Price Increases Offer No Relief
to the Bottom Line
Paint makers’ profit
burdened by rising
raw material prices.
by Sean Milmo
European Correspondent
milmocw@rodpub.com
Europe’s coatings companies, especially the multinational ones, are reasonably confi- dent they can continue to increase their
sales in the short- to medium-term, unless the
world is plunged into a second recession.
But they are much less optimistic about raising or even maintaining their profit levels because of the likelihood that they will be unable
to push up their prices to compensate for persistently high raw material costs.
They are hoping that they can keep on hiking
their prices in the fast growing markets of the
emerging economies in Asia, Latin America and
parts of Eastern Europe. But it will be more difficult to put up prices in the mature domestic
markets of Western Europe and some neighbouring areas of Eastern Europe.
As a result coatings companies will have to
step up their efforts to find alternative ways to
offsetting the impact of relentlessly high raw
material prices.
Like other developed regions, Europe is facing the prospect of a period of slow economic
growth as it struggles to grapple with the effects of the 2008 financial crisis, in particular
the austerity measures needed to reduce government debts.
“Downstream sectors in Europe like coatings are finding themselves in a position
they’ve never been in before,” said Alan East-wood, economics advisor to the UK Chemical
Industries Association (CIA). “They are in the
midst of a prolonged downturn with high
commodity prices.
“Previously when there have been downturns,
commodity prices have gone down,” he said. “But
now with the strength of the emerging economies,
particularly China, there are high commodity
prices because of continued strong demand.
There’s been no significant decline in raw materials prices, which has speeded up the recovery of
coatings and other manufacturers in Europe in
previous recessions.”
Europe’s leading coatings companies reported
in their interim results for the first half of this year
relatively healthy increases in revenue.
AkzoNobel’s sales of its two coatings operations in decorative and performance coatings,
which together account for around two thirds
of total group revenue, went up by eight percent and 10 percent respectively in the first half
of 2011.
By far the biggest rises, especially in the decorative business, were in Asia. Decorative sales
soared by 20 percent in the first half against five
percent in Europe.
Tikkurila of Finland, predominantly a decorative paints business active in Scandinavia
and Eastern Europe, recorded a 10 percent rise
in total sales in the first six months, with a 15
percent increase by its East unit covering
mainly Russia.
BASF Coatings increased sales by nine percent in the first half, while Jotun of Norway
raised revenue during the first four months of
the year by 13 percent.
However with most European coatings companies, the rise in revenues has contrasted with
declining profits, stemming mainly from an inability to match higher raw material costs with
higher prices for their own products.
Coatings raw materials prices are estimated
to have gone up by 20 percent in a year and by
60 percent in two years. European prices of ti-