Coatings World - October 2008

International Coatings Scene

EUROPE

In fact some producers of coatings raw materials and intermediates were still trying to push through price rises in September in a final effort to compensate for earlier rises in their own input costs which included not only feedstock prices but also costs of energy and transport fuel.

“We will soon see the effects of the slowdown in demand begin to bite,” said Hodges. “Downstream users are destocking raw materials instead of buying because they know prices will fall. Producers will then reduce their output and we will get the beginnings of a downward spiral with everyone cutting back.”

In a recent report on the outlook for olefin and aromatic feedstocks mainly for polymer supply chains, IeC predicted there would be major overcapacity in this group of raw materials until 2013-15. In the event of a lengthy period of slow global economic growth the overcapacity could persist until 2015-20.

Prices of methanol—a base chemical for resin intermediates—are already dropping sharply as a result of an increase in global production capacity. By August spot methanol prices in Europe were around 50% lower than they were a year ago.

Coatings companies in Europe, which have been switching to renewables for some of their ingredients have found that oleochemicals are being hit even harder by the drop in crude oil prices than petrochemical derivatives

“Prices of vegetable oils, especially palm oil, and crude oil are very closely linked because they are feedstocks for biofuels,” said Sarah Hickingbottom, an oleochemicals analyst at the consultancy LMC International, Oxford, England. “It will stay that way until there are changes in policies by governments

giving subsidies or financial incentives for the use of biofuels.”

Prices of vegetable oils, such as palm oil and rape oilseed, both raw materials for biodiesel, are now based mainly on their calorific value. Prices of palm oil, which has a calorific value only ten percent below that of crude oil, have fallen even more sharply than oil prices with a 50% decline since reaching a peak in March.

Rape oilseed prices in Europe have also tumbled. “Crude oil prices look like they will remain under pressure in the short term and, until this changes, the rape oilseed market will struggle to recover,” said

Jonathan Lane, a UK-based rape oilseed trader.

The drop in feedstocks costs has come too late for some raw material and intermediate suppliers. Ciba Specialty Chemicals, a leading pigments and additives producer with headquarters in Basel, Switzerland, which made a loss in the second quarter of this year, agreed in September to be taken over by BASF of Germany, which is itself a major raw materials as well as coatings manufacturer. It is highly likely that other financially hard-pressed producers of coating raw materials will also be taken over during a period of restructuring of the European coatings supply chain. CW

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