters and industry analysts see innovation, market expansion, new applications and a positive economic outlook in the construction sector as promising signs for the future.

“I think the prepaint market in aggregate is growing,” says Michael Noble, chief commercial officer at Material Sciences Corp.—an Elk Grove Village, Ill.-based service center and coil coater that operates five paint lines throughout the U.S. “We see sequential prepaint growth the next few years.”

His company is in the process of developing new paint and laminating technologies, which Noble sees as vital to MSC’s continued success in the prepaint and coil coating markets. “The growth that we are enjoying is a function of our technology and our service. Innovation and service is what separates us from everybody else.”

One prepaint end market that has benefited tremendously from both new technologies and market growth is metal roofing. Total market share of metal roofing in the residential retrofit market grew to 14 percent in 2016, according to Dodge Data & Analytics. That’s important because almost all metal roofing material is prepainted.

“After all of our research and analysis and looking at the current numbers that just came out from Dodge, we believe metal roofing in the residential arena can reach 20 percent market share by 2020,” says Renee Ramey, executive director of the Metal Roofing Alliance.

Part of the reason metal roofing has become increasingly popular in residential construction and remodeling is due to MRA’s education and marketing efforts. Several years ago, the organization set its 20 percent by 2020 goal. If achieved, it would almost guarantee more business for coil coaters and distributors of prepainted metal because roofing is one of prepaint’s largest end markets. To this end, MRA is engaged in an ongoing promotional campaign to educate consumers on the benefits of metal roofing. That campaign includes everything from social media and digital marketing to developing and distributing an array of informational material, much of which is housed on the organization’s website, www.metalroofing.com.

“I think our continued promotion from an educational perspective to homeowners has moved the needle in the industry,” says Ramey. “It’s creating better acceptance, it’s improving the perceptions of metal roofing, and I think that’s helping the metal roofing industry as a whole grow within the residential arena.”

Within the construction sector, roofing and siding is far and away the largest single application of prepainted metal. According to Christopher Plummer, managing director at market research firm Metal Strategies Inc., this sector accounts for more than 40 percent of all prepainted metal in the U.S. And whether you’re talking about residential or nonresidential, he says the prepaint-intensive sectors within the construction market are performing quite well. “The critical submarkets within the residential and nonresidential categories that are the dominant users of prepainted metal for roofing and siding are up this year.”

As a whole, the residential construction market was on track to finish the year strong, up 2.8 percent through September. Nonresidential, on the other hand, appeared to be relatively flat last year, down 0.1 percent through the first nine months of 2017, according to Metal Strategies Inc. But because residential construction is a major driver of other construction, such as commercial and public works, Plummer notes that the health of this sector is particularly important to the prepaint industry.

The good news is that the data suggest residential construction is trending in the right direction. According to figures released by the Census Bureau and the Department of Housing and Urban Development, single family starts rose 5.3 percent in November to a seasonally adjusted rate of 930,000 – the highest monthly annual rate since the Great Recession.

“I think that the residential market, the housing market, is continuing to grow, but it’s got to be single-family houses that rise,” says Lanza. “Single-family home growth drives our prepainted market.”

Numerous factors, including rising employment and the fact that older millennials are starting to buy homes, bode well for the residential market. Single-family housing is expected to increase 9 percent in dollars next year, according to Dodge Data & Analytics. While another indicator of future construction conditions, single-family permits, was up 10 percent year to date through November. “With low unemployment and increasing owner-occupied household formation, single-family starts should continue to make gains in 2018,” says Robert Dietz, chief economist at the National Association of Home Builders.

That could also mean good news for the nonresidential market, which had a disappointing year in 2017. Along with single-family homes, commercial construction is a huge market for prepainted metal. Take metal roofing, for example. Even though it continues to make headway in the residential retrofit market, the vast majority of metal roofing goes toward nonresidential construction projects. Another prepainted metal product that is heavily used in the nonresidential sector is insulated metal panels. Distributors of these two products would certainly benefit from a healthy commercial construction market, and it stands to reason that recovery in this sector would be welcomed by coil coaters and painted metal suppliers alike.

Lucky for them, analysts are predicting some growth this year. “We’re expecting the construction market to do a bit better in 2018 than it did in 2017.” says Plummer. “Our view is that the underlying fundamentals, along with where we are in the cycle, would suggest that we’ve got at least one if not two more decent years for both residential and nonresidential construction.” Plummer puts that growth somewhere in the low single digits, adding that steel and aluminum use in the entire construction sector should be up approximately 2.5 percent in 2018.

