Coatings World - April 2017

Europe

input costs in 2017 due to the infla-
tionary environment,” Ton Büchner,
AkzoNobel’s chief executive, told an
annual results investors’ meeting. “We
are taking appropriate measures to deal
with higher raw material prices in an in-
flationary environment.”
Coatings producers in Europe face the
problem of how to put up prices to offset
higher costs when demand in the region
only matches, at best, a GDP growth rate
of 1-2 percent.

Also, such is the structure of the supply chains for coatings raw materials in Europe that even a small rise in demand puts pressure on the availability of certain key chemicals causing quick movements in prices. But customers will not consider the demand increase strong enough to warrant prices rises for coatings.

AkzoNobel reported that in the fourth quarter of last year revenues from the price/mix for performance coatings fell by 3 percent and for decorative paints by 2 percent.

The surge in raw material costs is a test of the resilience of coatings producers because the rapidity of the price rises has made it even more difficult to pass them on to customers.

Throughout much of last year chemical prices, at least in Europe, were declining, particularly those for bulk petrochemicals which provide the building blocks for many of the chemicals used in coatings formulations.

The Brussels-based European Chemical Industry Council (Cefic) issued figures in March (2016) showing that average prices of chemicals declined by 3 percent in January-November last year.

However, since late 2016 a number of factors have combined to trigger an increase in raw material prices of unusual rapidity.

“Such price dynamics over such a short period have rarely been seen ( before), ” said Martin Engelmann, director-general of German Paint and Printing Ink Association (VdL), who estimates that the price rises will add around € 200 million to the German coatings industry’s costs.

BASF, the German-based leading
chemicals producer which is both a
raw materials supplier and a coatings
producer, estimated in February that
basic chemicals prices were already 40
percent higher than a year ago while
during 2016 they had dropped by 11
percent. “The price rises will con-
tinue in the first and second quarters
of this year,” Hans-Ulrich Engel, the
company’s chief financial officer, told
BASF’s annual press conference at
Ludwigshafen, Germany.

The big driver behind the increase has been the hike in oil prices which soared to a new high of over $50 per barrel in three months. This compared with $32 in early 2016 - an increase of 60 percent.

Higher oil prices have precipitated increases in prices of intermediates and other petrochemical derivatives which have been aggravated by currency changes particularly a stronger U.S. dollar.

In addition, in Europe and in China, which is a major supplier of organic pigments, there have been plant shutdowns caused by accidents and, in the case of China, a tightening of environmental regulations.

Exchange rate changes have been particularly severe in countries like the UK where a referendum vote in favor of leaving the European Union in mid-2016 led to a 15-20 percent drop in the value of the pound against the dollar and around 12 percent against the euro.

UK raw material prices generally increased by 21 percent in January this year to register the biggest rise in five years, according to the country’s Office for National Statistics (ONS).

“These latest findings indicate a dramatic change, with the current rate of increase being five times greater than the 4.2 percent rise seen just 6 months ago back in July last year,” said Tom Bowtell, chief executive of British Coatings Federation (BCF).

In the UK some of the biggest price increases have in solvents. The BCF’s most recent raw material prices survey for January 2017 show the three-monthly average prices for acetone going up 61 percent, n-butyl acetate up 40 percent and methyl isobutyl ketone (MIBK) 20 percent.

In the eurozone which covers most of the EU’s 28 member states, the price rises have been less steep. The VdL records a 6-percent rise since mid-2016 in Germany for binders based on acrylic, epoxy or alkyd resins, a 12 percent increase for solvents and 20 percent for zinc dust.

Similar price rises have been reported in the neighbouring eurozone-member Austria. “The chemical industry has to expect even more price increases on raw materials (with) further uncertainties and fluctuations,” said the Austrian Chemical Industry Association (FCIO), which represents coatings producers.

Among the biggest prices rises have been those for titanium dioxide which accounts for a large proportion of most coatings companies raw material costs. Since late last year in the eurozone countries TiO2 prices have gone up by over 15 percent while in the UK they have risen by 22 percent.

Part of this increase was due to a fire in January stopping production at a TiO2 plant at Pori, Finland, owned by Huntsman Corporation of the U.S. The incident could have a big impact on TiO2 prices in Europe throughout 2017.

But TiO2 producers, like suppliers of other important chemicals in coatings formulations, are also suffering from rises in their own raw material costs and are also determined to compensate for a period of low prices for their products.