production has been falling by more than
10-20 percent over the last two years.
In Hungary construction has been recovering this year with production in the
second quarter almost 11 percent higher
than in the same period in 2012. But this
was still approximately 8 percent lower
than in 2010, according to figures from
Eurostat, the EU’s statistical service.
“The construction sector had been
virtually dead until quite recently when
there was a small revival in investment,”
said one Hungarian analyst.
In Romania a rise in construction
activity this year has not yet generated
higher decorative coatings sales in value
terms. In the first half of 2013 growth by
volume went up by 3-5 percent but by
value dropped by 2-4 percent due to low
prices, said Yannidis.
“Since 2008, when Romania’s decorative paints market was worth €210 million ($295 million) it has been constantly
shrinking due to the crisis in the country’s
real estate construction sector, the loss
of consumers purchasing power and the
overall decline in industrial production,”
said Yannidis.
In Serbia, due to join the EU shortly,
decorative paints sales plummeted by 25
percent last year and have continued to
contract by 15 percent in 2013, he adds.
Vitex-Yannidis opened just before the
2008 financial debacle a new € 30 million coatings plant at its headquarters in
Aspropyrgos near Athens with an annual
capacity of 24,000 tons. The strategy was
to use the facility to consolidate a leading
position in the Greek decorative market
while expanding exports in southeast
Europe where it had established sales
and distribution networks in Romania,
Bulgaria and Serbia.
While these Eastern European markets
collapsed, demand for decorative paints
in Greece went into freefall in the wake
of severe government austerity measures
to deal with a national debt crisis.
The sales of Vitex-Yannidis dived by
half with the company making its first
losses in its 80-year history. It has been
restructuring to focus more sharply on
decorative paints, especially in the Greek
market where there are signs that a 55-60
percent slump in sales is starting to flat-
ten out.
“2013 has been a good year for us,”
said Yannidia. “Our sales figures are posi-
tive – up an estimated 4 percent by the
year end-- for the first time for six years.
The constant restructuring we have been
doing is also paying off and our result
will be positive again.”
The company last year extended its toll
manufacturing activities at Aspropyrgos
to enable other international coatings
producers to use it as a base to supply the
Eastern European market.
“This type of outsourcing is a sign
of companies downsizing their ex-
port activities in the region,” explained
Yannidis. “We’ve been talking to one
company which is thinking of closing
a plant. With a toll manufacturing ar-
rangement it can at least maintain some
presence in the market.”
Russia is one major Eastern European
country that has been attaining growth
well above EU average rates in recent
years although not so high as the 8 per-
cent annual peaks before 2008. This is
reflected in high levels of local demand
for coatings.
“Economic growth in Russia has been
slowing down slightly this year but it is
still the fastest growing coatings market
in Eastern Europe,” said Patrik Gallen,
head of the coatings business at Bang &
Bonsomer, a Finnish-based chemicals distributor whose sales to coatings producers in Russia have been increasing at
over 10 percent annually.
“The Russian market has been attracting the leading multinational and regional
coatings companies because when demand
in much of the rest of Europe is flat this is
a major Eastern European country showing some kind of growth,” he added.
Top coatings players have been stepping up their investment in the country. “We are now investing continuously
in our business in Russia in the area of
brands, supply chain, new products and
our distribution network,” said Jan-Piet
van Kesteren, AkzoNobel’s decorative paints regional director for Eastern
Europe and Africa.
Western European companies have
been exploiting a rising preference in
the Russian coatings market for quality products. Russia now accounts for
around 40 percent of sales of the Finnish
coatings company Tikkurila which targets the premium-priced part of the country’s market.
A liking for quality also helps distribu-
tors of foreign-made speciality chemicals
for which Russian production is unable
to meet demand. “We have been able to
benefit from the growth of the upper-end
of the market,” said Gallen. “The higher
the quality of the coatings the more there
is a need for speciality chemicals which
are not produced locally.”
Poland is another large Eastern
European country that has quickly
recovered from the 2008 crisis. But
even it has been vulnerable to reversals,
particularly in the construction sec-
tor. In the second quarter of this year
construction production dropped to 23
percent below the level a year ago, ac-
cording to Eurostat.
Russia, which is susceptible to changes
in prices of oil and gas, the cornerstone of
its economy, has been having its blips as
well. The World Bank is predicting that
its GDP growth will drop by almost half
to 1.8 percent this year but will bounce
back to 3.1 percent in 2014.
The underlying trend in Eastern
Europe, nonetheless, even in the countries
with more thriving economies, like Russia
and Poland, is one of steadily decreasing
GDP growth rates. As these are closely
linked to paint demand, that means slower rises in the region in coatings sales. CW
“The underlying trend in Eastern Europe...is one of steadily
decreasing GDP growth rates.”
