Bracing For A Double-Dip Recession
After the recession
of 2008 coatings
producers are in a
better position to
weather the
impending
economic storm.
by Sean Milmo
European Correspondent
milmocw@rodpub.com
Much of Europe is now in the midst of an economic downturn, which is likely to plunge the region into its second recession in four years.
But most of Europe’s large and even
medium-sized coating companies, as well as
many of their raw material suppliers, seem to
have the financial strength to cope with it.
The coatings sector in most of Europe has re-covered sufficiently from the debacle of the
2008 financial crisis to regain margins in the
face of rising raw material costs. As a result
they have been able to build up adequate cash
reserves to see them through further economic
trouble. Many of their raw material suppliers
have been performing even better.
The 17-country eurozone forming the core
of the region is looking like it will move into a
double-dip recession this quarter, which economists believe will continue into next year.
Already the UK, a non-euro member of the
European Union, has entered a new recession.
Germany has been showing slight growth while
France has been flatlining. The economies of
Italy and Spain have been shrinking while
Greece, whose economy faces catastrophe, could
dive by seven percent this year.
“The economic outlook for Europe looks relatively grim at the moment,” said Alan Eastwood,
senior economist at the UK Chemical Industries
Association (CIA) and chairman of economic
forecasting task force of the Brussels-based European Chemical Industry Council (Cefic).
“But chemical companies, including coatings
producers and their raw material suppliers are
much better prepared than they were for the
2008 crisis,” Eastwood said. “They’ve been bat-
tening down the hatches and preparing for a
long haul through possible further financial dif-
ficulties ahead.”
In the first five months of this year produc-
tion of chemicals in Europe, including that of
coatings and other downstream chemical seg-
ments, declined by an average 2.1 percent, according Cefic.
Output of coatings and inks showed from
January to May an even bigger drop of six percent, which was 5.2 percent lower than the level
in May 2011, according to Cefic. Without a recovery in demand in the second half of this year,
coatings and inks output will return to the same
level prior to the post-2008 recovery.
On the other hand the Cefic figures reveal
that prices of coatings and inks went up by an
average six percent in the first five months of
this year, following a 5. 7 percent average rise
in 2011.
“What we have been seeing in the European
coatings sector are lower volumes with higher
prices, which is a response to high raw material
prices but may be hard to maintain much
longer,” said one UK-based analyst.
In fact there were signs of an easing in both
the prices of raw materials and coatings and
other downstream products in the summer.
“Our customers are reducing their inventories,
in expectation of falling prices due to declining
raw material costs,” said Kurt Bock, chairman
of BASF, both a coatings and raw materials producer, after the publication of the company’s
second quarter results in July.
Many European coatings companies have
adopted a strategy of increasing cash flow by focusing on margins rather than sales volumes. In
many cases margins are being maintained
through cost-cutting and restructuring programs
in European operations.
“Not much of the profits from relatively
strong margins are going into investment,”
said Paul Hodges, chairman of International
eChem (IeC), a London-based consultancy.
