tanium dioxide (TiO2) have risen by
around 40 percent in 18 months.
In AkzoNobel’s decorative paints unit,
EBITDA (earnings before tax, interest, depreciation and amortization) dropped by
seven percent in the second quarter and
by two percent in the first half. With performance coatings, EBITDA fell by six
percent in the first half and by 11 percent
in the second quarter.
Tikkurila’s operating profit declined by
seven percent in the first half, resulting in
a virtual two point decrease in profit margin to 10.2 percent.
“Our profitability in the second quarter was weakened by the continued challenging developments in prices and
availability of key raw materials,” said
Erkki Jaervinen, Tikkurila’s president and
chief executive.
Interim figures from BASF, the world’s
largest chemicals company, which is backward integrated into intermediates and
petrochemicals, demonstrated how the
flexibility in pricing in base chemicals
gradually diminishes further down the
supply chain.
In its base chemicals division, mostly
comprising petrochemicals, sales rose by
20 percent in the first half with operating
profit up by 25 percent. Only two percent
of the additional revenue was due to volume increases with 20 percent coming
from price rises, partially offset by currency effects.
Its dispersions and pigments business
expanded sales by 13 percent after it was
“largely able to offset high raw material
costs with price increases”, according to
the company.
However it admits that with its coat-
ings operation, for which it does not re-
veal profit figures, margins have been
squeezed by an inability to “fully pass on
high raw material costs.”
Uncertainties about trends in the
global economy in the next few months
will make coatings customers even more
reluctant to accept higher prices. “If the
global economy stays turbulent it will be
even more difficult to push through price
increases for our products,” said Morten
Fon, Jotun’s chief executive.
Nonetheless there will be more room for
movement in some markets than in others.
“The mechanism for price discussions is
different in mature and emerging markets,”
said Jaervinen. “In mature markets, like
Finland and Scandinavia, the price window
is open only a few times a year. In emerging
markets the system is more flexible.”
Even if coatings companies achieve
price rises, there are doubts about how
much customers will tolerate them.
“What is the extent of price elasticity?”
asked Jaervinen. “Will constantly rising
prices lead to ‘downtrading’—i.e. con-
sumers preferring cheaper, somewhat
lower quality products.”
Most coatings companies are looking
at alternative options for reducing the
impact of high raw material costs like
changing formulations. They are en-
deavoring to tackle their concerns about
availability of raw materials by building
closer ties with suppliers.
“We are trying to market ourselves to
suppliers as a growth opportunity for
them because we have been able to in-
crease our sales every year—even during
the financial crisis,” said Fon. “When there
is a lack of availability, we want to ensure
we are given priority.”
AkzoNobel recently took the surpris-
ing step of expanding upstream into TiO2
when it formed a partnership with
Guangxi CAVA Titanium Industry Co.
Ltd. to build a 100,000 ton-a-year TiO2
plant in China.
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