That prediction is supported by analysts at Dodge, who expect total U.S. construction starts in 2018 to climb to $765 billion. “There are several positive factors which suggest that the construction expansion has further room to proceed,” says Robert Murray, chief economist at Dodge Data & Analytics. “Overall, the year 2018 is likely to show some construction project types register gains, while other project types settle back, with the end result being a 3 percent increase for total construction starts. By major sector, gains are predicted for residential building (up 4 percent) and nonresidential building (up 2 percent).”

The remaining prepaint market includes a variety of automotive and consumer and commercial products applications, such as appliance, HVAC and lighting products. Behind construction, transportation accounts for 15 percent of the prepaint market, consumer and commercial products account for 6 percent, and the remaining 4 percent is a variety of miscellaneous applications, according to Metal Strategies Inc.

Within the transportation market, about 85 percent of prepaint applications fall into the light vehicle category, says Plummer. Unfortunately, light vehicle production throughout the NAFTA region was down 3.9 percent through October. In the U.S., year-to-date production through October was down 8.2 percent.

Still, some coil coaters are finding ways to grow their transportation business by developing new technologies and finding novel ways to apply prepainted metal within the automotive sector. Material Sciences Corp. has begun laminating multimetals in order to help lightweight vehicles and control acoustical engineering in both the Class 8 truck and North American car markets.

“We’re bringing multimetals together to complete a control acoustics in a given area,” says Noble, who explains that MSC’s Quiet Steel and Quiet Aluminum products are laminated on the same lines used to paint metal.

And within transportation, the recreational vehicle market is an area where MSC and other coil coaters are seeing growth. “The hot market that we saw in 2017 and gaining speed in 2018 is the recreational vehicle market,” says Noble.

Lanza, who is also sales director of coated products at Cleveland-based aluminum maker Aleris, agrees. “The RV market has come back,” she says, noting that a lot of these vehicles are made using prepainted aluminum. “The re-emergence of people having money to spend on those types of vehicles and the fact that you can afford gas has helped for sure.”

Despite these few bright spots, the overall outlook for the transportation sector is still underwhelming. Plummer predicts the market will be down between 3 percent and 5 percent this year. “We’re expecting further declines, but moderate declines, for the U.S. and Canada in 2018,” he says. “We think this will likely be a relatively moderate recession.”

Regardless of the market they’re selling into, there are several additional factors that could affect the prepaint market in the upcoming year. Competition, whether it be from other materials or other coil coaters, is high on the list of concerns.

Joe Wilson, vice president of sales in building products at Liberty Steel Products, Jackson, Ohio, is looking at the cost of paint and how that could affect the metal roofing market in the long term. “As the cost of paint goes up, homeowners and the people who are putting up buildings start looking at the cost of, say, shingles vs. the cost of a metal roof,” he explains. “If that spread starts to grow too much, then you’ll see some of the market going back towards shingled roofs, compared to metal roofs.”

Competition among coil coaters is another fact of life in the prepaint market, as growing saturation means more and more companies are vying for the same business. “Without a doubt, the biggest change factor in our industry in the past few years has been the steel mills’ vertical integration into our space, as well as our customers’ space,” says Noble. “In the old days, all of that steel that they manufactured would have gone to a coil coating line. But now they paint a lot of that material, so a lot of that consumption has been internalized.”

Wilson feels there are some advantages and disadvantages to the emergence of mills within the marketplace. Despite not owning its own paint lines, Liberty Steel sells prepainted steel to a variety of end users. “From a supply standpoint, having the ability to go to a mill that also does coil coating, if you want to buy a single-invoice prepainted package, it’s good to have that option,” he says. “But it also does create a little more competition here because now some of those mills, if they choose, can go out and call directly on some of our end customers.”

In 2018, the prepaint market could benefit from potential trade restriction on foreign metal, as well the recent hurricanes in Florida and Houston and ongoing wildfires in California. “Unfortunately, we’ve had some significant natural disasters that are going to contribute to considerable market demand next year for coil-coated products,” says Noble. “I don’t think anybody fully understands the economic impact of all of that natural disaster activity yet. But if I had to put a number out, I would estimate 10-12 percent.”

Removing both of these factors, the prepaint market is still poised for growth in 2018. Continued recovery in the construction market, as well as increased application of prepainted metal in a number of product categories, is setting the stage for another good year. “If building and construction continues to grow, then the prepaint market will continue to grow overall,” says Lanza.

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Thursday, February 22, 2018