Costs - related to areas like more efficient manufacturing processes, applications, use of energy and logistics – were a major focus of attention at the European Coatings Show (ECS) in Nuremberg, Germany, in April.
The three-day event strengthened its position as the leading international coatings exhibition with a record attendance of 28,500 visitors from 42 countries and 1,024 exhibitors.
In particular, a big topic of discussions at the ECS was the way cheap oil had or had not led to underlying decreases in raw material costs.
Oil prices reached rock bottom in January at a level 50-60 percent below those in mid-2014, but since then they have started to creep up again, nullifying any downward trend in prices of petrochemical-derived materials.
By April the price of the European benchmark Brent crude was almost a third higher than it was at the beginning of the year, but still around 40 percent lower than it was in the summer of 2014.
“Prices of raw materials based on petrochemicals did go down but not by nearly as much as the big reduction in oil prices,” said a marketing executive of a coatings additives producer at the exhibition. “Now we’re seeing the oil prices going back up again and prices for some of our raw materials as well. There’s a lot of uncertainty about raw material costs.”
A key issue is how much the price differentials between oil-based materials and those not linked to oil will change because of the sharp drop in costs of crude.
Suppliers of biomaterials already had to sell their products at a premium to petrochemical-derived materials even when oil was being charged at over $100 per barrel. Now the gap has been widening after years of trying to narrow it.
In segments reliant on petrochemical-based material, the effects of less expensive oil has been more marked than in others. Coatings with a high solvents content, for example, should have enjoyed improved margins.
However, overall, cheap oil has provided fewer benefits than initially expected for coatings producers and suppliers of intermediates, additives and other products further up the value chain than base chemicals.
Another major factor in determining raw material costs since mid-2014 has been the weakening of the euro, used by the majority of countries in the European Union, against the U.S. dollar. By the end of the first quarter of 2015, the euro was worth around 20 percent less in dollars – the currency on which prices for crude oil and many other commodities are based – than in the second quarter of last year.
In addition, poor demand over the last several months in Europe has led to a general softening of raw material prices.
Now amidst signs of an improvement in the eurozone’s economy, demand has been picking up in certain segments reinforcing an upward pressure on prices. In some cases this pressure has been aggravated by shortages.
“We’ve been seeing shortages of acrylic acids because of high demand for products in their value chain,” said Jens-Uwe Kahl, managing director of Jobachem GmbH, a German-based distributor. “Some acrylics suppliers are now sold out for as long as two months.”
Among the segments in which there is a much stronger demand for raw materials are those required for UV coatings. “Demand for UV coatings and materials is currently around three times higher than the market as a whole,” said Kahl.
Producers of titanium dixode are hoping that after a period of low TiO2 prices a revival in demand across a broad range of coatings sector will help them raise prices. Weak demand has been squeezing margins in the whole value chain for the pigment from the feedstock materials of titanium and ilmenite to the TiO2 itself.
“Some TiO2 exporters into Europe have been either pulling out of the region or have reduced volumes because of a combination of poor demand and the low euro,” explained Emilio Sambi, sales director at Macri Chemicals, an Italian-based TiO2 distributor. “There’s no sign of any tightness in supplies as a result of decreased imports, expect perhaps in parts of Eastern Europe. Producers will be lucky to push through any prices rises. We’ll probably have to wait until next year for any significant price increases.”
Improved demand will help coating and raw materials producers in some sectors to claw back any ground they may have lost to products, such as some solventborne coatings, which have been able to take greater advantage of the oil-price drop.
Resins producer Hexion Inc. introduced at the exhibition a new epoxy resin dispersion, which it claims closes the cost-versus-performance gap between water- and solventborne technologies by delivering comparable corrosion resistance and substrate adhesion.
“There’s strong demand for epoxy resins in the booming wind turbine market in Europe at the moment while there’s also growth in demand for them in the European construction sector,” said Dan Weinmann, Hexion’s global segment leader.
“Solvent prices have not been falling as much as expected after the decline in oil prices,” he added. “There’re many factors beside the oil prices which drive solvent prices such as logistics and the need for special storage facilities. We think the cost gap between solvent- and waterborne will disappear.”
Raw material suppliers showed at the ECS how much they have shifted their strategies to concentrate on reducing overall production costs. As a result they have been putting far less emphasis on selling prices.
A group of suppliers led by Alberdingk Boley GmbH, a dispersions and renewables specialist, Kronos International, the TiO2 producer, and Altana’s Byk Additives & Instruments business used the exhibition to launch a new alliance called Network Modular Technology (MOFA).
Instead of providing customers with individual raw materials, MOFA companies will supply packages which combine their products as semi-finished goods for specific functions.
“The costs of the individual raw materials within each package may be higher than the current selling price because of the costs of the work of MOFA companies in the design and production of each one,” said Wolfgang Koenner, a manager at Kronos’ research services. “It will save MOFA customers considerable production, storage and energy costs. The time of a coating production process normally lasting 3-4 hours could be reduced to 20 minutes.”
If successful, the MOFA concept could lead to radical changes in the way coatings supply chains operate because raw material costs would become independent of the prices of the individual raw materials themselves.
