Coatings World - December 2009

key industrial coatings segments.”

Tikkurila, the coatings operation of Kemira of Finland, has been continuing to make acquisitions in Eastern Europe in order to bolster its position in the emerging economies of the region.

Despite a sales decrease of 21% in the first nine months of the year, costs and investment cuts have enabled Tikkurila to maintain profit margins at levels similar to those of last year. It has reduced capital expenditure, excluding that on acquisitions, by 38%.

With investments being squeezed both by coatings companies and their suppliers, greater stress, however, could be placed in the short term on production capacity because of closures and curbs on expansions and the building of new plants. In particular supplies of coatings raw materials could become tighter, which will trigger more volatility in prices.

Supply chains will lengthen as raw materials have to be imported instead of being sourced from local producers who will have disappeared, slimmed down their product portfolio or decreased output.

“There is unlikely to be absolute shortages,” said Thomas. “There will be greater reliance on imports which would push up costs for formulators like coatings manufacturers. Most chemicals are now traded internationally, except inorganics like chlorine and its derivatives. Coating companies may have to reorganize the sourcing of their materials.”

Coatings companies will be hoping to see in Europe next year a revival in demand for automobiles and a recovery in construction, particularly in the sales of homes.

“Among the downstream sectors in Europe, coatings has taken one of the biggest hits this year because of its reliance on housing and the car markets which have both been hammered by the recession,” said Alan Eastwood, economic advisor to the UK Chemical Industries Association (CIA) and head of an economic forecasting group at the European Chemical Industry Council (Cefic).

In the UK, for example, where both housing and car production was severely impacted by the economic downturn, output of paints is predicted by Oxford Economics to have fallen by 19% this year

The outlook for European car sales in 2010 is uncertain because of the likelihood that European governments will be withdrawing “clunker” schemes under which motorists are given financial incentives to trade in old for new vehicles. These schemes have been helping to curb the fall in car sales across Europe.

“They may well have merely brought forward car pur-

EUROPE

International Coatings Scene

chases which were going to be made in 2010,” said Eastwood. “So there may be a corresponding decline in sales next year.”

Cefic is predicting an average 4.7% rise in output of chemicals, including downstream products like paints, next year. But this will be after a 12% fall in production this year.

“It’s going to take a relatively long time for the European economy to catch up after the recession,” said Thomas. “Chemicals production may not return to its levels in 2008 until 2013.

Consequently, coatings producers and their raw material suppliers in Europe have been preparing themselves for two to three years when they will require less capacity and resources than was needed prior to the financial crisis. One of the best ways of doing this has been by cutting variable costs—especially staffing and investment. But fixed costs are also being decreased. For the more resilient companies this downsizing will put them in a position of strength rather than weakness. CW

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