Chemicals · Specialty Chemicals
Pricing Power and Raw-Material Pass-Through
The Scope pass-through convention, filed FY2025 price/volume bridges at ECL, PPG and SHW, gross margin stability as proof, and raw-material shock inputs.
Selborne Research · Specialty Chemicals coverage: 7 guides, 6 company profiles, a primer and Excel model
Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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Pass-Through Is the First Specialty Screen
The first question to ask of a specialty chemical company is simple: when raw-material costs rise, do its selling prices follow? Scope Ratings, a European credit rating agency, treats automatic pass-through as characteristic of specialty producers. Commodity producers absorb feedstock moves in their margin, because the market sets their selling price.
The filings give a two-part test. The sales bridge splits organic growth (growth excluding currency, acquisitions and disposals) into volume and price; the gross margin shows whether the price was enough. A company that passes costs through shows a positive price line and a steady gross margin. One that behaves like a commodity producer shows volume up and price down, or a margin that swings.
Filed FY2025 Price/Volume Bridges
| Company | Organic / comparable growth | Volume | Price |
|---|---|---|---|
| Ecolab | +3% fixed-currency organic | +1% | +2% “value pricing” |
| PPG | +2% organic | +1% | +1% |
| DuPont (continuing ops) | +2% organic | +3% | −1% |
| IFF | Comparable currency-neutral +2% | Not filed for the group | Not filed for the group |
| Sherwin-Williams, Paint Stores Group | Segment net sales +3.2%; stores open over a year +1.7% | Low-single-digit decline | Mid-single-digit % rise |
| Albemarle | Net sales −4% (reported) | +7% | Lower lithium prices, no percentage given |
Each company’s own growth definition, FY2025. Value pricing is Ecolab’s term for its price increases. Sherwin-Williams files the split for its Paint Stores Group, its chain of company-owned paint stores, but not for the group, whose net sales rose 2.1%.
Ecolab’s bridge is the cleanest full-year example: organic growth of +3%, two-thirds of it from price. An earlier quarter shows the mechanism more sharply. In Q1 2024 Ecolab’s organic sales grew 5%, pricing contributed 3 points, and gross margin rose 500 bps.
Divestitures took 3% off PPG’s reported net sales, which were flat, but they do not touch the organic figures. In April 2026 PPG announced global increases of up to 20% on paints, coatings and specialty products.
Sherwin-Williams’ Paint Stores Group shows the mechanism in a store channel: segment sales rose because higher prices more than covered lower volume.
Gross Margin as Pass-Through Proof
The gross margin is the second half of the test. In FY2025 Ecolab’s rose 100 bps, Sherwin-Williams’ 30 bps and PPG’s slipped 30 bps: prices following costs, margins holding within a point. Albemarle’s moved from 1.2% to 13.0% as its input costs, led by spodumene (lithium ore concentrate), fell faster than its lithium prices. A swing of more than ten points is a commodity price at work. The specialty gross margin guide ranks all six in one table and explains where their bases differ.
Raw-Material Shock Inputs
A pass-through model shocks the cost of what the company buys. For a coatings business that basket is resins, solvents and pigments, many of them made from petrochemicals. The long-run price the primer’s Excel model assumes for US Gulf Coast ethylene, the petrochemical many resins start from, is 30¢/lb, a reference for how large a shock to test. The ethylene and polyethylene spreads guide sets out the price assumptions used across the chemicals guides.
For the lithium producer the model’s long-run price is $11.50/kg of lithium carbonate equivalent (LCE), the unit lithium is reported in. That is Albemarle’s FY2025 average realised price for its Energy Storage segment, from its Q4 2025 earnings presentation: one producer’s figure. The same slide puts the FY2025 market average at $10/kg.
Pass-Through Lags
Coatings companies say they pass raw-material costs on with a lag, but give no length. Lag figures of 90 or 120 days for Sherwin-Williams and PPG come from broker notes, so treat the lag as your own assumption.
Worked Example: Pricing-Power Coatings Co.
