Coatings World - July 2008

International Coatings Scene

EUROPE

“The introduction of energy surcharges by producers of titanium dioxide (TiO₂), resins and other raw materials for coatings and other sectors could drive up price pressures even further.”

companies in Western Europe have been able keep down rises in TiO₂prices to below those in dollar-denominated areas of Asia. But TiO₂producers like DuPont and Huntsman Corporation have forced up prices for the pigment in Western Europe by recently introducing nonnegotiable energy surcharges.

“In the past energy surcharges have been a way of embedding inflation into the pricing system,” said Thomas. “The last time energy surcharges were introduced widely was during the bad days of high inflation in the 1970s, which led to a big drop in demand in the early 1980s.”

Inflation is now going up to levels which some economists believe could become dangerous. In the euro zone it has risen to 3.7%, its highest level for 16 years.

It is beginning to rise sharply in the export markets where there has been strong demand for European coatings. In Russia, Ukraine, Turkey and other markets on the periphery of the European Union inflation rates have reached double-digit levels. In developing Asia, including the booming coatings markets of India and China, consumer inflation was averaging 7.5% in April, almost double the level of a year ago and close to a ten-year high.

“Once inflation hits a high level, people are no longer so willing to pay higher prices,” said Meinche. “Instead they want to pay as low prices as possible.”

In addition demand begins to falter

as customers delay purchases because prices are falling and rely more on supplies from their own inventories.

“The latest rises in the oil prices have been a big impetus behind growth in demand because of the tendency for companies to buy when prices are going up,” said Thomas. “But once oil prices start to go down which could happen soon companies could immediately start destocking and some prices, particularly those of petrochemical derivatives which are supplied on short-term contracts, could come down fairly quickly.”

European coatings producers will be paying less for their raw materials. But they will also have the possible disadvantage of large inventories

of raw materials purchased at a time of higher prices. Far worse is that the strength of the euro and other European currencies will be a big handicap in export markets where prices are tumbling.

“The negative impact will not only be in export markets but in the domestic markets as well where low-cost imports will be much more attractive,” said Meinche.

The European chemical industry and its major downstream customer sectors like coatings have been doing well so far this year because the world economy is growing at a relatively healthy rate. But once it slows down, market conditions could become much tougher. CW

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