International Coatings Scene
EUROPE
BY SEAN MILMO
EUROPEAN CORRESPONDENT
MILMOCW@RODPUB.COM
Weaker oil prices: a mixed blessing
A look at
how the
recent drop
in oil prices
is affecting
the coatings
sector.
The coatings sector in Europe was
only a few months ago struggling to
cope with the effects of soaring costs
of their raw materials in the wake of oil
price hikes.
By September the outlook for raw material
costs had become much brighter. Coatings
producers were facing the prospect of a period of soft prices for crude oil and its derivatives, as well as for oleochemicals.
After falling by around a third since the
summer to below $100 a barrel, oil prices
jumped by $16 a barrel in the third week of
September, its biggest ever one-day gain. But
analysts observed that the underlying trend
continued to be one of much lower oil prices
than those prevailing in the first half of the
year because of the slowdown in the global
economy.
Nonetheless weaker oil prices, which now
affect not only petrochemical derivatives but
also chemicals sourced from vegetable oils
and other renewable raw materials, could be
a mixed blessing for the coatings industry in
Europe.
The ability of paint companies to benefit
quickly from the oil price decrease will
depend on how much they have previously
been building up their inventories of raw
materials and intermediates.
“A lot of coatings and other downstream
companies will have stocked up on raw materials in the summer in the expectation that
oil prices would rise well above $150 a barrel
and perhaps even as high as $200,” said Paul
Hodges, chairman of International eChem, a
London-based chemicals consultancy.
“Now some of these companies could be in
trouble because they will have highly-priced inventories at a time when demand
among their end-user customers is declining due to the drop in economic growth in
Europe,” he added.
In the longer term there are concerns
that raw material producers in Europe will
be forced by a possible lengthy drop in sales
to shut production capacity, which will
cause shortages of supplies of certain chemicals once the region’s economies recover.
Over the last few years the coatings sector
has had to endure scarcities in categories like
resin intermediates as a result of closures following the last trough in the basic chemicals
cycle six to seven years ago.
“There will be a lot of overcapacity in
some product areas, particularly due to
new plants being built in the Middle East
and Asia, so closures will inevitably happen,” said Hodges. “Supply and demand is
already out of kilter and with the global
economic downturn the imbalance will get
even worse.”
The latest statistics issued in September
by the European Chemical Industry Council
(Cefic), which covers base and specialty
chemicals and downstream products like
coatings showed output of paints and inks
dropping by 2.6% in June compared with a
year ago. In the first six months of this year
production of paints and inks went down by
almost three percent.
Output of base chemicals was flat in the
first half while specialty chemicals production went down by 1.3% in January to June
and by three percent in June itself. Dyes and
pigment output fell by six percent in the first
six months.
However production of chemicals and coatings has been falling while prices have
remained high, indicating a time lag between
a decrease in demand and price cuts, particularly in raw materials.
In July chemical prices were over eight
percent higher than a year ago. But prices of
paints and inks were less than one percent
higher than 12 months previously.