A fictional company, the coatings business in the primer’s Excel model:
| Parameter | Value |
|---|---|
| Revenue | $4.0B |
| EBITDA margin | 18% ($720M) |
| Organic growth | 3.5% (2% price / 1.5% volume) |
| Raw materials | 55% of revenue |
| Pass-through | 98% |
| Net debt | $1,400M (1.9x EBITDA) |
A 10% rise in the raw-material basket adds 0.55 × 10% = 5.5 points of revenue to costs. Passing 98% on leaves 5.5 × 2% = 0.11 points on the margin, so EBITDA margin moves from 18.0% to 17.89%. At 80% pass-through the hit is 1.1 points, ten times larger.
If a company’s price contribution turns negative while volume rises, revisit the specialty vs commodity screen.
Specialty Chemicals Sector Primer
A pricing-power compounder and a commodity-linked producer run through the same ten-year DCF, to show when a specialty label has earned its multiple.
- 15 sections, from pass-through and margin stability to a ten-year DCF and the ROIC test behind a premium multiple
- 40 pages
- a pricing-power coatings company and a commodity-linked lithium producer
- 2 worked archetypes
- listed specialty groups on filed organic growth, price contribution and margins
- 6-company screen
The Excel model is the primer's specialty-versus-commodity test live across 12 sheets: a pricing-power coatings archetype valued on a ten-year DCF with organic growth, a stable margin and working capital; a commodity-linked lithium archetype whose price reverts from a trough to a long-run level, valued on the same DCF with a market multiple as a cross-check; a raw-material pass-through test; a derived multiple from ROIC, growth and WACC; ROIC-versus-WACC and leverage screens; and a live sensitivity grid. Change the margin or the terminal growth rate and the value moves; change the pass-through rate and the margin a cost shock takes moves with it.
See what's in the Specialty Chemicals Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Chemicals industries
Frequently Asked Questions
- How do specialty chemical producers pass through raw-material inflation?
- The chemicals methodology of Scope Ratings, a European credit rating agency, treats automatic raw-material pass-through as a common specialty feature: producers raise selling prices when feedstock, energy or logistics costs rise, often through contractual or formula-based mechanisms. Filed FY2025 bridges show the outcome: Ecolab value pricing +2% on organic growth of +3%; PPG price +1% on organic growth of +2%; Sherwin-Williams' Paint Stores Group price up by a mid-single-digit percentage with volume down by a low-single-digit percentage.
- What gross margin movement confirms successful pass-through?
- A stable or rising gross margin, read beside a positive price line in the sales bridge. In FY2025 Ecolab's gross margin rose 100 bps to 44.5% with price contributing +2%; Sherwin-Williams' rose 30 bps to 48.8%. Coatings and services gross margins usually move less than 100 bps a year; a move above 200 bps usually points to commodity prices or inventory effects (Albemarle's gross margin went from 1.2% to 13.0% across FY2024-25).
- How should a model stress-test pass-through?
- Shock the company's own raw-material basket, not its selling price, then apply a pass-through rate. The margin hit is the basket's share of revenue times the shock times the share not passed on: a coatings business with raw materials at 55% of revenue, a 10% cost shock and 98% pass-through loses 0.55 × 10% × 2% = 0.11 points of margin. A long-run ethylene price, such as the 30¢/lb the primer's Excel model assumes, helps size the shock.
- Did PPG announce major price increases in 2026?
- Yes. PPG's 15 April 2026 press release announced global price increases of up to 20% on paints, coatings and specialty products, already in progress. That followed FY2025 organic sales growth of +2%, made of +1% volume and +1% price, and a gross margin of 41.3%.
Read next
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Specialty vs Commodity Chemicals
Performance versus molecule-cost economics; S&P risk scores specialty '2' vs commodity '4'; filed margin spreads across SHW, ECL, PPG, DD, IFF and ALB.
Specialty Chemicals Gross Margins by Company
Six filers ranked on FY2025 gross margin with FY2024 beside it: why the order follows what each sells and how, where the bases differ, and when a change reflects price.
See it applied
These company profiles apply the concepts from this guide to real public companies.