an average 0.8 percent growth in the first
two quarters compared to the second half
of 2013 – similar to that in the Eastern
European countries of Poland, Hungary
and Latvia.
Nonetheless, on a year-on-year basis the European figures looked brighter.
GDP growth in the eurozone was 0.8 percent in the first half of this year while in
the whole of the EU it was 1.3 percent.
The UK’s economy expanded by just
over 3 percent in the first six month with
growth in Poland and Hungary rising by
close to 3. 5 percent.
In the European chemicals sector,
which includes coatings, first-quarter output surged by 3.1 percent year-on-year, its
biggest quarterly increase for two years
and the fourth consecutive quarterly increase. “The recovery is volatile,” warned
Kurt Bock, president of CEFIC, Europe’s
chemicals trade association, and chairman of BASF, which owns one of the region’s largest coatings businesses.
A major reason for the revival in production in chemicals and its major value
chains like coatings has been a mild winter, which contrasted with unusually cold
conditions a year ago. The weather has
benefitted the construction sector and, as
a result, decorative paints.
“2013 was a poor year for most
German coatings companies because the
hard and long winter caused an over-
all fall in output of close to 5 percent,”
explained Michael Bross, director and
spokesperson for the German Paint and
Printing Ink Association (VdL). “But
with spring coming in February, this year
will be much better.”
Output of exterior decorative paint
slumped by around 30 percent in the first
quarter of 2013. This year German pro-
duction of decorative paints is forecast by
VdF to rise by 3.1 percent – to 893,000
tons equivalent to 62 percent of total
coatings output – with that of exterior
coatings going up by 8 percent.
“If nothing dramatic happens, we can
assume that in 2014 almost all coatings
segments (will experience) a significant
improvement in sales,” Klaus Meffert,
VdF president, told the association’s re-
cent annual meeting.
In the industrial coatings sector, whose
output VdF is expecting to increase by
2.5 percent, it is now predicting rises of 3
percent or more in coatings for machin-
ery, electrical and electronic equipment
and automobiles and other vehicles.
The UK coatings industry is also en-
joying increased demand from a con-
struction sector which has recorded over
12 months of consecutives rises in output
and from an OEM segment where output
has risen by around 3. 5 percent in the
first half of the year.
Construction is also buoyant in parts
of Eastern Europe. Building activity is at
its higher in Poland since the 2008 crash.
The Hungarian market has been forecast
to grow by 10 percent this year.
Tikkurila, the Finnish decorative
and industrial coatings producer whose
main markets are Scandinavia, Eastern
Europe and Russia, reported increased
brand share in Poland and the Baltic
countries in the first half of this year
which helped push up the operating
profit margin of its West business unit
from 15. 5 percent in the same period
in 2013 to 17.1 percent.
A strong presence by PPG Industries
in Eastern Europe has helped the com-
pany steadily increase the sales margin of
the earnings before interest, tax, depre-
ciation and amortisation (EBITDA) in its
European architectural coatings business
from 11. 7 percent in 2010 to 14.1 per-
cent last year.
However, the big worry for coatings
companies active in Eastern Europe is
Russia, which has been one of the big-
gest growth areas in the European coat-
ings market. The country’s Economic
Ministry conceded in late August that its
economy is close to recession with rising
inflation due to sanctions related to the
Russian-Ukrainian conflict.
Tikkurila reported that in its East
business region, consisting primarily of
Russia, revenue dropped by 13. 5 percent
in the second quarter and by 8. 5 percent
in the first half of 2014.
“The volume growth in the Russian
decorative paints market will be very
low this year,” said Erkki Jaervinen, the
company’s president and chief executive.
Russian consumers are either postponing
paint purchases or switching to cheaper
and lower quality grades.
Hempel of Denmark has been among
a few Western European coatings com-
panies to press ahead with investment in
Russia by breaking ground earlier this
year for a plant at Ulyanovsk, 900 kilo-
metres east of Moscow.
However others are now turning
their backs on the country. “We had
been considering investing in produc-
tion facilities in Russia,” said a senior
executive in one European interna-
tional coatings company. “But now
with the Ukrainian crisis and other
factors an investment in Russia is no
longer a possibility.”
With a population of 143 million
and an economy which in GDP terms
is the ninth largest in the world, the
country has a coatings market which is
difficult to ignore, particularly when it
is close to your doorstep. Furthermore
when the underlying medium-term
trend across much of Europe is one
of weak demand coatings companies
in the region need large neighboring
markets like Russia with potentially
strong growth. CW
“Looming on the horizon is the danger that the Ukraine crisis
will trigger a long-term decline in demand for foreign-produced
coatings in Russia and the rest of the former Soviet Union.”
